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Multifamily Market Update + What a 20 Year Veteran Knows That You Don’t

The BiggerPockets Podcast
37 min read
Multifamily Market Update + What a 20 Year Veteran Knows That You Don’t

The multifamily market is about to buckle. With sellers still riding the highs of 2022, buyers are at a crossroads; keep pursuing deals or wait for the market to go south. And, with mortgage rates rising and short-term financing coming due, many multifamily owners could be forced to sell their properties to the highest bidder. While some of this may sound like speculation, we’ve got a multifamily forecast straight from an expert in the industry, Angie Smith, from Strategic Management Partners.

Angie and her company manage 25,000 rental units at a time. Yes, you read that right! For the past decade, Angie has been the go-to manager for top apartment complexes across Georgia, dealing with everything from noisy tenants to in-unit farms and goat grilling operations (seriously). She knows the ins and outs of property management, what makes a good property manager, and why self-managing isn’t always the wisest move.

In this episode, Angie gives her take on the 2023 housing market and when she thinks multifamily will start to get shaky, why most investors are wrong about property management, how to choose a property manager, and the questions you should ask ANY management company before you hire them. If you want TRULY passive income through real estate, you DON’T want to manage your rentals alone.

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Listen to the Podcast Here

Read the Transcript Here

Andrew:
This is the BiggerPockets podcast show 767.

Angie:
The management company knows what they’re doing. They are the professionals, they’re the ones with the experience. When you have a client that’s overly involved, case study after case study, the property does not succeed. When you have clients that are hands off and you have a weekly call with them, you send your weekly report, your owner’s report. Those properties time and time again are hugely successful.

Andrew:
Andrew Cushman here with our buddy Matt Faircloth. David Greene has left the recording studio vacant once again, and we thought he might have learned his lesson from the last time, so we are taking over.

Matt:
Glad to be here with you, Andrew. I’m grateful that I get to do the takeover with you. You’ve got an exciting conversation coming up today and people are like, Why are you excited about property management? This is so boring. Let me tell you guys, shame on you for thinking property management’s boring. Property management is, it is what will make or break your profitability on a deal. A good property manager will take a mediocre deal and make it amazing and they’ll take an amazing deal and make it complete crap. And guys, one last thing. If you guys want to hear more about what makes deals profitable, property management and asset management, you guys have to listen to show number 739 where myself, Andrew, and David go deep dive into what asset management is, what it’s not, and how it correlates with property management. So after you listen to this one, check that episode out. Number 739.

Andrew:
Today we’ve got a multifamily market expert with us. We are going to first get into a bit of a market update because things are changing rapidly and we want to try to keep everyone up to date on what we are seeing in real time out there in the markets. Then we’re going to talk about property management and we’re going to talk about a lot of stuff. But a couple things that are real important to watch out for is the key traits that an investor should look for in a third party property management company. What are the top mistakes that new investors make when bringing on third party property management? And we’re also going to hear a story about a tenant who had a vertically integrated farm butcher shop and barbecue that they were running inside their unit. So stay tuned for all of that. Matt, do you got a quick tip for us? You ready?

Matt:
Quick tip. Okay, guys, here is your quick tip of the day. Andrew and I have assembled a phenomenal resource for you guys to use when you’re interviewing property management companies. These are 27, not one, not two, not three, 27 questions you need to be asking a property manager when you’re considering hiring them guys. And this is capital F free, something that Andrew and I put together as a nice gift, a nice thank you. Back to you guys. Go to biggerpockets.com/resources.

Andrew:
Yes, go grab that, make it your own. Add some additional questions and let us know in the comments on YouTube, what you think of it. All right, I’m excited. So let’s go ahead and jump into that market update.

Matt:
So guys, let’s talk about the market, man. Things are changing daily. What do you guys think? Where we at?

Andrew:
Well, it’s interesting as everyone listening knows it has been, I can definitely give some insight, we’ve been pretty active in this last quarter. Deal volume, we’re seeing a slight uptick in what’s available to look at. We’re underwriting more deals than we have been, not getting more offers accepted, but we at least have more properties to look at. There’s a lot of headlines out there. I’ve seen stuff like rent drops six time in the last six months and all that. We’re not seeing that. Our rents are up at all of our properties. Almost every one of our properties had record collections in March. I think it’s really important to differentiate what markets you’re talking about. Remember, real estate’s local, not national.
So yeah, rent’s probably down if you got A class property in San Francisco, but if you’ve got a B class property in a strong growing submarket, it’s probably still doing pretty well. Don’t let headlines scare you off. Lots of properties still doing fantastic. We also just closed an acquisition at the end of March. It was the largest equity raise we’ve ever done. It sold out in a week. So again, there’s lots of talk about, you can’t raise equity these days. And yes, it is harder, but if you have the right deal and the right investors and you put those two together, you still can get a deal done. And then finally, on the flip side of that, we just listed a property for sale and right out the gate we got actually a pretty strong offer with hard money. We’re not going to accept it just yet.
But what we’re finding is properties that require bank or bridge loans are pretty tough to sell right now because those lenders are tightening their sphincters and financing is really tough. But if you’ve got a property that’s stabilized in a good market that qualifies for agency financing, the agencies are still very active and they’re out there putting loans on stabilized properties. So because there’s so little inventory for sale, properties are actually doing quite well. That’s the four things that I would hit on and dispel some of the myths and doom and gloom that’s out there. But Angie, Matt, anything you guys would add or want to comment to flush that out a bit?

