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Once you have a property manager in place to manage your multifamily property, you need to be able to track his or her performance. There are four reports that are essential to tracking a property manager’s performance. The information from these four reports will help you to evaluate the job that your manager is doing and alert you to whether changes need to be made.
The first report you need is the Profit and Loss statement. This is a standard report of income from the previous month and expenses so you can see your NOI. You should be sure that is in your hands no later than the 10th of each month.
The second thing you need to review is the check register. You want to see what checks were written from the previous month. If you can see where the checks are going, you can get a better idea of the cash flow and see who is getting paid what.
You also get an idea of whom the vendors are and you can question things that you do not recognize. The check register can also alert to you any other problems with the property. For instance, if you see an increase in the number of checks written to the plumber, you need to determine what the reason for that is.
An occupancy and traffic report can help you analyze where your tenants are coming from and what marketing campaigns are most effective. This report can alert you to which units are empty, rent ready and which ones are not. The worst thing to have happen is to have vacancies that are not rent ready and someone shows up who is ready to move in that weekend.
You can create the occupancy and traffic report in an Excel spreadsheet. Your onsite manager then fills it out on a daily basis. Each row is a day of the month and each column includes number of calls, number of showings, number of applications sent out, leases signed, follow ups, referrals, leads from ad sheets, leads from signage, leads from walk-ins, and leads from merchant coupons.
By looking at this report, you can see the relative amount of activity. If you are getting activity but not converting, then you need to find out why. That tells you that you need to re-evaluate your process.
The fourth report is the maintenance, or work order, report. When a tenant calls in with a maintenance problem there should be a work order to complete and a progression of steps. A work order summary log should include all of this information. The maintenance work order log lets you know that your tenants are being taken care of.
Whoever is managing your property needs to have a work order log. You want to see how long it takes for a work request to be filled. You do not want the turn around time to be a week. Customer service must be a priority with your tenants.
These four reports help you to monitor the overall health of your multifamily property. Good property management is the backbone of retaining tenants and keeping your property managers accountable is crucial to your multifamily property being a money-maker for you.
Tenants are the lifeblood of your properties. Marketing for tenants falls under your property manager’s job description but you need to be aware of the different ways to market. Your knowledge of marketing for tenants will enable you to direct your property managers to see how good a job they do in thinking of creative ways to get tenants. Here are some ideas to get you started.
The first place you can look for marketing ideas is through tenant referrals. You can offer $150 off rent in three-month increments. If the tenant that is referred pays rent on time, the tenant that gave you the referral gets $50 off rent. If the referred tenant is late paying the second month, they don’t get the $50. They will get it if the third month’s rent is paid on time.
Another source of referrals could be local churches. Churches can be a great resource of people who are looking for affordable housing. You could even offer them $50 for each referral that signs a contract. Not only is that a nice donation, but it generates great word-of-mouth.
Churches can also “adopt” your property. Churches have discretionary funds that can be used to assist people that are close to ending up on the street. Tenants can receive assistance when they have fallen behind on payments.
You can run ads in free local ad inserts as well as create bandit signs which are blank signs with handwritten messages on them. Some possible words for your bandit signs are: free rent, move-in specials, and under new management.
Banners are also a great way to attract potential tenants to your multifamily property. 10×4 banners are a nice size and you can order those from any number of websites or even find a local printer. You can have something as simple as “Move in Special” or “Under New Management ” and always be sure and include a phone number. The key is to catch people’s attention and draw them to your property.
Section 8 office flyers for Section 8 properties are also an effective marketing tool. You can put move in specials and cash back bonuses. You can advertise $500 cash back at move-in. You pay the tenant $250 when you get the check and $250 at the 6-month anniversary as a rebate.
Apartment placement agencies and local shop referrals with gift certificates are two more possible marketing venues. Beauty shops are one example of a local business that you can issue flyers to. You can get $25 gift certificates at the beauty shop and not only is that an incentive but it generates business for the shop owner.
Use your creativity when marketing for tenants. It does not have to be a huge, expensive campaign. Test various methods and you will soon find the ones that are effective and give you the best results.
Property management is considered to be a necessary evil by many multifamily property owners. As the owner, you do not want to be in the property management business. It will cost you some of your NOI to hire property managers but your time is much better utilized in finding deals than in managing properties. Here are some guidelines to assist you in finding good property managers.
Your aspiration should be that of the position of the asset manager of the property. You want to add value to your property and implementing a good property manager is crucial in attaining your goal of adding value. Part of your role as asset manager will be to properly manage your property managers.
