The Realtor and Property Manager Partnership

As a member and contributor to several Commercial Real Estate investment sites I often come across newbie questions. These folks generally have some experience in the single family market and are dabbling with the idea of getting their feet wet in the multifamily sector. Here is a more recent one on the subject of real estate professionals for which I decided to give a brief – and hopefully concise – answer.

“A few months ago I decided that I wanted to conduct a 1031 exchange into a multifamily. After doing some research I decided that the Dallas Fort Worth area was worth looking into. I’ve identified a few properties of interest but found that I couldn’t really get a ‘feel’ for the area with any of the online tools at my disposal (google maps, etc). As such I decided that I should fly out to the DFW area and see it for myself. I’m flying out there this weekend and meeting with a few real estate agents and property management companies. My question is: what would you ask when evaluating a property management company or real estate agent?”

Dear Newbie,

I’ll be brief and right to the point. Most multifamily seasoned investors would confirm the skills listed below, whether their partners are in-house or not.

The realtor

Look for one with extensive experience in the multifamily market. One who lives and breathes multifamily, one who understand the local market, the general CAP rate for each area of the Dallas market, the crime rate, the demographics, etc. Residential realtors seldom have this knowledge as they are too busy with SFR’s. The question to ask would be “What type of real estate is your focus?”

If satisfied with the answer you may want to proceed to his/her experience with the local sub-markets (area of the city). You need this because you’ll be relying on his/her guidance when making decisions. Thus you may want to ask him/her about the areas where the MF absorption rates are higher. This is important to you, because your ‘survival’ and ultimately your success are based on maintaining a high occupancy level, with good quality tenants who pay the rent (on time), and low tenant turnover (management companies charge additional fees to rent a new apartment, this means less income to you when you experience high turnover).

When he/she presents you with the sub-market(s), ask how do the absorption rates compare to those of other areas. Ask questions about the local economy and what makes a specific area have a good appeal for the future. Overall Texas is a great state but it doesn’t mean every single county is ideal for investing purposes.

Property management

An experienced CRE realtor should be able to recommend a few companies. If not, do a search. Regardless of how you get their names you should be able to review their websites. Only after looking at the website I’d call and interview the few that I’m impressed with.

Note that I wouldn’t settle for a company that manages SFR’s. You’d want to have a company who strictly focuses on the kind of property you’re looking to buy, in your case multifamily properties. One that is experienced with the local market, has been in business for a while, and has a dedicated staff to proactively manage your property. When reviewing a property management company, keep an eye for those that also have the ability to act as asset managers. What I mean by that, some of these companies have the ability to help with projections and calculations to increase a building’s cash flow, also have “boots on the ground” to do renovations which may be associated with future properties you may consider purchasing in the area.

Yes, this may take time and effort, but surrounding yourself with competent individuals plays an important role in the level of your success (or failure) in the multifamily investing career. I’d say this is a good start. Once you found your best match and have partnered with, your work is not over. You’ll want to monitor to assure yourself they’re working in your best interest. And since you’re doing a 1031 time is of the essence.