Matt:
Interesting stuff, Andrew.But first of all, I can’t help but say it, congrats on the purchase and listing a property for sale, can’t help but high five you on that. I’m also seeing a lot for sale. And unfortunately, if you look at the properties that are for sale that I’ve seen, a lot of them are things that people bought a year ago, two years ago. You’ve probably seen a lot of those where folks have bought something, the seller bought it two years ago and they’re selling it for double what they paid for it, or the brokers that has it on the market for double what they paid for it. It’s a pocket listing, right? Meaning the broker doesn’t even have a signed listing agreement. They’re just going around. The seller said, well, if you can get me this number, I’ll sell.
I’ve seen a bunch of those and I don’t know, I don’t want to go buying somebody else’s problem. And I get leery for buying anything that was owned for less than 18 months to two years. Because the problem with that, that I’ve seen it firsthand, you can’t address real capital improvements. You can’t address real deferred maintenance in that short of an ownership cycle. You need to own a property a little bit longer to deal with all the things that need to get dealt with. And so these are all just properties that have just been polished up a little teeny bit and her back on the market. So that’s what I’ve seen a lot of these days. But I don’t know if it’s really an indication of the market. I just think that a lot of folks are just hanging on waiting.

Andrew:
I’d agree. And those ones aren’t going to trade. Those are the sellers that will end up riding the market down. The market will drop five, 10%, then they’ll drop their price five, 10%. Well, guess what? They’re still behind the eight-ball and they’re going to be chasing it down and holding on forever. So yeah, the property that we bought was long-term ownership, like six years. And the one we’re selling we’ve owned for six years.

Matt:
There you go.

Andrew:
So that actually makes it work. So now Angie, you have a little bit of a different insight because you see the nitty-gritty on the other side of this, on close to what? 25, 26,000 units.

Angie:
Yes, 25,000 units. It’s a little bit different. Our clients or what we’re seeing is our clients are actually not buying anything right now. Number one, prices are still ridiculous. Interest rates are up. And we also have clients that have concerns because they have bridge loans out there and they’re worried that they’re going to lose their properties and they’re going to go into receivership. We’re seeing a whole mixed bag of things. And with regard to the rents, certain markets, you’re absolutely right, Andrew, there are markets, the secondary and tertiary markets that the rents are still going strong. But in the major cities, exactly what you said, you referenced San Francisco and all, because we’re a Georgia-based management company, I’m going to reference Atlanta.
We’re we are starting to see the ramps drop. We’re seeing concessions being offered. And so you are starting to see that weakness in the market on the A and the B. And historically A starts to fall, then the B gets the A residents, and then it’s a vicious cycle and it goes down to the B, the C. There’s some concerns out there, and I think it’s going to be tough. And I think we’re going to see a lot of properties in the latter part of the summer, early fall going to receivership and foreclosure.

Andrew:
And so for those who are listening who aren’t familiar with the receivership, could you just real quickly define that?

Angie:
Yes. If a property’s going into receivership, the finance lender takes it to what we call a special servicer. So there’s a lot of special servicers in the US and so the loan goes to what’s called a special servicer. And then the special servicer actually takes the property owner to court because they’re not paying the mortgage and they take the property owner to court and the court appoints a receiver. So your court appointed receiver, which means bringing in a management company to manage the asset. For the receiver, the receiver’s actually managing for the lender, we manage for the receiver, and it stays in receivership until such time the special servicer decides to sell the asset.

Andrew:
And the special servicer typically puts it up for sale relatively quickly from that? Or is there a lag or?

Angie:
It depends on the condition of the asset. So if it’s a very distressed asset, and so you think about a property where the mortgage isn’t being paid, generally other things aren’t being paid, there’s a lot of deferred maintenance and the water bill may not be being paid. And a lot of times you see these properties end up on the news. It’s like, wait, 200 unit apartment community, the water’s been shut off because there’s no money to pay anything. And so you end up with generally a very distressed asset. So being appointed a receiver, the manager comes in, the management company comes in and turns the property around. The special servicer actually gives you the money, which is phenomenal, to turn the property around, get it in a condition to which it can be sold.
So it depends on the condition of the asset when we get it. They’re not always bad, but generally they are because by the time it goes from default on the loan all the way through the courts to appoint a receiver can be up to a year of distress for the asset.

Andrew:
And it’s funny you mentioned them being on a news, in a decade and a half of being this business I don’t think I’ve ever seen a piece of real estate being in the news for a good reason. That’s almost universally not something that you want to happen to a property you own. And then no investor left behind. Let’s dive in. Just quick definition. What is a special servicer?

Angie:
A special servicer is a company, and I’ll give you a few examples. CWCapital, LNR Partners in Miami who we work a lot with. Rialto Capital, those are special servicers and they literally focus on distressed loans.

Andrew:
So they basically come in and take over regardless of whether or not the owner wants them to?