The first step you need to take is finding a property manager. You can start by driving by properties that look well-managed and then talk to the manager of that property. Referrals, brokers and colleagues that own apartment buildings are also all good places to start when looking for property managers.
Now that you have some candidates, you want to get someone who is experienced with the type of multifamily property that you have. You need to look for someone with depth and who has a system in place. You’re not looking for the Lone Ranger; you want someone who has a back-up for when he or she is on vacation or out for any other reason.
Next, you need some good, solid questions and tips to get the answers you need. Here are thirteen to get you started:
1. How long have you managed properties in this area? What area of the city or what class?
2. Are you a certified property manager? What training have you had?
3. Can I see a property that you currently manage?
4. Do you have references (ask for at least 3)?
5. What is the compensation model? How do you want to get paid?
6. Ask to see a sample management contract – a proposed contract?
7. How often are your management contracts renewable?
8. Check them against the Chamber of Commerce and the Better Business Bureau and check with the real estate commission for any complaints.
9. Ask if they have any Class C experience. It’s different managing a Class C property compared to a Class A property.
10. Do you have any Section 8 experience?
11. Have they managed a property this size? Just because they’ve managed fourplexes doesn’t mean they are ready to manage a 50 or 100 unit property.
12. Request sample management reports. You want to see a report from property management software and not something done by hand. That’s a red flag that they have no systems in place.
13. What are the marketing methods for leasing this property? This is the most important question. You want to see how their thought process works. You want a property manager that markets for the tenants.
Good property management is at the heart of a money-making property. It is imperative that you put the effort into hiring effective property managers to allow you to assume your role of asset manager. The questions and tips above will put you in the driver’s seat and assist you in hiring a good property manager.
During the due diligence period of the contract on a multifamily property, you are doing a financial inspection and a physical inspection. Some lenders require an environmental inspection as well. During this important phase of the contract, you will need to request and inspect the rent roll of the property, copies of all current leases and the inventory of personal property. There are some important items to keep in mind during the due diligence phase.
The due diligence period is also known as the feasibility period. In this section of the contract, you state the length of time that you need for due diligence. You may have a statement such as the following, “buyer may terminate this contract for any reason within 45 days after the effective date by providing seller written notice to terminate”. You can ask for anything but 45 days is typical. If you have a dilapidated property, you can ask for more time.
It is very important that you have a coach or an attorney when completing your contract and going through each of the due diligence items. You also want to hire an inspector to inspect the property and flag any items that need attention as a part of the physical inspection.
You may stipulate in the contract that the seller has 10 days to provide you with rent roll, leases and inventory. These items are necessary for the financial inspection of the property. You want to check out the financial statements as well.
You’ll look at whatever financials they send to you in the context of how you can improve the situation. So you play “what if”. If the occupancy went from 72% to 85% how would I increase my cap rate? If it went to 95% how would it increase my cap rate? How would I run this property today to make it a real winner? You’re doing that by wearing your asset manager goggles.
Brokers will typically have this information ready for you. There may be things they don’t have but you want to ask for everything because this is where you make sure that you understand what you are getting into.
It is becoming more and more common for lenders to require the environmental inspection. Basically, this is where ground samples are taken from around the property. It actually is beneficial because it can protect you in case there are any underlying problems discovered.
The due diligence phase of a contract really allows you to examine every aspect of your multifamily deal. Do not try to take shortcuts and neglect any aspect of the due diligence phase. Your ability to analyze the information from the physical inspection and the financial inspection can greatly assist you in making money on your multifamily deal.
The second step in the three step process of contracting and closing a multifamily deal involves composing a letter of intent for the seller. A letter of intent is a principle of understanding. It is a general agreement of what you plan to do so that you know you will not spend a lot of time on a contract.
A letter of intent that is well-written conveys to the seller that you are a serious buyer. The letter of intent basically lays out the terms that both you and the seller agree upon. Not only does the letter of intent show that you are a serious buyer, but it shows that the seller is serious as well.
You know that you are not wasting your time because the seller is telling you that they can agree to the terms in the letter. A contract takes time and legal fees are involved so the letter of intent helps take the uncertainty out of the deal.
The letter should include the price that you agree upon along with the financing terms. For example, if the property is $1.25 million you would include that and then break it down further. Let’s say you are offering $100,000 cash; assuming the first mortgage at 5.06% and you then would like the seller to take a second mortgage of $360,000.
