by Theresa Bradley-Banta
Owning apartment buildings and multifamily properties is not for the faint of heart. Managing multi-unit properties presents it’s own special list of challenges, skills and talents.
When it comes to managing your property you have two choices. You can manage the property yourself (and if it’s a small property chances are this will be your only option if you plan to have a cash-flowing property) or you can hire a third-party management company.
You, your team, or your manager, must have skill sets and experience in at least the following areas:
- Leasing and marketing.
- Maintenance and renovations.
- Community and resident relations.
- The know-how to increase income and lower operating expenses.
Great multifamily property managers are hard to find. But know this: Your property manager is the number one person on your team.
Managing Your Multifamily Property Manager
Your level of involvement with the management of your property is up to you—it is not a decision your manager should make. You determine what protocols and procedures will be set forth in your management agreement. And you determine how often your manager reports to you.
The key to successfully managing your asset is to put solid systems in place. The best time to do this is at the beginning of your relationship with your manager, not as potential problems develop. It’s much harder to make adjustments after your manager has had a free hand and is accustomed to managing your property his/her way.
You’re less likely to hear your manager say, “Well, we’ve always done it this way, I’m not changing now” when you’ve established upfront how you want things done.
Here are some great systems to put in place:
Rental Property Accounting
There are many multifamily property management software programs on the market today. Most commercial property managers use software programs such as Yardi, AppFolio, Rent Manager, RealPage and Tenant Pro.
Here’s the important thing to note: Be sure your manager actually knows how to use the software. Before hiring a property manager ask to see and review sample reports from the properties he/she is currently managing. Property management software programs are designed with integrated accounting systems and comprehensive reporting—but the old adage “garbage in, garbage out” still applies even when your program has all the bells and whistles.
Tip: Request online access to your property reports. Most property management software programs have an owner portal. Have your manager give you the appropriate log in information so that you can access your property reports 24/7.
Here are the reports you must receive and review regularly:
- Cash Flow Statement.
- Balance Sheet.
- Profit and Loss Statement.
- General Ledger.
- Monthly A/R Collection Report.
- Rent Roll.
These reports will cover all property income collected and all invoices and expenses paid. Plan to review these reports as needed. For example, you may want to review them on a weekly basis at the beginning of your relationship then bi-monthly or monthly as you gain confidence in your property manager.
Note: Your manager should also provide an Annual Budget Forecast. These are your projections for income and expenses over the next 12-months. Do not prepare an annual operating budget for your multifamily property or apartment building and then file it away and ignore it. Read Creating an Annual Operating Budget for Your Multifamily Property to understand the benefits of preparing an annual income and expense forecast.
Multifamily Property Rent Roll
Along with leasing reports I like to see a Rent Roll on a regular basis—at least bi-monthly. Your property Rent Roll should be kept current at all times and available to you online. At a glance you can see, among other things, your vacancies and collection status—two items you must always watch closely.
A good Rent Roll will include: Unit number, unit type and square footage; resident name, move-in and move-out date; lease term and expiration date; rent (current and market); security deposit; starting balance; additional income such as parking fees and storage fees; all other charges (late fees, utility reimbursement, etc.); and amount paid and balance due.
Leasing and Marketing Residential Investment Properties
It’s up to you how often you receive leasing and marketing reports. Leasing is such a critical part of property management that’s it’s a good idea to ask your property manager for weekly updates especially if you’ve purchased a property with high vacancies.
Your weekly leasing and marketing updates should include:
- Leasing status updates: Be sure your manager gives you accurate and detailed information on leasing activities at your property. For example, don’t let your manager simply say, “We leased two units this week.” Your reports on newly leased units should include all of the information found in a comprehensive Rent Roll as described above.
- Marketing activities for the week: Where has the property been marketed and what are the results?
- Market rent: Your manager must keep current on the rental market. What are comparable properties charging in rent and utilities for similar rental units? Can you raise the rent on your units and stay competitive?
- Collections: Be sure your manager lets you know of any collection issues with your current residents. If a resident is having difficulty paying rent you need to know about it immediately.
For a comprehensive understanding of leasing and marketing read 14 Points That Must Be In Your Apartment Building Leasing and Marketing Plan.
Responsive Property Management: Maintenance and Renovations
Establish a system for resident maintenance requests.
How will your residents contact your property manager when they have a maintenance request or other questions? Who will follow-up with your residents? And when? Set established procedures for your residents and manager to follow. Your manager should be on top of resident complaints and requests for maintenance 24/7. Set deadlines for returning calls and written requests.
You should approve all property renovations. Here’s an example of not leaving it up to your property manager. I had an 18-stall carport at a property that was in need of a new roofing membrane. A simple repair. I asked our property manager to get a bid on repairs, which he did. However his bid included complete gutter replacements, new downspouts and replacement beams in addition to the new roofing material. All but the roofing material were unnecessary improvements.
The lesson here is don’t leave renovation decisions in the hands of your property manager.
You can put a clause in your management agreement that states the manager must secure your approval for any expense that exceeds a certain dollar amount—a dollar amount set by you. Click here to download a free Sample Multifamily Property Management Agreement.
Community and Resident Relations
Plan to have periodic conversations with your manager about your property’s community. How would your manager summarize the residents at your property? And more importantly how can he/she positively influence relations with your residents?
Some of the things your manager should be proactive about are:
- Resident rewards: Offer a small reward to your current residents for telling their friends and family about vacant units at your property. You might want to host community barbecues or events from time to time.
- Premise history: It’s possible to request a premise history from your local police department. Much of the activity that involves the police can occur at night when your manager is not around. It’s a good idea to check the premise history periodically. It’s an even better idea to have an on-site manager who lives at your property if financially feasible. A good on-site manager can dramatically enhance resident relations.
- Online property reviews: What are current and past residents saying about your property online? Are they posting complaints or compliments? Respond to every review your property receives including those left by residents prior to your purchase of the property.
- Ask for reviews: If your manager (or you) receives a compliment from one of your residents ask them if they would be willing to share it online. And let them know you plan to share it with the rest of the management team.
The Know-How to Increase Income and Lower Operating Expenses
Property managers who have experience as both a manager and a multifamily property owner can bring a lot to the table in areas such as:
- Operations consulting.
- Value added strategies: Improvements that can raise the value of your property.
- Industry vendors and service providers: An owner/operator of multifamily properties will have good industry contacts for vendors and service providers for multifamily properties. Review your current service providers annually for cost and service.
- Increasing revenue.
- Lowering expenses.
It’s been my experience that the best multifamily property managers own multifamily investment properties. Look for this type of manager and make good use of their talents. A good owner/operator manager can help you improve your property revenue, decrease property expenses and increase the value of your property.
From time to time legal issues will arise at your rental properties. Be certain your property manager uses attorneys who are experienced in real estate law and residential and commercial landlord representation.
Put procedures in place for:
- Handling evictions and completing proper eviction documentation such as SDRs (security deposit return letters).
- Property inspections for compliance with state, city and local codes.
- Fair housing compliance.
Free Multifamily Property Management Resources
You’ll find a Sample Property Management Agreement and an excellent list of interview questions for hiring a multifamily property manager here: Free Multifamily Investing Resources.
The key to establishing a good working relationship with your property manager is to have open and frequent conversations about how your property is performing. Even bad news can be manageable if you stay on top of it.
Don’t let your manager dictate how you work together. You’ll be far more successful when you take leadership and an active role in your property management.