Angie:
Yes.

Andrew:
And then the final question for those who, there’s a lot of us out there and especially those who have been trying to get into the business the last few years, it has been so tough to get a deal the last few years. Prices are high. There’s tons of competition. You are seeing behind the curtain, right? Because you’re managing thousands and thousands of assets. Matt and I only have a couple thousand. You have a much broader view than we do. I’ve been hearing stories of properties where they can’t make the mortgage payment. And then like you said, they’re not paying vendors, they’re doing capital calls. There’s no more distributions. They’ve got a balloon loan due in six months. For somebody listening, when do you think some of these things are going to become opportunities for a new investor to get in at the bottom of the next cycle?
How much longer can some of these property owners kick the can down the road before they end up in special servicing and then for sale, before they become an opportunity for the next person?

Angie:
Well, our prediction is late summer, early fall, that we’re going to start seeing the process start and that we’ll build from there. Because as you know, Andrew, so many of these people have overpaid for these assets and it just can’t continue. So you get into the vicious cycle that happened in 2008 and nine where you’ve overpaid for this asset, you underwrote it to have these astronomical rents and you can’t obtain the rents because the market’s falling apart, concessions are being offered, and it’s just that vicious downhill cycle. Oops, now we can’t pay the mortgage. Oops, now we can’t pay this. I think we’re going to see the beginning of it, especially on these balloon loans, again, late summer, early fall is our prediction.

Andrew:
All right, so late summer, early fall. And then final question, and I’m really interested to hear your thoughts on this. Some folks that I talk to and that I listen to are saying, hey, this is just going to be a slice of the multifamily market. Others are like, this is going to take the whole market down like 2008. I have my thoughts, but I’d like to hear what you think in terms of, is this going to be more like select opportunities for those who are looking to buy or is this going to be just a widespread distress it was in the great financial crisis?

Angie:
No, in my opinion it’s not going to be, because I think there’s so many property owners out there that have good solid loans at a reasonable interest rate. They’re cash flowing now. So they can take a little bit of rent drop and some tough times and tighten the belt, let’s say. So in my opinion, I don’t think it’s going to be mass destruction. I think it’s going to be, again, the people that have overpaid for the real estate that were not smart purchasers, that had to get the money out there. And those are the ones that are going to suffer, in my opinion.

Andrew:
Okay. All right, good. Well, that’s hopefully some good relevant information for everybody who’s out there looking for deals and maybe even have some of your own properties. Matt, do you have anything to add before we transition on?

Matt:
I agree that a lot of properties are going to maybe have issues, but I’m not a doomsday foreseer either. I think a lot of folks are going to find a way out or find a way to make it work. I don’t think there’s going to be blood in the streets by any stretch. I do think there’ll be plenty of deals to be had, maybe more. And I think that those that are going to win in this game or those that got into this game to play the long game. Those that got in that wanted to flip an apartment building like a hot potato and get in, get out in a year, two years as they see people on social media doing, are going to maybe have to either change their plan or they might end up losing a property. Who knows?
But I think that those that are getting into the game or expanding in a multifamily, Andrew’s a case in point, Andrew just did a deal, just closed a property or just put a property under contract and closed it just recently. It can be done. Good deals still can be had in that. I think that those that are sitting on their hands and waiting for the sky to fall are going to be sitting on their hands for a while. You might as well just get out there and try and find opportunities. Just be scrutinous and bid on deals that with an understanding that you want to make cash flow and that appreciation, because appreciation might not be a thing for a while. I think cash flow is going to be the king for a very long time in multifamily.

Angie:
I keep telling clients too, be careful in your underwriting because the market literally with inflation and everything else, the breaks have to go on. You just cannot continue at this pace. And there’s going to be a time where people are going to say, I can’t afford this. And you can’t keep affording these massive price increases. So underwriting to me, even though there might be some good deals out there, you can’t underwrite and expect 30, 40% rent increases. The market cannot bear it. And that’s what we continually advise clients of, do not over project your rents because it’s not going to happen. And we’ve seen it. People are just like, I’ve had enough. No. So you have to be very, very careful and we continue to advise clients of the same. If you have to underwrite these massive rent increases, don’t buy the deal because it will fail.

Matt:
So before you move on from our market analysis, I want to just let everybody know that the crystal balls owned by Matt, Andrew, and Angie are in the shop. We cannot seem to get them out of the shop. So make your own market decisions based on your own market data. You make your own offers at your own risk. So that is our Matt, Andrew, and Angie disclaimer for the day. But I hope that you found this market conversation informative. Moving on, Angie, you are someone that Andrew and I both think a lot of them have interacted with in the industry, but for those that have not heard of you, don’t know you in that, could you give us a brief intro and tell us who Angie Smith is and we’ll jump into an awesome conversation about property management and multifamily.