An inspection period, or due diligence, is included within the letter as well as a finance period to raise your financing. Typically, the due diligence period is 45 days and the financing period is 60 days. If you think you will need more time for financing you can increase that period another 30 days.
You also include the amount of earnest money that you are putting forth. A general rule of thumb regarding earnest money is 1%. So if you are doing a $1 million dollar property, your earnest money will be $10,000.
Be sure and play by the rules on earnest money because the seller will be looking at whether that money will make a difference to your or not. If the 1% is a big deal at the moment, find a partner that will put up the money because you do not want to be looking like a non-serious buyer at this point.
The letter of intent is an important part of the three step process because it signals to the seller that you are a serious buyer. Your whole objective is to get the multifamily property under contract because then you control the deal. An effective letter of intent can expedite the whole contracting process.
So you have found a multifamily property and you would like to close the deal. How do you close it if you want to hold it? Do you know the process that is involved? There is a simple 3 step process to follow to wrap up your multifamily deal. It involves qualifying the deal, due diligence and closing.
Qualify the Deal: This is the first step in closing your deal. It actually has a two part phase: validating the income and expenses and driving by the property. Up until this point, you have just been talking on the phone with the seller and you have not even seen the property. Now you need to validate income and expenses.
You need to look at whatever financials they send you in the context of how you can improve the situation. For instance, if the occupancy went from 72% to 85% how would you increase your cap rate? If it went to 95% how would that increase your cap rate? You need to wear your “money goggles” because you are looking at the property with regard to making money on this deal.
Once you have seen the numbers and it looks like a potential deal, you need to visit the property. Again, you want to make an evaluation as to how you can make money on this deal. What could you do to make it more appealing for leasing? Does it look like a lot of deferred maintenance? Look at the property as the asset manager to determine what needs to be done to generate more NOI.
Due Diligence: Now that you have looked at the property and confirmed that it is indeed a good deal, you want to issue a letter of intent to get the property tied up. The letter of intent is basically a statement that the seller is looking to sell the multifamily property and that you are looking to buy the property and that you agree on the stated terms within the letter. The letter allows for an inspection period which is due diligence. It also allows for a financing period.
Closing: Once you have your letter of intent signed by yourself and the seller, you move right into the contract. You can use any formal contract that you and the seller can agree upon. You will be signing the contract as well as additional legal documents. Money will change hands and you will take the title and you are now the proud owner of a multifamily property!
Once you are aware of the process that needs to be followed when putting together a multifamily deal, it becomes much less intimidating. Again, educate yourself on the process and not only will you be more confident when dealing with the seller but the seller will be assured of your knowledge and ability.
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There are many terms that are thrown around in the real estate investment arena. One of these terms is bird dog. A real estate bird dog, much like its canine counterpart, is out hunting deals. A bird dog is someone who finds something that looks like a deal and then hands it off for you to do the work. If you choose to bird dog deals, there are some things you need to know.
If you want to bird dog a multifamily property deal, the minimum you have to do is submit a deal on a submittal form. That at least shows you have done some analysis. Any sophisticated buyer wants to at least see there is some analysis behind the lead.
If you choose to bird dog deals, you can benefit from working with other bird dogs. Not only can you learn from their experience, but you can team up with them. For example, let’s say you are out scouring the area for apartments and you come across an office building. At present, you don’t have any buyers but you know another bird dog who does have buyers.
You can call up that bird dog and offer to split the deal with him. You are then building a relationship where each of you knows that you can rely on the other to keep an eye out for deals that fit your niche. Teaming up with another bird dog could also allow you to split marketing costs.
You could agree to do a massive mail campaign, pool your resources and then agree to take turns on the leads that come in or to split whatever profits you make on the deals that come in.
Accountability is also another benefit of teaming up with a fellow bird dog. You can build momentum together and hold each other accountable for doing things so you don’t lag and fall behind.
If you are working with other bird dogs, concentrate on those who are consistent and deliver on their promises. Don’t waste your time on dreamers. You need to be ethical and legal but be persistent and focused. Always deliver on value. The more value you deliver, the more money you make.
The more information you take to a buyer, the more you can expect in compensation. If you don’t know what you are doing, the buyer isn’t going to pay for that. To get maximum value, you need to demonstrate that you know the deal.
As with every other aspect of multifamily investing, bird dogging is about networking and alliances. If you concentrate on building not only your reputation but on building relationships, bird dogging can be very profitable. The key to bird dogging is to be knowledgeable and to give the buyer the information they are looking for.
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