Do I Care Where My First Apartment Building Is?

Question

Hey BP! Luke the short-term rental guy here.

2021 I will be the proud owner of my first apartment building. My questions right now...

1. Do I care where it is? Almost all of the real estate I own is not in the state I live in. Do I need to visit the property more than once per year? Can't I just look for something within say 6 hours of where I live?

2. I'm guessing this boils down to good management... any tips on how to find and or manage mangement?

Thanks!

Danny Randazzo · Answer

@Luke Carl you definitely care where the apartment is located so you can manage the business plan correctly. You don’t have to live in the same state or visit the property often. Ultimately you are responsible for things going right and sometimes the best way to do that is to be onsite or check in from time to time.

Property management will make or break your business plan so spend significant time vetting your options. The best tip is to ask for owner references and speak to each person.

Greg Scott · Answer

Many gurus in the apartment space will say "just hire a third party manager" and you are done.   My experience has been that the quality of third party managers varies widely.  And, even with the good ones, we like to be heavily involved in our business and have our finger on the pulse of its operations.

Before we bought our current apartment, we spent a significant amount of time on due diligence on management.   First we developed a long list of management companies that managed the type and size of property we wanted to buy.  A management company that specializes in Class A properties will struggle with LIHTC properties.  Then we asked others in the industry who they thought were the best.  Later we met with the management of several of the best.  Finally we mystery shopped several properties to see how they performed on the ground.  All that work paid off as we are very happy with our property management company two years into the deal.

It is also worth noting that there is a huge difference in managing small vs large apartments.  If you have anything under 100 units, you definitely want to find a property management company that has a large footprint within 15 miles of your property.  That way if they have a roving maintenance guy, it isn't a 2-hour drive to get him to your property for an emergency repair.   The larger apartments, 100+ units, are easier because you have built-in staff at the property.

Good luck

Taylor L. · Answer

Totally agree with this. Managing a PM can take rather high touch. Set it and forget it property management just doesn't work, particularly if your business plan is to reposition your apartment complex.

Location definitely matters. You can't move the property! But you can focus on buying in markets with sound economic fundamentals.

Adam Lacey · Answer

@Luke Carl I would spend a lot of time vetting property management firms. If you have a broker that you like and trust in the market, ask them for PM recommendations. Better yet, ask 3 or 4 brokers and see if they mention some of the same companies. This will save you a lot of time weeding out the bad ones.

Albert D. · Answer

Hi @Luke Carl,

Good questions.  I think it really depends on your goals and what role you want to play in the investment.

If you just want to put your money to work and don’t want to get involved in the day to day, you can just be a passive investor (LP) in a syndication.  That way, you write your check and forget about.  Expect a distribution of return every few months or so and a big payday in couple of years, if everything goes as planned.  In this case, you have more flexibility on location and no need to worry about PM.  The syndicator will do that work.  The key here is to vet a reputable syndicator with great track record.

If you plan to be more hands on and start with smaller units, I’d say you need to be close to the property unless you have a trusted PM.  Depending on the size of the property, it may or may not make economic sense at all to have a PM to start with, really depends on the purchase price, rent potential and scale of your property.  My rule of thumb is PM won’t be needed under 20 units.  But again totally depends on your goal, lifestyle, degree of involvement, etc.

Hope this helps.

Filipe Pereira · Answer

Hey @Luke Carl, You've gotten a lot of great answers here. I agree that location matters, but proximity doesn't. You want it to be in a good area, but there's no reason it has to be in a good area near you. If you can stomach it, go wherever there is a deal and where you can find a good property management company.

Find a pm through referrals if you can. Once you find a target market, jump on the local facebook group for landlords and RE investors and ask who they recommend for property management. There's usually a few "players" in most rental markets.

Do I Care Where My First Apartment Building Is?

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