Angie:
Okay. Yeah, great. My business partner, Cindy Batey and I started Strategic Management Partners, or SMP, as everyone knows us, in 2010. We literally started the company with zero assets. And we worked for companies that were going bankrupt or were distressed. And Cindy and I looked at each other and said, what are we going to do? And we either going to go to work for someone else or we’re going to start our own company. And so we started SMP in 2010, 0 units and literally we called it dialing for dollars. Cindy was calling attorneys and brokers that she knew from her past. I was actually calling special servicers. So it leads into this. And it was when the market was falling apart. And finally a gentleman in his name, and I have to say it because I think the world of this man, his name is Hector Gomez, and he said, “Angie, I give you a chance.”

Matt:
Nice.

Angie:
And I was like, yes. We finally got a deal from a special servicer and it worked out beautifully. And he gave us the most distressed asset you can even imagined giving someone. And he gave us his asset. We turned it around and we became known at in LNR as the Georgia girls. And the Georgia girls, we got to give them more, we got to give them more. And literally LNR gave us 18 properties in one day throughout the state of Georgia though we had to go take over. And so between brokers, attorneys believing in us and Hector Gomez at LNR, that’s really how SMP got their start. And we did such a good job on those distressed assets and it just built our reputation with the brokers because they saw these assets in distress, couldn’t believe that we had the ability to turn them around and they were able to sell them at great prices for the special servicer. And there you go. And that’s how SMP really started.

Andrew:
We’re going to take a slight diversion into the juicy stuff here. So what you’re telling everybody is you started off your company managing the most unmanageable assets out there, during one of the most unmanageable times in multifamily in recent history. So tell us, give us one of your most interesting property management stories that you’ve encountered over the life of SMP.

Angie:
Well, it’s a Hector Gomez LNR story. There you go. And it wasn’t the property that he gave us our chances on. It was another one. And it was a multicultural property. And when we took over, there would be, and I’m not exaggerating, I’m not kidding, there would be goats on patios or chickens. And then we started walking the units and there were holes in the carpet in the living rooms and we’re all going, what? And they were actually taking care of the animals.

Matt:
There we go.

Angie:
They were taking care of the animals.

Matt:
Well, they weren’t vegans is what you’re saying.

Angie:
They were not vegan at all. And then they would cook the said animals in the floor in the apartment because they did not know how to use appliances, American appliances, because you have to think a lot of these people came from places where they did not have modern equipment, electricity, anything. So we had to deal with that. And we actually had to post signs, this property had a retention pond that had ducks and geese, and we actually had to post a sign, habitat not for human consumption because they would take the creatures out of the retention pond and have them for dinner as well.

Matt:
Now Angie, were they paying pet rent for the goats and chickens?

Angie:
Do you know Matt, we actually kidded about that. It became a joke even with our asset manager, are you charging pet rent? We can make a lot of money here.

Matt:
That’s a revenue stream, man.

Angie:
Revenue stream. But no, we had to stop the practices. There you go.

Matt:
Oh man. Different strokes, right?

Angie:
It was a total educational situation too, that we had to help people truly learn how to cook and use modern appliances. It was a wild time, it was fun. That’s probably my wildest story.

Matt:
There you go. Every landlord’s got stories that at the cocktail party, they’re the one that you got to stop the music and everybody huddles around the landlord, you hear them tell some crazy landlord stories. So thank you for sharing that.

Angie:
Exactly.

Matt:
Here’s an interesting thing, right? Because some folks listen to this podcast that maybe are just getting into the real estate game or some folks that are listening that may be self-manage or whatever it is. Property management, believe it or not, Angie, some folks don’t find it to be that interesting. And some folks might even say, I don’t even need to talk about property management or even listen to that podcast episode because it’s not that important. Right? What would you say, to say that why is a third party management using a separate PM company, aside from managing in-house, why is it, I’m throwing you a softball here because I think Andrew and I both agree it’s imperative, but why is it important for a real estate investor, why can’t they just buy the property and let the winds of the market take the property where it’s going to go?

Angie:
Good question. And a lot of people, you’re right, Matt, do not understand it, but it’s the boots on the ground day in and day out that make it happen. You have to deal with the resident, you have to lease the apartment, you have to collect the rent, and you have to understand the market you’re in. So let’s just say someone from San Francisco, California buys a property in Savannah, Georgia. What does that person from San Francisco know about Savannah? 99% of the time little to nothing. You need to hire someone that is market knowledgeable, that knows what they’re doing, knows the laws of the city and state in which they’re operating, to be successful and is hard to manage a property from thousands of miles away. You need a professional management company on the ground, running your asset.

Andrew:
Let’s step back a little bit. How exactly do you define, what is third party property management?

Angie:
And there’s really, I’ll say three different types of management companies. There’s a third party management company, which is 100% fee managed. We SMP for example owns no real estate. And then there’s an owner manager where they may own some real estate, but also they’re a management company. Then you strictly have the owner that manages, and I know that just sounds crazy, but you can have an owner manage a real estate company that they own and manage third party and then the owner that has their own management company and manages. So for someone that’s out there looking for a management company, and my career prior to SMP was an owner manager management company, and a lot of the clients would say, hey Angie, how do I know Mr. Owner of the management company?
He’s getting all the attention, he’s getting all the best employees, he’s getting all of this. So it created a lot of friction, so not to say that they’re not good management companies or they won’t do a good job for you, but to have a third party 100% management company is appealing to a lot of people.

