This three-part set of blog posts looks into the factors that you ought to consider before you buy your first multifamily rental.
Part I (Click here to read) was about the fundamental economics of the purchase: will it make you reasonable money within a reasonable timeframe?
Part II (click here to read) was about the property & people you expect to live in your rental: are they the kind who make good tenants? And today, we’re getting into the final details: who will run this place?
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There are two basic choices for property management: you can do it yourself, or you can hire a property manager that will be responsible for the property in exchange for a cut of the profits.
The advantage of doing it yourself is that you get to pocket all of your profits — the disadvantage is that unless you have a decent amount of time & experience managing property, you’re going to have a lot of painful lessons in store for you.
Property managers — at least, those that have been in business for any respectable amount of time — have dealt with a huge variety of situations that you haven’t even conceived of yet.
They have a comprehensive set of policies and rules in place that will get you through most of the hairy bits with a minimum of fuss.
The biggest advantage in hiring a property manager, however, is the ability to expand.
If you’re doing your own property management, every property you add to your portfolio multiplies the amount of time and energy you have to put into keeping your properties operating smoothly. With a property manager, you simply pass the responsibility onto the PM with each new property.
It’s likely that the property already has a property manager working on it — interview them in as much depth as you can. Not only can they give you a lot of information about the property, but you can also decide whether or not they’re worth retaining.
Find out their policies and procedures, especially those related to rent collection and evictions. Ask how they decide on rent increases and about their marketing and screening for tenants.
You may be tempted to replace them just for that ‘fresh start’ feeling, but keep in mind that switching management companies often results in tenants leaving because they feel unhappy with the processes, procedures or even the personnel of your new PM.
Economies of Scale
The best part of buying a multifamily building to rent out is in economies of scale.
If you have a single family residence as your only rental — or just a few — every purchase you have to make to repair anything or upgrade anything is a unique one, and can be pricey. If you can purchase 40 of the same door because you know you’re going to need them within the year, you can get bulk discounts.
If you have just a few families, you’ll be inclined to deal with them individually and give each one treatment you feel like they deserve — if you have fifty families in three different places, you learn rapidly to create one set of rules and enforce them fairly across all comers.
That’s one of the reasons why property managers are so effective: they’re already operating on the economy of scale, because they already have several (or several dozen!) houses, apartments, or other structures. Even if you are a one-building owner, they can take advantage of the economy of scale in a way that you can’t.
The All-Important Marketing Plan
The final critical detail you must have in place is a marketing plan. You’ll want any vacancies filled quickly and with the right tenants. The property manager, as mentioned above, will have resources and probably even a plan in place — but don’t leave it to them!
Get involved, and understand what they’re doing and why — and offer ideas about how you think they might better target the kinds of tenants you want. It’s amazing how much a fresh angle on a marketing campaign can get more — and higher-paying — tenants for a relatively small investment in money and energy.
This is especially important if you’re buying a property that’s been under-rented and/or has dated décor. You’ll want to target a different type of tenant than what’s been targeted before, so you’ll want a solid plan ready to go and a PM selected that can execute it, before you buy.
Purchasing your first multi-family property can be an intimidating process. The multi-family realm offers a path to some serious profits — but like any investment, it pays to know what you’re getting yourself into and requires thinking ahead to be successful.
Hopefully, this series has explored some issues that will make your first venture more successful.
What was the thing you got most out of this series?
Be sure to leave your comments and insights below!