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How To Handle A Real Estate Crisis

If you are in the real estate investing business long enough eventually you will face a business crisis. Your tenant may cause damage to a rental property, a deal maybe lost at the 11^th hour or a rehab may have unexpected issues. How you act when these present themselves will not only determine the immediate problem but will also shape your reputation. If you fly off the handle or look to point fingers the people around you will remember this and be hesitant working with you in the future. Conversely, if you have a clear head and a calm demeanor you will gain points, even if you were one of the causes of the problem. Crisis, big and small, happen in every business and for most investors. Here are five tips on handling crisis in your real estate business.

• Be Prepared:The best people in any business are the most prepared. In real estate, it is essential to at least consider the worst-case scenario in almost everything you do. This doesn’t make you paranoid or pessimistic, it helps you stay one step ahead of whatever comes your way. If you visualize all the things that may happen, acting is the easy part. You won’t have to deal with the initial shock that catches so many people off guard. This shock paralyzes them from acting and several days are lost. If you are one step ahead you can immediately reach out to the right people and get the ball rolling. The longer you sit on a negative problem, the worse it becomes. A true crisis may only happen once in a decade, or for some investors never. That doesn’t mean you should brush off the possibility of it happening. Always look at every angle in every situation and think of what you would do if the other shoe dropped.

• Don’t Hide: There are several people involved in most real estate transactions. In a traditional purchase you have your buyer, seller, buyer’s attorney, seller’s attorney, lender, appraiser, inspector and more. If just one person drops the ball you can have a problem. The same is the case with a property manager, tenant and contractor. All told there can be a dozen people in your investing business that have a direct hand in your success. The single biggest pet peeve across the board for most of them, is a lack of communication. When something bad presents itself, don’t hide. This is magnified if you are the one that caused the problem. Instead of waiting for a solution to appear out of thin air you should get in front of it and reach out to all necessary parties. Explain the situation and if you need to apologize, do so. Not only does this get the ball rolling quicker, but it may help you find a solution you never thought of. Additionally, you may even gain some respect from your peers by being honest and forthright.

• Keep A Calm, Clear Head:  There is a popular Rudyard Kipling poem that starts “if you can keep your head when all about you are losing theirs.” This is a great quote for dealing with crisis management. In a perfect world every deal, property and relationship would always be smooth sailing. In real life, unexpected things happen from time to time. Instead of screaming and ranting like a child you need to calm yourself down and keep a level head. Not only will this help you take the right action, but it will keep you sane. Nobody purposely makes a mistake that costs them money. Most people involved in real estate only get paid when the deal closes. Flying off the handle, doesn’t do anything, in fact usually makes things worse. Take a deep breath, go for a quick walk or squeeze a stress ball instead of lashing out at everyone around you. Without a calm head you will only make things worse.

• Act Immediately:  There is a natural reaction when things go south to take some time and evaluate the situation. In real estate there are no timeouts or ways to keep things from moving. It is essential to make quick, decisive decisions when faced with a crisis.  If this problem is on a rehab it is not an exaggeration to say that time really is money. The longer you wait to act, the more you lose and the bigger hole you fall into. If you have thought about every situation in your head and weigh all the pros and cons, the next step is taking action. It is hard choosing between two bad choices, but that is the role of leadership. You may have to swallow hard and deal with the consequences, but you can’t wait for a magical solution to come along.

• Don’t Make The Problem Worse:  Whatever you do never make the problem worse. Like we said, your options may not be great. Don’t try to pull a miracle solution out of your hat like you see on TV. You may have to take a small loss on a deal or pay more than you thought for a property. You may have to make an arrangement with your tenant or take a smaller share of potential profits. When you try to compensate for the loss you turn a mountain out of a molehill. As bad as the problem may be, you can almost always make it worse.

One of the main qualities of any good real estate investor is problem solving. Accept that things won’t always go your way and handle any crisis you face head on.