Matt:
I want to highlight something, because you don’t only work for individuals like myself and Andrew that are either syndicators or larger corporations that are hedge funds, whatever, that are owning multifamily. There’s also a concept called receivership. And you mentioned it when we were talking about the markets. You mentioned it here. I’m realizing that to some folks we might just be throwing around real estate slang, right? What is receivership? Let’s define that term and talk about how it’s different than working for a direct operator like myself or Andrew.

Angie:
Right. Well, as a special servicer or being a receiver, actually if you’re appointed receiver, you’re appointed by the courts in the county in which that property’s located. And the court literally appoints you receiver and you report to the court. So you work with the special servicer, they’re the ones that fund you money to operate the asset, but it’s the court you actually report to.

Matt:
Is this like a bank owned property? Because a lot of people in other lanes of real estate might call that a foreclosure where the property’s now owned by the bank. But a receivership arrangement could be, correct me if I’m wrong, Angie, where it’s still owned by the owner, but the bank has taken over the responsibility measures and turned in, you turned it over to your company to act in their best interest, if you will, even though they’re not the owner.

Angie:
Correct. And the foreclosure. So you have receiverships and foreclosures. So if a property goes into foreclosure, the lender has taken it back and then they hire a management company to operate it. And under the same really pretty much premise as you do a receivership. So they fund, you operate until such time the lender wants to sell the asset. So in a receivership, technically, yes, Matt, the owner still owns the property, but the lender goes in, gives it to a special servicer who takes it to court to appoint a receiver because they’re in default of the loan. And a lot of times a receivership property keen or generally does go into foreclosure. So it gets the owner out of it. So it will go into foreclosure. But there are times, and we had it during the years that we managed so many of these, that it stayed in receivership the entire time.

Matt:
Have you ever seen a situation where a property in receivership ended up getting out of receivership and going back to the owner?

Angie:
Never.

Matt:
Okay.

Angie:
Never.

Andrew:
I’ve heard stories of owners trying that, but they generally get found out, and that’s not allowed. One of the key things for investors, especially those who are looking to move to another market or get in for the first time, is picking a property management company. I live in California, I’m going to invest in Georgia. There’s all these property management companies. How do I figure out which one is the right one for me and my business and how I operate it? So could you, Angie, explain a little bit, how does someone go about picking a property management company? And then in that, actually tell us a little bit more about SMP, how many units do you guys have? Who’s a good fit for you? Who isn’t? And maybe use SMP as an example of how someone would go about that selection process when they are building their third party property management team?

Angie:
It’s a good thing for a property owner to interview more than one management company because a lot of times, and I’m going to start this and this will throughout our entire conversation today, this will be the key. It’s a people business. It’s all about the people, it’s about the property owners, it’s about the property management company, it’s about the vendors, it’s about the residents. So everything we do in property management is a people business. And so a lot of times it’s personalities. How is the personality between the owner and the property manager? Then, does the property management company have the expertise? So do they have the expertise in the asset class of what’s being purchased? Do they have the market ability? Do they understand the market and do they have the right accounting software?
Are they agreeable? Okay, I want my property on accrual. Oh no, I want my property on a cash. Is the management company accommodating to that? So really it’s a relationship. And that is why Cindy and I named our company’s Strategic Management Partners. We wanted to strategically manage with our clients. And that’s how we came up with the name, because we wanted it to be a partnership. Here’s another thing that’s interesting, and again, you asked me to use SMP, so I will. So when Cindy and I started the business and we started meeting with potential clients and doing our dog and pony show, we literally had to tell people we are not going to be a buy the policy 100% cookie cutter company. So property, like Andrew has two properties in the same city. I’ll use that for example. We don’t operate those two properties exactly the same. I don’t care if they’re a mile down the road from each other, they’re different assets with different residents, different everything.
I’m not going to run property A exactly the way I’m going to run property B. Of course you have generalities, you collect the rent the same, you try to get everybody to pay their rent online, et cetera, et cetera. But the marketing of the asset or what you do can be totally different. And I think that is also besides us getting started in the receivership business and proving to the world that we could manage stuff that nobody thought could be managed. It was our commitment to our client not to run everything exactly the same because no two assets are exactly the same.

Andrew:
One quick thing to ask before we move on to another topic. Where is SMP now? Because when we met, I think you guys were at about 3000 units. So where are you now and where does that put SMP on the scale or spectrum of management companies that investors have to choose from?

Angie:
Right. Dang Andrew, we’ve known each other way too long. If we started at 3000 units, we currently, we run between 24 and 26,000 units. Again, being a fee management company solely, clients buy, clients sell. So our numbers from month to month literally are up and down. But we generally run between the 24 and 26,000 unit range is where we’ve leveled out at. And there’s larger management companies, there’s smaller management companies. I just think we fit in a good, I’ll say a good niche. And we do not operate in every state. So if a client asks us to go to Kentucky, for example, the answer would be no. Number one, we would be doing a major disservice to that client because we don’t know flip about Kentucky besides the names of the city and they race horses there. So it is just not our forte. Or to go to Arkansas or Andrew, California.

Matt:
I wouldn’t go to California either.

Angie:
I wouldn’t go.

Matt:
Not for investments, no.

