Rental Property Investor · Denver, CO · Member since 2017 · 50 posts · 23 votes
Hi BP – I’ve been reading up and talking with as many investors as I can in the multi-family space, and the 50-80 unit apartment complex intrigues me. Based off of what I’ve learned you’re often dealing with Mom & Pop landlords who are mismanaging the property, and there is typically a smaller buyer pool. This means there is a higher chance for a value-add component, as well the opportunity for creative financing (seller financing, lease option, etc).
While all of this may sound great it sounds like managing a property this size is the most challenging aspect of the deal because it’s not large enough to support on-site management or a full time maintenance person, but it still requires daily attention.
My questions are what systems and strategies has the community effectively implemented to manage a property this size, and how much more efficient could the management become if you acquired multiple properties of this size within 30-60 minutes of each other? Thanks in advance.
@Michael Le at what unit count would you say on site management becomes viable? I've heard it's the 100-150 range depending on if you're in an area with high or low rents.
I think 50 is viable but not ideal. You likely won't have a dedicated leasing office so it's probably a converted bedroom. So you will lose out on one rentable unit. Then the actual cost of payroll will be a larger percentage of your overall expenses. But if the numbers can support it then will work. I would say at 60-70 you're just hitting stride in terms of scale but you not at peak efficiency for a single PM and a single maintenance guy until around 90-100 units.
@John Stoeber 30-50 units cam still be easily managed by a third party property management company. as long as the company have the racecourses and man power.
@Michael Le so for value add mid size property, I think the size should be 80~100 to make the management efficient to enjoy the scale of economics? I really think small size of multifamily is not worth and margin is not good enough for cover expense (maintenance, marketing and provide other services).
So as individual investors (or partnership with other one or two pp) who is not too large size apartment building, what is best size to start with the value add strategy?
@Michael Le so for value add mid size property, I think the size should be 80~100 to make the management efficient to enjoy the scale of economics? I really think small size of multifamily is not worth and margin is not good enough for cover expense (maintenance, marketing and provide other services).
So as individual investors (or partnership with other one or two pp) who is not too large size apartment building, what is best size to start with the value add strategy?
You ask what the best size to start but I don't think there is a one size fits all answer. Take your comment about 'not worth it' and 'not good enough'. For whom? Because everyone's return expectations are different. If you have investors that are okay with 5% COC then the deal could work. If you have 2 partners that want 25% yearly return on there money it might not.
And also, a 70 unit property in Dallas is different than a 70 unit property in some small town in Alabama. The 70 units in Dallas might average $1100 a month in rent whereas the one in Alabama might be $600 a month. That one in Dallas would likely make sense because it generates enough income and the expenses will not likely be much more. Whereas the one in Alabama will likely not make sense because a refrigerator costs the same regardless if you charge $1100 or $600 a month in rent.
Based on my experience, if you're managing midsize multifamily properties, you would want them to be near each other so either you or your PM and share resources. I would sharpen your pencil by saying 30+ minutes out may be too far to share. For example, two 50 unit buildings with 2 miles of each other would make a better team, but 30-60 minutes out may be too far. 60 minutes can be another city/state.
@John Stoeber what did you decide to invest in? Its a question I'm pondering now myself. I'm 1031 exchanging a few properties and looking to move-up. I've got enough to buy a mid sized 40-50 unit apartment solo in my market. Some investors I trust with more experience have advised me to stay small...1-4 units, which is where my experience lies, or go big ie over 100 units. The economies of scale are there with the larger properties - professional management, onsite leasing, etc. Whereas the 40-50 units are difficult because its third party PM and you have a lot more turnover in that asset than you would with the 1-4 units.
I'd have to partner to move up to 100 units or syndicate. Not against that, but feel like I need the experience and track record of the mid-sized asset to gain credability and confidence to move up to larger.