Why the Best Real Estate Deals Are the Worst-Managed Ones

by | BiggerPockets.com

Ask anyone who’s ever purchased a business, and they’ll tell you the key is not only finding the right business, but finding one that hasn’t been managed up to its potential. The worse it’s been managed relative to its potential, the better. In fact, if you can find a business with positive cash flow that is poorly managed, you’ve found the right one. Why is this? To put it simply: if the business generates cash with poor management, imagine what it can do with good management? It’s like adding rocket fuel.

Most longtime real estate investors know how important property management is for their success. That said, good management is getting harder and harder to find—just like quality investments. This, however, shouldn’t be the case for savvy investors who know what to look for. From 2009–2015, I purchased multiple investment properties within multiple partnerships and increased NOI by 65 percent. How? I made one simple change from the previous owner: management.

Related: Understanding The Basics Of Property Management

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Finding Management

Finding quality management with the know-how to make the right changes is more difficult than ever. If you self-manage right now, you may find your long-time employees leaving for easier and higher paying jobs. If you hire a management company you may find that they have to start charging you more because their expenses are going up by trying to retain their top talent. This leaves you in the driver seat to find the worst managed properties — the proverbial diamond in the rough — needing only the right management to really take off.  

This, then, begs the question: How do I find a good property that isn’t being managed up to its potential? It’s actually simpler than you might think. Here’s my approach:

Job Postings

If an owner is trying to replace an underperforming manager or maintenance technician, that may be a symptom of a greater problem: larger-scale issues with management or maintenance. Both are opportunities to buy a property right. Your first step is to identify the market where you want to buy and start looking at the property management employment ads. You’ll find plenty of them right now. It won’t take but a few calls or emails before some owner who is beyond their capacity to own/manage this asset is begging for someone like you to come along and get them out of a horribly managed property.

Management Companies

As the CEO of a national property management company, I know how challenging it can be to manage residential real estate assets.  Most other property management companies do as well. Build a relationship with these hardworking people. They can be of great value for management or knowledge of local real estate and purchase opportunities.  Talk to them to find out if they are managing for owners who may be in over their heads or ready for an exit. If a property management company is draining all their resources to make an owner happy, and it isn’t working, you may be able to help solve both of their problems.  

Related: 20 Must-Have Team Members for Real Estate Investing Newbies

Vacancies

In the current rental environment, vacancies have been at all-time lows on the national level, and most expect this trend to continue. Once you’ve identified the market you’re interested in, a quick online search will help you find units with either multiple vacancies or long-term vacancies. You’ll find their phone numbers and emails right on the ad. Reach out and make a deal!

Can you make money in a tight rental market? Without question. It just takes a little extra effort. But a little effort just might translate into a lot of equity. Just make sure you don’t repeat the seller’s mistake — hire the right property management company.

What do you think? Do you have experience with poorly managed businesses?

Share your experience below!

About Author

Andrew Propst

Andrew Propst has over 18 years of experience both in residential and commercial real estate management. Currently Andy is the CEO of HomeRiver Group (the parent company of HomeRiver Boise) and a Business Developer for HomeRiver Boise, a Certified Residential Management Company (CRMC®), in Boise, Idaho. Andrew has illustrated throughout his career his resolute commitment to delivering first-class results for clients, as well as consistently improving efficiencies and operations across his companies. Industry knowledge and a keen focus on technology has been a major priority for Andy. He has obtained four of the leading industry designations: Certified Property Manager® (CPM®) from the Institute of Real Estate Management (IREM®), Master Property Manager ® (MPM®) Residential Management Professional ® (RMP®), both from the National Association of Residential Property Managers ® NARPM®, and Certified Commercial Investment Member (CCIM®) from the CCIM Institute.

Volunteerism has been a major focus and joy for Andy, from service on the National Board of Directors of NARPM® for six years as a Regional Vice President, to National Treasurer, National President-Elect, and then his election as President of The National Association of Residential Property Managers (NARPM®) in 2015. Currently, Andy serves as immediate Past President for NARPM® and continues to offer ongoing counsel and insight to the Board of Directors of NARPM®, using his extensive knowledge and experience within the industry. Andy has also had the privilege of serving on other local and national real estate boards.

Andy also took a recent swing at Hollywood. As the Associate Producer of the Saratov Approach, Andy helped fund, write, promote, and deliver a national theatrical release of a full-length motion imageture that won multiple awards and returned an Internal Rate of Return (IRR) to its investors of more than 1000%. The feature was based on the true story of Andy and his missionary companion, Travis R. Tuttle, and their dramatic experience of being kidnapped and held for ransom by the Russian Mafia in March of 1998. Andy also wrote and help produce, The Story Behind The Saratov Approach: A Fireside Event in 2013, which is now available on DVD, Blu-ray, and Netflix, along with the “Saratov Approach.”

As well as his commitment to his business interests and wide real estate pursuits, Andy’s family is #1 in his life. Married to his beautiful wife, Shonda Propst, for 17 years, Andy and Shonda adopted their first son, Samuel Propst, in 2008. Further, the Propst family welcomed another new addition with their adoption of Brooklyn in 2011. Originally from Oregon and now proud to call Idaho home, Andy is also bilingual, being a fluent speaker of Russian, alongside English.
HomeRiver Group
HomeRiver-Boise

2 Comments

  1. Mason Fiascone

    Really appreciate this perspective on how to find great deals! As a newbie, I love hearing these creative ideas, it really gets the wheels turning when I’m trying to enter a ridiculously competitive national real estate market for the first time. Thank you!

  2. Rob Cook

    Great Article Andrew! This is a big “Secret” of mine you just revealed. Anyone with a mind to find great deals on rentals should take this to heart. If there is one thing I have learned, it is that a good property manager partner is a huge key to RE Investing success.

    This year (208) so far, I have acquired 21 more rental units ! And all because of Nathan Gesner, my good friend and longtime property manager for my rentals in Cody.

    As this article points out, poorly managed properties lose value. Whether those are YOUR rentals, or ones which you MIGHT be able to acquire for great prices as a result. Almost ALL of my rentals were purchased from unhappy landlords who wanted out, and were willing to make me a great deal to do so.

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