Angie:
So you don’t want to go where you’re going to do a disservice to your clients. And if a client is buying a bad deal and we don’t agree with it, we will also tell our clients, no, this is not for SMP. And we have probably lost more business. We could probably be at 50 or 60,000 units now. We’re not going to do it if it’s not the right fit. So it has to be, again, a mutual partnership and agreement because we don’t want to set our client up to fail and we don’t want fail for our client. Are we perfect and have we failed? Absolutely. Will we do it in the future? Absolutely. It’s part of life. Sometimes it works and sometimes it doesn’t and it’s okay. And that’s why we have a 30-day out in our management agreement.
If you’re not happy with us or we’re not happy with you, let’s part friends. Life’s too short. And again, this business is 100% about people and relationships.

Matt:
Absolutely. And going further on that, let’s talk about people, right? Because there’s two different people, there’s the owner and the property manager. And let’s discuss that relationship for a little bit in that. What is the most misunderstood part of the owner, PM relationship, that you see over and over and over again and you wish, you’re talking to lots and lots of real estate owners right now, so this is your chance to preach from the pulpit and tell all these owners, what is a big misunderstanding that owners have, either about something a PM should be doing, that they think owners should be doing that they’re not? Or just a common misconception that you think owners have between the PM and owner relationship?

Angie:
Well, that’s a tough question, Matt, but I’ll answer it this way. The management company knows what they’re doing. They are the professionals, they’re the ones with the experience. So when an owner, especially new ones are too involved in the day-to-day operations and want to say, oh my gosh, we just had a unit come vacant, raise the rent $250. Well Mr. Client, no, you’re going to price it out of the market and it’s unreasonable to expect that rent. Do it anyway. So when you have a client that’s overly involved, the chances of success of the management company, and this just is not SMP, it’s every management company in the United States, you’ve hired them for a reason, let them do their job.
And for those clients that are overly engaged, case study after case study, the property does not succeed. When you have clients that are hands off and you have a weekly call with them, you send your weekly report, your owner’s report, you’re engaged in good conversation with them. Those properties time and time again, are hugely successful.

Andrew:
I’m going to play devil advocate for a second here, Angie. I own the property, I care about it more than anybody else, therefore I’m going to do the best job managing it.

Matt:
It’s my money.

Andrew:
It’s my money, it’s my property. I’ve got my own thoughts on that. But what would you just say to an investor who says they want to self-manage because of that reason?

Angie:
And we’re going to keep this show PG, I was pre-warned about that. So we are going to keep it PG. Well, Mr. Client, you don’t flip and know everything and I’m sorry. We try to professionally tell our clients that, please, we have the market expertise. We understand. We do this day in, day out. We have done this for a living. You haven’t. Please let us do it. And sometimes they do, sometimes they don’t. But a good management company, and Cindy and I tell our clients this all the time, Cindy and I, we’re going to go to past lives. We had major ownership in real estate. We understand what it’s like to own a property and want that property to succeed. We instill that in our executive team.
When we tell them time and time again, you treat this asset like it’s your own. So Andrew and Matt, there you go. We instill in our people, pretend like this is your asset, that you own it. And that’s what we try to always give our people.

Matt:
Going off of that, right? There is a line though of things the owners should be doing and maybe they expect a PM company to do. So what are some common things that an owner really ought to be doing themselves and they maybe expect, an untrained owner would expect their PM company to do, but it’s really the owner’s task?

Angie:
I’ll just give a couple of examples, because there’s many. But like tax appeals, a management company is not a wizard in tax appeals. We don’t do that. That’s not our forte. So there’s tax appeal companies out there. Mr. Owner we’ll get you the tax appeal company, but your manager is not going to go file a tax bill for you. I need to get a refi done. Will you work on this? No, it’s not our job to do your refinance. It’s your job to do your refinance. It’s our job to manage the property. So those are just a couple quick examples of stuff that sometimes we get asked and they’re like, well, why can’t you just do the appeal? Tax appeal companies they get a fee for doing this. And the client says, oh no, you can just do it. No, we can’t.

Matt:
I can’t believe you’ve had owners ask you to handle your refinance. I’ve also heard of owners asking their PM company now to handle their investor distributions for us. Like, hey, can you just pay my investors direct and send them there quarterly, just send it to them direct from the company. Right?

Angie:
Happens all the time.

Matt:
The reason why you can’t do that, there’s a fiduciary duty there. That’s not an end of the stick that you want to pick up in dealing direct with investors. And that’s probably something that ought to get handled by this syndicator or by the operator themselves and investor relations and everything. Yeah. Great. Thank you. Well, what are some things that keep you up at night, about just things that go wrong on these properties and things like that where you’ve got, just what keeps you up at night as a PM, as a good property manager that really cares? And I can tell you do. So as a PM that really cares, what is something that just really concerns you on a day-to-day basis as a property manager?

