After analyzing 300 multifamily deals in the past 1.5 years, my business partner Jeff Yang and I closed 2 deals in the past 2 months. An 88 unit Class C property in San Antonio, TX and a 153 unit Class B- property in Houston, TX.
Below are the top lessons we learned from taking over 2 properties with 2 different property management (PM) companies. It was helpful to compare/contrast their approach and implement what we thought were best practices.
1. No one cares about the property more than you do
I firmly believe that no one cares about your money, your kids and your apartments more than you do. Taking over a property involves a lot of details and many items can fall through the cracks if someone isn’t there to lead and make sure that things are getting done in a timely fashion. Takeover meetings with your PM and systematic checklists of what needs to be done will help ensure a smoother takeover.
On one of our takeover calls we had 11 representatives from the property management company. It was great to see the support for our asset but one thing that was assumed was the PM would take care of what they needed to collect rent and deposit checks to our accounts. The result was we didn’t have a check scanner for the first few days causing some delays in depositing checks into our accounts. It got resolved but made us uncomfortable with so many checks/money orders undeposited in our leasing office closet.
We have found Asana super helpful and use that with both our property management companies to stay organized. Having tasks with deadlines provides accountability.
2. Realistic Budgets
Some companies provide budgets that were done from the corporate office “the ivory tower” without much input from people on the ground. Unfortunately, this can create a gap between budget vs. boots on the ground reality. There is a lot of work that goes into getting budgets precise and given that the property manager is working for free before they start collecting rents, sometimes a precise budget is not their top priority.
Owners need to pay close attention to tracking the budget and reviewing invoices. In some companies, the left hand isn’t talking to the right hand. We’ve saved thousands of dollars by verifying invoices and charges that ended up incorrect. PM many times are so buried in the weeds that it necessitates the owner to make sure operations are on track from a high level.
When we learned the initial budgeted payroll rates weren’t market for our property area, we made the strategic decision to hire a lead maintenance that could perform work that we were previously outsourcing. Though our payroll came in 20% higher than budget, we were able to partially offset this through lower R&M/Contract Service expenses. Triple check your budgets with the boots on the ground team to minimize surprise factors.
3. Clear Business Plan and CapEx Priorities
They say it takes 7 times before people understand a message and take action. The same is true with making sure people are on board with your business plan and strategy for the asset. Overcommunicating on rent, other income initiatives, renewals and resident upfront will help ensure everyone is rowing in the same direction.
To help facilitate the implementation of our business plan and foster accountability, we created defined role and responsibilities. We try to avoid the gray/murky/fall through the crack areas and make sure that as things come up, someone is tasked to lead the effort.
One crucial part of the business plan is CapEx and how and when that plan will be implemented. To make sure we are spending our time and energy effectively, we share our prioritized CapEx plan and target completion timeline with our PM so they can make suggestions on the best places to source bids for our highest priority projects.
4. Unit Rehab Program
When we took over our San Antonio property there were a number of units that were 120 days vacant ($10,380 in lost revenue for the previous owner) and simply needed some small fixes (new appliances, countertop resurfacing, painting, etc.) to make them leasable. One of our top priorities was getting these units online to avoid lost revenue. Once we got 3 of these vacant units online and refined the turn process, they all leased within 1 week.
If we had worked out the unit rehab program before takeover we could have hit the ground running and converted the vacant units to leasable in even less time. Here are some points that we now find helpful to ask our teams.
- Where are they sourcing components?
- Who is handling unit turns?
- How much will they cost?
- What is the inspection and approval process?
- What is their typical timeline for turning a unit and what components could create potential delays?
We like testing different rehab features (painting cabinets, adding hardware, changing vanities, painting walls) and want to know what is the return on investment from each of these upgrades. We decided to build a tool and process to manage this. It required a hands on approach but allows us to know how long units are vacant, what upgrades are driving higher rents, the cost of those upgrades, the ROI on the unit turn, what is working and what we can do to maximize each dollar spent.
5. Find the Right Fit and Set Expectations Upfront
We both come from institutional backgrounds where being highly responsive and meeting deadlines were critical to our success. Every property management company has its own style of management and pace of execution. Finding the right PM and more importantly the regional manager that shares the same work ethics and approach will ensure a good working dynamic. Given that we live in a digital world, having a property management company that embraces technology to maximize efficiency is very important as well. What we have found is that there are areas of property management that are highly inefficient but could be easily alleviated by implementing various software and tools that are readily available.