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Christine Ziomek
chris@caryl.com
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Sept. 20, 2010

Bringing Your Properties Back To Profitability

Five Important Questions To Ask When Managing A Real Estate Portfolio Today

By Elliot S. Zaks, Principal, MCRES

Like many commercial real estate owners, managers and investors, you may be struggling with falling revenues and rising expenses—it seems bad news has been rampant. Now more than ever, you need to identify all possible options for maximizing your ROI. Bringing your property portfolio back to profitability in today’s challenging climate often requires the assistance of trusted advisors who can suggest ways to leverage assets, recapture expenses and accelerate tax deductions. These real estate “knowledge experts” can demonstrate how, in even the worst of economic times, you can 1) maximize your cash flow, 2) reduce your tax liability, and 3) keep more money in your pocket.

There are often a number of overlooked solutions for bolstering your bottom line that a savvy commercial and investment property advisor can suggest. Depending on whether you are holding, selling or buying real estate, your trusted advisor should explore these five important questions:

  • Have you taken advantage of the latest tax regulations to lower your tax liability and improve your cash flow? You may be able to accelerate the tax deductions you claim for depreciation by reclassifying eligible assets to shorter recovery periods. A cost segregation study – conducted by a team of qualified accounting, engineering and tax experts – can help obtain the greatest tax benefits from any real estate holdings.
  • Have you recently reviewed your leases? If not, you may be generating less income than you should. Meticulous and up-to-dateRelease lease abstracts will identify all critical lease dateReleases, including lease expiration dateReleases, rent step-up dateReleases, as well as renewal and option dateReleases to ensure you are receiving maximum rents.
  • Have you reviewed the Common Area Maintenance for your properties lately? You may have legitimate expenses that are not being passed-through. A portfolio management expert can help by performing a desktop audit and reviewing the operating expenses, CAM, taxes and insurance to ensure maximum pass-through of legitimate obligations to tenants.
  • Are you preserving your investment capital by deferring capital gains taxes? If you are selling a property, it might make more sense to exchange one property for another. The IRS allows you to defer capital gains taxes through a §1031 Exchange with a Qualified Intermediary. Since the rules governing this process can be complex, it is advisable to draw upon the expertise of a Certified Exchange Specialist to maximize the benefits of the exchange.
  • In considering the acquisition of a distressed or foreclosed property, are you certain it is accurately valued? Without a current, thorough and independent analysis of the value of the property, you may not be buying the deal you think. A thorough financial audit of the real estate asset, analyzing and verifying historical financial statements, scrutinizing each income and expense item and providing a detailed cash flow analysis is key. In large or complex commercial acquisitions, it makes sense to have a financial due diligence specialist with expertise in commercial real estate conduct the audit.

The commercial real estate market faces extraordinary difficulties today, and not all investors and managers will successfully meet these challenges. The turmoil will eventually subside and a new status quo will emerge. In the meantime, it is important to focus on the positive things you can do today to help your bottom line. Rely on expert advisors and specialized services to ensure that your business not only survives the current downturn but emerges stronger than ever.

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Elliot S. Zaks is a principal and co-founder of Madison Commercial Real Estate Services (MCRES), based in Lakewood, NJ. With more than $75 billion in transactions insured, MCRES is an umbrella organization that offers an array of specialty services for the commercial real estate market nationwide. These include: Madison Title Agency, a nationwide title agency that handles searches, writes policies, manages transactions and provides closing and escrow services in all 50 states, as well as offering REO Solutions and Bulk Transaction Management Services; Madison SPECS, offering expert cost segregation studies; Madison Exchange, one of the nation’s leading Qualified Intermediaries handling §1031 exchanges;LeaseProbe, producing commercial lease abstracts and handling Lease Administration and CAM Audits; and Real Diligence, offering accurate and reliable financial due diligence for commercial real estate acquisitions as well as loan workout services and distressed asset acquisition support.