Pro Tips for Multifamily Management
FRIENDS DON’T LET FRIENDS…MANAGE THEIR OWN APARTMENTS! Friendless (smart folks) shouldn’t do so, either! I feel that using an independent third party is the only way. “Managing the Manager” is the unsexy, often overlooked way to maximize profits from operating multifamily assets. One of the long-time challenges of Multifamily Property Management is that Property Management companies are almost always paid on Gross Income. It takes considerably more time, effort and tenaciousness to keep a property rented a full market. For half the work… Being $50 or more a month below the market pays darn near as much. Admittedly $50 is not a huge sum…around what you would pay for a nice lunch at the Chart House, or Salty’s Restaurant. But on your 25-unit multifamily asset that would reduce Monthly Cash Flow by $1,250. Per month. But much worse…it would reduce the value at time of sale by $300,000! Staying on top of the Property Manager is a must for optimizing profits.
PICKING A PROPERTY MANAGEMENT COMPANY
There are two entities to vet here…1)The Property Management Company and, 2)The On-site Property Manager. The Property Management Company decision will ensure that you have selected the resource that will be responsible for one of the most valuable assets you own. They will control all revenues from the asset, as well as paying the expenses and providing timely, accurate performance reports.
- Is there a training manual for Asset Managers, Site Managers, Leasing Specialists, Maintenance?
- At what number of units, what conditions do they recommend on site Managers?
- On-site Maintenance?
- Practices are changing as far as the number of units at which on-site management is required/recommended.
- Some Portland, OR management companies now have up to 50 units without an on-site Manager.
- Some states (CA for example) require on-site management for as few as 20 units.
- What software does the company use to track operations?
- Can tenants pay their rent through the app?
- Can tenants make maintenance requests through the app?
- Do they use cash or accrual in their accounting system?
- How do they market vacant apartments?
- How effectively do they use Craigslist?
- Do they support subscribing to apartment leasing aids like Rents.com, Apartments.com, etc.
- How do they market vacant apartments?
- How often do they update/re-post Craigslist ads?
- Do they subscribe to Rent.com, Apartments.com, Rentometer.com or other similar services?
- Ask them to estimate what the cost of being $50 below market is for a 50-unit property in this market? (Both from a cash flow and potential sale price viewpoint.)
- What is their recommended credit/criminal history research process?
- How do they charge for coordinating vendors?
- Do they recommend concessions?
- Do they have a formal client retention program?
PICKING ON-SITE PROPERTY MANAGERS
Selecting the property on-site Property Manager is important, too. I remember being on the Acquisition Team for a $45,000,000 multifamily asset in Las Vegas. The Seller recommended keeping the existing on-site person. The Buyer asked how much are they getting paid? I think the answer was something like $35,000/year. The Buyer said: I may keep her…but I can’t have someone in charge of a $45M apartment getting $3k a month. The Manager was kept, along with a new incentive program that would reward good profits handsomely. Not all properties have enough units to warrant an on-site Manager. In Oregon on-site Management is not required at any preset number of units, other than good sense. Some of the items a good on-site Property Manager will know over time:
- Which apartments will comfortably fit a queen bed and nightstand and which wall is best for that?
- What nearby properties are the closest competition—and what their rents are?
- Where is the nearest ATM from the apartment? Restaurant, Dry Cleaners, Grocery Store?
- What Elementary, Middle, and High Schools do residents of the apartments go to—and how are they rated?
- Are their private schools nearby?
- Does the Manager know the current rules/laws/regulations that apply to rent raises, Section 8 Tenants, evictions, etc.
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I owe Point Source Solutions, LLC a shoutout for the great work they recently completed for a Rose City Commercial Real Estate client. Hats off to Andy Klopfenstein, Jeff Jackman and the crew for a job well done. First some background.
Equity Advantage is celebrating 30 years of 1031 Exchange excellence this year. David and Tom Moore were exchange pioneers back in the days when 1031 Exchanges weren’t particularly well known…and the IRS had only recently codified the current process. We recommend different banks on acquisitions based on the lending institutions’ strengths….but we always recommend Equity Advantage. It’s critical that the Commercial Broker identify properties that meet the investor’s criteria, but that’s a beginning, not the end. Depending on the deal, the role played by the inspector, lawyer, CPA, environmental testing contractor, and other resources can have increased (or diminished) importance…but the 1031 Exchange Accommodator is always critical.