Angie:
Number one. And it’s number one, number two, number three, crime and lawsuits. It’s very simple. That is the hardest thing that any management company will ever deal with, is crime and lawsuits. It’s no fun. You can have a drowning, you can have a shooting, you can have a kid fall out of a tree and you’re getting sued. Somebody falls off of a ladder. The legal aspect of this. And everybody is so litigious today, so we can go into insurance from here and I can talk to you for hours about the insurance and how hard it is to get insurance now. But the litigious society that we live in today makes it very hard to be a property manager. And it’s actually scary. And then yes, it can’t keep us up at night, especially if we have one of those situations happen.

Matt:
Well, let’s go there, because a lot of things you talked about, crime and lawsuits are driving up the cost of insurance for owners. It’s not just because we’re getting more hurricanes or whatever, because not every area is getting that. The cost of insurance is going up drastically on multifamily. Why is that? You already comment on why that is. What is something that you recommend owners can do? Are there ways that we can navigate insurance costs and that multifamily owners can just be prepared for with regards to cost of insurance?

Angie:
No. And there’s really no simple answer, Matt. I just can’t say, wave this magic wand or do this or do that. Because if you go to an insurance broker and they take it out to market and you don’t like those quotes and you go to another insurance broker, well, the next insurance broker’s going to be blocked out of the market. So they can’t go get those quotes because they’re already blocked out of the market for that piece of real estate. So you literally have to trust in your broker to shop every aspect to get the best insurance possible. But is there just a simple snap your finger solution to insurance these days? No. And again, we’re primarily based in Georgia, getting insurance in the state of Georgia, especially in Atlanta, I’ll leave it like that, Metro Atlanta.
It’s almost impossible because the laws in Georgia have changed and so many high awards have been awarded to people from juries that the insurance company’s just, life’s too short, we’re out of Georgia. And so owners are having a very difficult time in Georgia getting insurance.

Matt:
Trouble all around. Good insight. It is what it is. A lot of folks I talk to either talk about, they look at property management as believe it, and you can scream, don’t do it right now if you want, they talk about either self-managing or even gasp, starting their own property management company and managing on behalf of other people. Drinking the Kool-Aid that you drank many years ago and doing it themselves as a revenue stream, as a business to own. What would you say to folks that are considering getting into the business as you and Cindy did many years ago and starting their own PM company?

Angie:
The difference is, Cindy and I grew up in this industry. So I started out as the leasing consultant, worked my way up to owner of a management company. It didn’t happen overnight. We had the big hits and the fall down and hurt your knee along the way. So we had the experience of learning the industry versus an owner that they just bought their first property and they think they’re going to go in and manage it. They don’t have a clue. They don’t know, number one, you need a software program. Well, some people go in and try to use QuickBooks when they buy their first property. And how to hire people. What do you hire for? Where do you get the vendors from? And that is the experience that comes from a management company to know that.
Now, there are owners out there that have started their own management companies quite successfully, but it’s understanding the business and it didn’t happen overnight either. You don’t buy your first property and then start a management company. It generally just doesn’t work.

Andrew:
I would certainly agree with that. And then also, so there’s a lot of people listening who are like, okay, that’s great, but I still need to pick a management company. So what would you say are some of the most important, if you were to pick the top three most important questions that somebody interviewing property management companies should ask, what would those three questions be? And then for your bonus question, what is the question that everybody asks that really isn’t that important, even though they think it is?

Angie:
What’s my astrological sign, I guess? So important things to ask. Again, I have to go back. Do you understand, know the market and can you operate in that market? Because if you hire a management company that doesn’t know the market, they’re going to be starting behind the curveball. Can it be done? Yes, it can be done. But if they don’t know, again, let’s go to Lexington, Kentucky where SMP does not operate, you would be making a huge mistake. So they need to know, do you know the market in which we’re purchasing our asset? What kind of software do you use? Do you have the bandwidth to take on our property? Is another good question.

Matt:
That’s a great question. And I bet you nobody asks that.

Angie:
Very rarely. Every once in a while, but very rarely does that get asked. And what kind of billbacks or hidden fees are there? A lot of people don’t ask that. And Cindy and I, when we started SMP, again, we came from very large companies in our past lives that some of them had or they had billbacks. And when the client saw some of it, they’re like screaming. So Cindy and I are full disclosure, we tell you exactly what you pay for with SMP and you see every check that’s written, everything, there’s no hidden agenda. And when Cindy and I started, because I did come from the fee side with an owner portion, and she was totally from a company that was owner managed, so she didn’t understand what I was saying. But I was like, no, billbacks, full disclosure to our clients and we live with that integrity every day.

Matt:
Can you just real quick, what is a billback? Just to help educate here. What is a billback?

Angie:
A billback could be like if there’s a marketing department or a portion of the accounting fees would be billed back to the client, and that is not disclosed in the management agreement.

Matt:
Like charges up and above and beyond the PM fee.

Angie:
Yeah. Or portion of the regional manager or whatever that is being charged to the client, unbeknownst to them.

