I would shoot for a deal that is at least 75 units. It's tough to get quality property management that actually cares for deals smaller than that and for it to make sense from a cash flow perspective. When you first close on a deal, you'll be working closely with the property manager so you can get on the same page and make sure everything is dialed-in. After a while, things start to iron-out and the deal practically runs itself. It's pretty awesome.
From my experience with underwriting we would typically budget for 1 in and 1 out as employees per 100 units - this would cover leasing and maintenance. There are definitely benefits to going larger with regard to operational efficiencies.
Where are you looking to invest?
Yes, this can be done. I have several OOS buildings that are around 20 units each. For a 40-60 unit, I would get 2 tenants to be your caretakers and give them some money off of rent or possibly free rent depending on how capable they are. A 3rd party property manager then can deal with the rest. 100 units is more efficient, because you are able to hire full time leasing and maintenance, however, often you can get a 40 unit for a better overall ROI than a 100+ unit.
@Todd Dexheimer When you say "2 tenants to be your caretakers", can you expand a little bit on their role(s) are? What would you expect of the caretakers vs. the PM?
Thanks as always!
Scott, that really depends on their experience. I would work on finding someone that can show units and do some minor maintenance. The more capable they are the better. If they are able to do leasing, rent collection, maintenance, etc, then you should be able to pay the PM less to do their job, while gaining the benefit of an on-site person
Hello @Neil Satija .
Let me preface by saying that I do not own any Real Estate. My advice comes from my experience working as a property manager and as a leasing consultant at apartments ranging from 191 to 445 units. I have also observed how other property management companies in my local area work.
My first suggestion is to buy in an area you feel comfortable with in a market that meets your investment criteria. Though it is always good to buy as many units you can afford the location of those units is another very important criteria. More units do lower your risk and will help you achieve economies of scale sooner. However if the units are located in a bad neighborhood you will either net less money and/or have more work managing the asset and the tenant base. I would rather buy a good asset with fewer units that attract better tenants then buy a fair asset with tons of units that attract difficult tenants. Even if the smaller unit apartment community nets me less the energy I save can be used to expand my portfolio.
As for the managing I would suggest you hire a property manager. In the last 10 years the property management industry has exploded both in the quantity and quality of the managers. I am sure in what ever market you are looking to invest in there are many property managers that would gladly help you with your apartment. Instead of hiring the people my self I would have the property management company handle personnel issues and I would use the time I save to manage the company and the asset not the people. If you want to minimize your work pay more for the property management company and provide incentives if they meet your needs. A property management company that does what it says and is proactive more then pays for itself.
If you decide to hire a resident manager (instead of a property manager) you will be exposing your self to more liability and may have more work managing an employee who may not know how to manage an apartment building. What ever you save in the front end may be more then lost in the back end by the problems they create.
In summary choose the best asset you can afford in the market you want to invest in. Spend your time finding the right property management company and not getting employees to manage it. Also have money in reserves to cover loses you would naturally incur as you build the knowledge you need to own the property.
I would not invest as a LP if there is not a partner (not property management!) who lives there.
@Neil Satija . I currently don't own Multi families, but I have owned SFs hours away from me. I would echo similar sentiments in regards to the type of investments (Class of asset for example). I was visiting a few class C assets in my area recently that have absentee owners and a local PM. The sight was not pretty. The places looked completely abandoned with trash everywhere. Cars abandoned in the driveways, many units unrentable, because they are in such poor states. PMs told me, there is just not enough incentives for them to really keep a very close eye on the property. They collect the rent and respond if there is an urgent items to handle. Other than that, they don't really care. They don't have a skin in the game. Why should they care?
However, remember that you can also use websites like upwork.com to hire people to perform certain tasks for you. I use it to find people to shoot pictures of my property regularly. I analyze the pictures and send a report to my PMs and demand actions on all the items. It doesn't cost you much. But it lets the PM and tenant know, there is always an eye watching them.
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