What measurables do you track?

Question

Our company focuses is to buy and hold apartment complexes.

We currently track a few KPIs (key performance indicators) to keep a pulse on how the portfolio is doing. However as we prepare to grow and begin syndicating larger complexes I feel we can do a better job tracking more useful data.

I would love to get my creative thinking going by hearing from others. What metrics, and how you are tracking them within your business? These could be day to day accountability numbers, or a 10,000 foot view metrics.

@Brian Burke @Joe Fairless @Ben Leybovich @Brandon Turner @Azeez K. @Mike O'Connor we all have a similar focus, and many of you in positions I am striving to achieve. What metrics if any do you focus on within your business?

Brian Burke · Answer

Your list is good. I get a report each week from management that shows occupancy, days vacant for all vacant units, move-ins/outs, leases signed and approved, lease renewals, expiring leases, weekly forecasted occupancy for at least six weeks out, reasons for moving out, sources of new tenants, delinquency aging along with collection notes, open payables, cash balances in all accounts, plus a status report on units upgraded and any major issues/projects. We also hold a weekly conference call with the regional and the on-site for each property to discuss how things are going and to address any issues or concerns.

Brian Burke · Answer

@Jered Sturm, it is important to track every metric. Here's what I do:I begin by creating a ten year projection of income and expenses (before I even make an offer on teh property) and this is categorized by major categories. On the income side these would be gross potential income, loss to lease, vacancy loss, one-time concessions, recurring concessions, credit loss, non-revenue units, utility income, and a variety of categories of miscellaneous income. On the expense side, we forecast property management, property taxes, state entity franchise taxes, insurance, repairs & maintenance, general/admin, marketing, contract services, payroll, and utilities (which we further break down into common electric, vacant electric, gas, vacant gas, water/sewer, meter reading/submetering, and other utilities).Next, I break down the forecasts quarterly for the ten year projection, then as each quarter passes I track the actual expense for every one of the categories and have a comparison/variance for each one. The figures carry over to line charts (one for each category) with an axis for actual and an axis for projected. This allows me to see both numerically and visually where we are beating our forecast and where we are falling short. It also breaks down the $/unit/year for each expense category so that I can estimate my costs of operating other properties in the area, which helps out a lot when underwriting acquisitions.Finally, I take the actual NOI each quarter and calculate the current market value using my best estimate of the current market cap rate for that type of property in that local area. This is more difficult than it sounds, and not just because the cap rate is hard to pin down. Properties in most areas are subject to re-assessment by the local taxing authorities so the NOI has to be tax-adjusted before you use it to calculate the market value.I then plot the market value every quarter on a chart that allows me to show my investors the "hockey stick" effect of our value-add program as the increasing NOI effects the property value.

Mike Dymski · Answer

You guys are very kind for sharing this proprietary information with the community...well done and thank you.

Jered Sturm · Answer

@Ben Leybovich Thank you for the response. You must have never listened to my BP podcast episode, Im dyslexic so it took me a good 5+ times of reading your post to make it through this cipher of REI jargon haha. I got your points just took me a few passes. Correct me if I'm wrong but I took your post to mean, tracking all major things that incorporate, or effect NOI is wise because ultimately a large component on your IRR strategy will be based off the exit and or refinance, which obviously is the factor that you as an investor can control when considering the capitalized valuation of the investment. If I understood you correctly that seems to also be what @Brian Burke goes on to explain in his post with a few extra suggestions to help boost investor relations. @Brian Burke Thank you for taking the time to type out that response. It will be very easy for us to implement something similar or the same as what you are doing because our partner is a CPA that keeps great book in good software. We have all that data, just need to take your suggestions to get it into visual format so that is easier to understand for a simple guy like myself. How about metrics you track to stay on top of your property management? I realize ultimately that performance will show on the income statement, but do you or your PM track anything on a weekly basis in order to stay in front of the issues before the come out a month later in the P&L? Currently we track: Vacancy rate # of tenants paying before 1st, 1-5th, 6th-10th, 11th-on# of Days a turnover takesAverage total length of occupancy. (how long are they staying?)Maintenance requests and type of requestLength of time to complete maintenance requests.Suggestions on other metrics to track? criticism of what we currently track? Thanks for your generosity to share your thoughts.

Ben Leybovich · Answer

Here are my thoughts:Before you get in, I'm assuming you want to know how you get out. If you underwrote the IRR, you must have projected an exit 5,7,10 years down. Additionally, you likely projected the refinance, if that's part of the strategy.If so, getting out abd refinance are in large part a function of capitalized valuation at the time. Capitalized valuation is a function of NOI. Therefore, it is important to have some metric of what the NOI will be when you need the capital to flow out as part of your IRR strategy.Presuming you are correct about stabilized rents, and presuming that we are all taking educated guesses as to the Cap Rate in the future, something we have no control over, the things that are most most important are escalation of rent revenue, OpEx, and economic loss numbers. While we don't necessarily have to be right on all three, we do have to be right on the synergy between the three. My thoughts...

DeWayne Lewis · Answer

@Ben Leybovich@Jered SturmHi guys, somewhat separate topic but you guys seem to have an analytical focus. Is there a software tool either of you use to analyze multifamily deals? I've been using a basic excel sheet but have had issues with excel on my Mac. Any recommendations are greatly appreciated! Thanks in advance.