Andrew:
I want to highlight two of the things you said, Angie, that in my experience and observation are two of the biggest reasons that owner and third party management relationships fail. And that is, number one, you said make sure you hire a management company that knows the market. That right there is absolutely key, because unfortunately there’s two mistakes there. One, an owner hired a property management company that didn’t know the market. The second mistake was the property management company agreed to take the job. They shouldn’t have done that. And then that leads to failure because they don’t know the market and that owner is not really going to get better service than if they did it themselves because the property management company doesn’t know that market either. I think that that’s real important for everybody to make note of.
The second one is bandwidth. A lot of companies, not just in real estate, but across the board, are growth at any and all expense. And especially in property management that’s a huge mistake, because if you’ve got a regional that’s already managing 27 properties and yours is going to be the 28th, you’re probably not going to get that much good oversight and things just aren’t going to work well. So for those listening, those are two absolute key questions. Is does the property management company you’re talking to truly know the market, have experience in the market? And if they do, ask them if they can help you underwrite and look at deals, right? Because like Angie mentioned, she has said to the clients, no, we’re not going to take that deal. Well, if you’re talking to a property management company and they’re willing to take anything you’re throwing at them, that’s a red flag, right? That’s growth at all costs.

Angie:
Number one red flag probably.

Andrew:
You don’t want that. And then also, yeah, do they have the bandwidth? Do they have the people in place? Do they have the systems? Do they have the capability to hire and bring on and attract new staff? Does a property manager who’s going to come run your property want to work for that company? So again, Angie brought up two really, really good things. Make sure they know the market, make sure they have the bandwidth. And then also for those who missed the previous episode we did on property management, we did provide everybody a list of 27 questions to ask. So if you missed that last time around, there’ll be a link in the show notes, go get that, and that will definitely help you out. Matt.

Matt:
Great, great, great stuff. Andrew and Angie, this has been a phenomenal conversation. Angie, thank you for coming on, on behalf of everybody, for coming on and joining us.

Angie:
It’s been fun.

Matt:
Always fun. So real quick, for those that want to hear more about you or SMP or get connected in one way or another, how would folks do that?

Angie:
Go to our website at www.smpmgt and you can find us.

Matt:
Smpmgt. Angie, thank you. Thank you so much. And congrats on the growth and success of SMP. Looking forward to talking to you again soon.

Angie:
Yep. Sounds good. It’s been fun, guys. Thanks.

Andrew:
All right, take care. Well, that was our interview conversation with Angie Smith on property management. We only got to a fraction of the stuff we would’ve liked to talk about, but this isn’t a six-hour podcast. So for the stuff we did talk about, Matt, what would you pick out as one of your top highlights or most important things that we talked about?

Matt:
First of all, phenomenal interview. Angie is an industry expert. She’s been doing this for a very long time and manages thousands and thousands, thousands of units. So it’s such a great conversation to have with someone that’s got that much seasoning and industry experience. A few highlights for me is towards the end where you had talked about asking a property manager to underwrite deals for you. And I don’t think enough people realize that a property manager can give you, not just, this is the way we would run the property, but a really good or even great property manager is going to be able to look at your financials and validate them and say, well, rents in this market should be X. You have them as Y, or we think we can manage for a lighter expense load or probably more likely a heavier expense load.
They can give you guidance on payroll for folks you’re going to have to hire. A good way to know if a property manager really has their finger on the pulse or not is their ability to give you a good financial analysis for deals. And so I think that asking a PM for their underwriting, their performer is what they’re going to call it, for your property, is I think really, really paramount. And I’m glad you brought that up during the interviewing. That was a good reminder for me as well.

Andrew:
One of the things that she said that I thought was really important to highlight, is that one of the biggest new investor mistakes is picking out the perfect property management company saying, all right, hiring them, putting them on the property and then micromanaging them to death. Just diving into the little details of, well, this unit I want to rent for this, and this unit should be this. And is the lady in 6A, has she paid her pet rent? Step back a little bit and let the property management company handle the day-to-day details. That is what they are there for. And if you hired the right company, they’re going to be better at that than you are.
Now, that doesn’t mean you hand the property over to them and say, all right, I’ll talk to you in a month when you send me the report. You still want to be involved. You still want to be given the big picture vision and direction for the property, but let them do their job, don’t micromanage. And you know what? If you let them do their job and they don’t, well, that’s a different conversation and you can go find another property management company. But if you go third party, let them do the job. So that’s definitely one of the things I would highlight. Matt, for those who are maybe just new to BiggerPockets and somehow have missed you, how do people find you?

Matt:
Folks can get ahold of me real easy, Andrew, just by going to our company website, that is derosagroup.com. Derosagroup.com. They can hear all kinds of cool stuff we’re up to right there at that website.

Andrew:
I’m Andrew Cushman. You can just google my name or find me at Vantage Point Acquisitions, vpacq.com. And there’s a handful of ways to connect with me there. And of course, I’m a BiggerPockets pro member, so make sure you connect with me first on BiggerPockets. So this is Andrew Cushman for Matt, Captain America, Faircloth, signing off.

 

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In This Episode We Cover:

  • 2023 multifamily market updates and when prices could start to fall
  • Lessons learned from managing 25,000 rental units, plus an INSANE story about an in-unit butchery
  • Third-party property management vs. self-management (and who can handle it)
  • Three questions to ask ANY property manager before you hire them
  • “Receivership” and what happens to owners who can’t pay their bills
  • What you should NOT ask a property manager to do on your behalf
  • And So Much More!

Links from the Show

Connect with Angie:

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.