All Forum Posts by: Tom Lafferty

@Wade Sikkink if you're asking me, I will absolutely hire third party management for my next one.  In fact, the only reason I'm self managing this one is to have a thorough understanding of the business when it's time to manage the management company.  I would consider something smaller if it were very near to our current property so that we could combine them for a PM co. to operate for us.  

I do know several owners who have started a management company, but there is nothing passive about that income.  At all!  

thanks @Account Closed , good to hear!  Obviously there's nothing to lose by trying it.  I also am hoping that should I run into someone that decides to sell in the future, I will be taken seriously in a pool of other offers due to the fact that I was interested before.  Maybe wishful thinking but I've seen several situations where something small put someone on top when there were several competitive offers.

@Brian Burke  I'm afraid you're probably right.   I think it would have to be an extremely strong offer that they felt was very close to what they'd get on the market.  Most of the properties I'm targeting are family owned and mostly free and clear, but the brokers do know them well.  I'm also having brokers approach owners of properties that are not for sale on my behalf, as it seems like that would work better than going after them myself.  

Still curious though....

I realize this thread is a bit old, but I have researched that question a LOT so thought I'd add my two cents.  

Most of the PM co's I talked to said 60 units was pretty much the bare minimum to bring them in, but 80 was their preferred minimum.  In that range the fees were 3.75-4%.  I didn't see what size property you were talking about, but 10% would be expected if you're looking at 5-40 units or so.  I did talk to some of the off-site companies, that do not ever have office hours at the property, and the best I found was around 5%.  The problem was the leasing fees were 50% of first months rent, plus $100 for every renewal.  The management fee was offset by the lack of having to pay part-time staff.  Keep in mind that avg apartment turnover can be 60%, so the fees can be huge.  

For that reason I'm self-managing a 32 unit.  I do have on-site leasing and maintenance people, just no management co. to do reporting, accounting, buying decisions, vendor relations, bill paying, etc.  There's a post on here somewhere in which I asked for suggestions on how to manage a property that size, and I got quite varied replies.  A few blasted me for even considering doing it myself.  It can be done, but it will take up a lot of your time in the beginning.  About five months in, the amount of time I spent on site dropped to near zero.  The problem is, I've talked to many other owners doing it this way that have had nothing but problems due to their staff.  That will make all the difference in the world.  I got very lucky in that we have great people running the place, but I've spent a lot of time getting other options ready because I know it could change instantly.  

I would keep talking to different PM's if you're looking to buy in SA.  They can help you quite a bit in the buying process, and you may decide to use them in the future so you'll already have a relationship with them.  

The other thing that may help you is to talk to other properties in the area and see who they're using.  Almost every company I talked to was willing to manage our property for less if they already had people in the area.  Its much easier for them if they can leverage staff already in place as long as the two properties are not competing.  Maybe you could talk to bigger properties if you're looking at smaller ones.  Or if you're looking at class C, go talk to the management co of a B class property nearby.  They usually don't compete for the same tenants.  

I am looking for 80-200 unit properties in and around DFW where the competition is very tight.  I know it would be a long shot, but I've sent a few letters directly to owners and am thinking about doing a lot more of it.  I realize these are typically sophisticated owners that know exactly what their properties are worth, and know when they want to sell.  Reading Ken McElroy's book he mentioned thats how they find the majority of their properties.  He obviously makes a much bigger impression with his track record and organization than I do, but I'm thinking I need to start trying it.  Dave Lindahl has written that he does it as well.

Guess I'm just fishing for success stories to motivate me!

One more question-- you mentioned managing this yourself, I assume you mean you'll hire on-site leasing and maintenance personnel and you'll act as the management co., correct?  If so, how much free time do you have, because for the first several months you will need to be there a LOT until you get everything figured out and running smoothly.  I forgot how many units this is -- 50?  That's getting close to support in a full-time manager, but part time would probably be better.  The quality of your on-site staff can make or break you.  

On the 32 unit I only needed about $350,000, which was 25% down (including $63,000 rehab), closing costs, insurance, and working capital to have in the bank.  I also have other investors so my share was much less.  

Forgot to mention..... Requirements to assume an fnma loan can be tough.  You may have to get a partner with fnma experience or a really strong balance sheet.

Its been said already, but absolutely find out what market expenses are for your area rather than use a percentage.  Get a property management company involved even if you're not going to use them right now.  Great chance to build a relationship for down the road.  They can do a great analysis on the property, as well as preparing a budget for it.  Talk to a few of them, you very well may want to do business with them at some point, and their experience can be invaluable!

I don't know your area, but I don't think buying a yield play that someone has already made a killing on makes you a sucker.  I bought a 32 unit property for over a $1 million for which the previous owner paid $290,000 two years earlier.  They also put a ton of money into rehab, and spent two years turning the property around.  I won't have near the cap gains they got, but so far it is performing much better than any of our projections. 

I'm currently looking for a 100+ unit, and thought I only wanted a pure value add deal.  I've really started to appreciate cash flow though, and its widened my scope quite a bit.  You hit the nail on the head when you mentioned building a track record.  I had a LOT of experienced people tell me not to jump into a big rehab for my first deal, and I'm glad I listened.  There is so much to learn already without having to deal with kicking out bad tenants, marketing the property to new ones, turning units, deciding what upgrades to do, etc.  As a first time multifamily buyer, I don't think there is anything wrong with a property where somebody experienced has done the heavy lifting. 

Just make SURE you are getting good help in doing your analysis of the expenses, pro forma rents, insurance costs, taxes, etc.  The utility and insurance bills are very helpful, as they'll be fairly similar, but your costs can vary dramatically depending on how the current owner is running the property and how you're going to do it.   Hopefully at least something in that rant was helpful.....

Hi Girard, I guess it depends on what you mean by "large" but yes, I do know of many groups doing that.  I'm looking for a 100-200 unit property right now, but again, that may not be big depending on what you're looking at.

Regards,

Tom

Agree with all of the above.  I looked at something down there not long ago simply because its so hard to find anything right now.  I thought, hmmm, maybe I'll widen my scope a little.....  NOPE.  Scary.  I don't have experience with areas like that, but I would think to make a go of it someone would need to really be on top of it and able to visit regularly.