How Do I Manage The Properties I Buy

Today I was talking with one of my partners (she is a Broker down in Miami); she asked me if I had any other businesses going on apart from investment consulting and I replied I was about to buy a 19 unit apartment complex in Augusta GA for 65K down financed by the owner at 7% interest only.

As soon as I told her that, she was surprised, and asked me if I was moving to Georgia. It seemed obvious that if you own a property in Georgia, then you must be there to manage it, but that's completely the opposite to my idea of passive through real estate.

The thing is, I'm an investor, not a property manager. I certainly know some strategies to get a property up and running but that's not what I do, I hire a professional property manager to do that so I can go on and find other good investments to sell to my fellow investors or to buy with people from my growing list of equity partners.

I believe this to be of major importance, since it opens up the investing game to multiple markets not just the one I'm living in. Every property I buy must account for property management expenses and still make a good profit, or is not a deal I want in my portfolio, period.

So, based on the fact that I will always get a professional property manager, if possible member of IREM (Institute of Real Estate Management), to take care of the day to day operation of my properties; this is how I manage the managers that will be in charge of my company's new acquisitions:

1. Being In The Same Page With The Property Manager

One very important thing is to let the manger know what we intend to do with the property, and exactly what we are expecting from him once he takes over the property.

As a general rule, we want to receive quarterly, if possible monthly, reports of the activities going on with the property, such as late rents, vacant units, new fillings, repairs done, etc. PLUS we want the property manager to create a very organized Profit and Loss statement (the ones you will analyze when you are about to purchase a property) and send it along with a current rent roll that must have name of the tenant, deposit amounts, date when the lease starts and ends, and any other observations such as "paid a month in advance", or "moves in next month", etc.

2. Going Over The Exit Strategy And The Action Plan

Few of the properties we intend to buy are turnkey, even if the owner claims that the property is a turnkey, most of the time we have to make adjustments. If the property is indeed a real turnkey, we won't be able to get any discount from it, meaning that we are buying from a PRO that has very well earned every penny he is asking from the sale.

Properties we buy, typically need one or a combination of these three:

• a.To fill vacant units (a property with under market occupancy rates)
• b.To raise rents and improve the tenant base (typically properties with month to month tenants and with under market rents)
• c.To make repairs in order to get the unit's rent ready.

3. Following Up, Measuring The Results

Once the manager know the strategy we are going to put into place for the subject property, and that we agree on time frames for the completion of the previously set goals, I let the management company do their job.

I'll be following them closely until the goals are completed, for instance, if we need to fill vacant units I will measure the results over 1 or 2 months to see how many new inquiries we had (this shows if the marketing they do to attract tenants is effective), what types of tenants they are attracting (this shows how targeted is their marketing strategy) and how many units they filled compared to how many units they said they were going to fill.

For rents that are under market and to improve the tenant base, the property manager will most likely have to fill eventual vacancies since now rents are going up to market rates, and some tenants may move due to this enforcement. Same here with marketing strategies applied by the managers, and effectiveness of the previously set goals after 1 and 2 months.

For repairs I want them to send me 3 budgets from 3 different contractors to make a proper evaluation and start working. I analyze the time they take to fix the units (they will be managing the contractors so it's their responsibility to have them perform on time), and fill them up. I also compare the real time frames with the stipulated times when starting the process. From all three scenarios described here, this is typically the most complex of all because it requires the manager to have experience running a team of contractors, and re-positioning new units. It's very important that they stay on budget.

Final Thoughts

I think a good management company it's essential to investing in real estate, to have passive income and to avoid getting overwhelmed with the normal everyday needs of the tenants.

However, a bad management company may kill a good deal, so there's special attention to be paid at selecting and managing the manager. The same kind of attention that an investor will pay to the numbers on a deal or to the due diligence process.

Do not go to on vacation just yet, take a look at the manager's performance during the first 2 to 3 months to see if he can help you, as a key player in your team, to earn passive income out of real estate.

Thanks for reading!