In 2014 we looked at buying a 70 unit apartment building in north GA. It was our first "out of area" property in almost 5 years. (We had sworn never to do an "out of area" property again after failing miserably in St. Louis), but the returns looked AMAZING. So we decided to go for it.
The property was operated by a mom and pop operator, who had taken great care of the property, but had allowed most of the residents to pay minimal rent. Analyzing the numbers, rents were almost 20% below market!
Most of the buildings had seen upgrades in the last 2 years, with new roofs, new siding etc. The units were also being upgraded (albeit at a very slow pace).
So, as you can imagine I was super excited to find a deal where we could not only improve management, but also increase rents and not have to spend a ton of money to on CAPEX and repositioning.
Well, that's what I thought anyway. Until we bought the property and installed a "friend" of ours to manage the property.
What looked like an amazing deal soon turned out to be a complete mess. Residents started leaving the property, expenses started to climb, and rents were not increasing. They were falling!
YIKES!!!!!! Our amazing property was turning into a disaster.
When I investigated what was happening at the property I quickly noticed that the property manager never spent more than a couple of hours there each week(!!). I also saw that she was busy hiring her family members to do work at the property (Trust me when I say that friends and family DO NOT match with running a great business/property).
Having learned from previous experience I knew that I had to take action. I sent the property manager a letter outlining exactly what was not working, and what I expected of her. I also included a timeline that outlined by when certain things had to be resolved.
Part of me was hoping it would all be resolved. The deadlines passed and no work was being done (literally!).
I ended up firing the manager and bringing on someone new. This time though I made sure to have the following in place:
1 A Clear business plan outlining everything from rent increases, to property improvements and how to manage our residents and keeping them happy. The business plan helps you paint a clear picture of what you want to achieve, and communicates this to the people on your team so they know too!
2. A budget (you won’t believe how many people operate their properties without a proper budget! even BIG management companies). I spent a week working with the new manager on our budget, and made sure that she had plenty of say in how it turned out. That way I have a document showing what she is promising me in terms of performance, and that I can hold her accountable for.
I hate micromanagement (don't you?). It kills people’s engagement and motivation if you constantly question their decisions, and tell them what to do (and you end up spending more time managing the people, than the results).
The best way to manage people is to hold them accountable for doing what they say they will do. Monitor the bottom line, and have the property manager tell you what actions they will take to meet or exceed budget. Then follow up and make sure it happens. (I use a calendar and put in everything there with reminders). I also offer to brainstorm new ideas if they are stuck.
If you see the property consistently underperform it is time to dig deeper. Is the property manager really doing what they say they will do? If they are taking action, is it sufficient to have the property perform per the budget? If the answers are not adding up, it is time to make changes.
3. Weekly property review meetings. We go through all the most important numbers (collections, net leases, renewals and service requests). I look at What is working/What is not working, and ask for the property manager's input on what we can do better to make sure we keep on meeting or exceeding our budget numbers. (People LOVE when their ideas/suggestions are implemented and they can see the results from their ideas!!)
4. Quarterly (monthly) visits to the property. I am sorry, but you cannot successfully manage properties from your office. YOU HAVE TO BE THERE! Walk units, talk to residents, and drive the area. There is nothing that will ever substitute property visits. This goes from smaller properties managed in-house to larger properties managed by 3rd party management companies.
5. Celebration Plan! If you have a record month celebrate, if you exceed occupancy celebrate, if you get more than projected renewals celebrate, if you collect all the rents celebrate. AND pay people for their contribution.
6. Poor Performance Emergency Plan! Don't wait. It will not turn around! My gut check is always to ask if I trust this person. If I don’t, I make changes immediately. It is to the best for all parties.
After making the changes the new manager has helped us increase the value of the property by over 40%. That is 40% in just 12 months. That’s the difference a great manager and a great system can do for your property.
Did I miss anything? What do you do to prevent a great property from being a terrible property? Let me know if the comments field.
C
