Real estate investments can be set up to generate one or more types of returns:
• Cash flow to owners (yield or return on investment).
• Appreciation of owner’s capital (capital appreciation).
• Shelter of cash flow and/or other income from taxation (tax benefits).
• Preservation of capital (safety).
Once the owner specifies the type(s) of return desired, the mix of returns, and expected timing, the property manager can develop an appropriate management plan. Planning, with its resulting control, is the foundation of effective property management.
If, for example, the owner wants to maximize cash flow for a two-year period, the property manager would probably plan to defer as much maintenance and repair as possible. Considering the short time period, the manager can reasonably assess that deferring certain maintenance and repair would have only a limited effect on the property’s resale value. If, instead, the property was expected to be held over a long term, the property manager would probably design a strong preventive maintenance program and give corrective maintenance high priority, thus preventing significant deterioration of the investment over time.