Risk Management Tips To Protect Your Real Estate Business
Whether you are new in the real estate industry or have been working in it for a while, you should already know that risk management is vital for asset and business protection. The industry presents challenges that can quickly decrease the value of your property. In addition, you also need to worry about the happiness of your clients, the interaction with your employees, tenants, and investors, and other parties involved in your operations.
That said, to protect your real estate business, it is always wise to learn which risks can be identified early on and managed accordingly.
#1 Insurance
Insurance helps companies reduce the financial impact of adverse events on their business when bad things happen despite their best efforts. That is why having business insurance coverage for your property is one of the most common protection and risk mitigation strategies in real estate. The beauty of this type of insurance is that you can customize the cover according to your business.
Importantly, before purchasing, you need to consult an insurance professional who can guide you on possible exposure for your property and insurance needs.
#2 Develop and use Standard Operating Procedures
Standard Operating Procedures (SOPs) are a helpful business tool to mitigate risk during your usual business operations. Their purpose is to communicate the correct way of carrying out an activity within your organization and help you reduce errors. Having SOP can help your team stay coordinated, know how to do their work, and secure communication flow. Significantly, as your real estate business expands, the operating procedures must be updated, and each update covered by new training. Updating SOPs presents a method to reach the process changes to employees.
#3 Properly managing data
Real estate transactions involve many private and personal information – bank account information, social security numbers, and more. These data are helping realtors to gain a competitive edge in aiding analyses, making future predictions about the real estate market, and in proper property valuation. Other than customer data, you also have access to significant amounts of data regarding your internal business processes, sales strategies, and marketing tactics. So just like consumer data, company data is exceptionally crucial.
With that in mind, to manage risks, you need to secure all your devices – keeping them under lock-and-key and using password generators to avoid weak passwords. In addition, it is always a good idea to use a realtor’s CRM. This tool manages how your brokers and agents interact with their clients. It separates permissions, so staff can see data that is only relevant to their work.
#4 Be aware of mortgage fraud
As the real estate market and the need for homes continue to grow, so does the increase in mortgage fraud. As a real estate agent, you should be prepared to recognize the signs of possible mortgage fraud.
That being said, always make sure that you can adequately identify your client. Be on the scout for misrepresentation of finances or assets. When a property in the form of a home is purchased, make sure that whoever is buying clearly states the purpose. Be aware of “straw buyers” that use another person’s identity to obtain a property and shift the deed to their name. Lastly, make sure that the property is being purchased at market value – the more money the place is appraised for, the more debt the buyer could be taking on.
#5 Carry out due diligence
As a real estate investor, risk-taking is probably your enviable motto. However, it is best to be vigilant in every interaction, especially when engaging in deals and signing contracts. Make sure you carry out due diligence at all times. For example, carrying out property due diligence reports can help ensure that when the property is bought, the home buyer is receiving precisely what they thought they would be receiving. That also puts you on the safe side, so there are no complications later on. In addition, read contracts carefully and make agreements with accredited professionals. Then, you are less likely to face inconvenient legal situations.
The Bottom Line
Real estate is a great business if you are willing to accept the fact that it comes with great risks (and rewards). Nevertheless, many of these potential risks can be avoided through diligence and proven work strategies, and some can be significantly mitigated with the help of business insurance.
However, when in this business, make sure that you often communicate with all parties to the transaction above all. Keep the channels open and when working with buyers, make sure they are ready, willing, and able to purchase. And when working with sellers, ensure they are ready, willing, and able to sell.