How To Leverage With Property Management
Author: Hans Anderson // Category: Mr. Foreclosure Aiden WinI used to be one of those people who looked at real estate property managers as a costly expense. I considered good property management services to be something that only successful real estate investors could afford to pay.
Surely, I thought, I could manage my own properties and pocket the money that would otherwise go to paying for property management, increasing profit from my real estate.
However, I learned that good property management doesn’t just cost you money… IT CAN ACTUALLY MAKE YOU MONEY!
Cash flow is the ultimate goal whenever you purchase a property. An investor purchases property, be it a single family home, a duplex, a 4-plex or a much larger multi-family unit, with the intent of generating cash flow.
Depending on the size of the cash down payment and the condition of the property, cash flow may or may not become a reality.
I’ve met both seasoned and aspiring real estate investors, just
like myself, and read story after story where my fellow investors purchased properties with high leverage, usually properties that have a great deal of deferred maintenance.
These are advertised by owners and agents for a small GRM (Gross Rent Multiplier). Much to their dismay, they discovered within a short period of time that expenses can quickly get out of control. There is no way to avoid the necessary repairs that are inevitable. Roof leaks, appliances that continually break down, carpet that needs to be replaced,vacancies and evictions all become a real sore issue with owners who had dreams of plenty.
Unfortunately for them, the “Dream of Plenty” means plenty of cash out of their own pocket. Often, these new investors are confronted with tenants who have been ignored since they took occupancy and they have a list of problems stemming from floor to ceiling. By the time the new owner signs the escrow papers, these tenants have contacted city officials, code enforcement officers, building inspectors, local and state housing departments.
The new owner is faced with the challenge of a lifetime and it will seem like a lifetime before he or she will ever see any light at the end of the tunnel.
This was the start of my interest in property management providers. I absorbed as much information as I could, specifically from the experiences of those in the Foreclosure Insiders Club. I’d like to share with you a little bit of what I learned.
First, it’s important to know exactly what a good property
management company can do for you. A good property management company can be very useful to the person who doesn’t have time to devote to his or her investment.
A strong manager can be a real gift to the investor faced with a multitude of problems including but not limited to maintenance repairs and a large percentage of vacancies. A property management company could also be helpful to the novice or the individual who is emotionally attached to their investment.
Because of the emotional involvement, owners often are not
effective in managing their own property. They have difficulty
making decisions, they delay in preparing a vacancy and they have a real problem in screening new applicants. It is a nightmare if their resident fails to pay their rent.
With an experienced property manager or company, these obstacles are quickly overcome. The manager usually has a plan. He or she knows what steps to take to get the vacancy ready to rent. Precise scheduling of contractors is a key element. A successful manager, faced with a unit that has been completely trashed, should have the ability to have it ready to rent within three (3) days.
Any manager with some longevity in the business has heard every excuse why a resident can’t pay his rent. In addition, the manager has probably experienced first hand every possible maintenance deficiency that has occurred or is need of attention. Here again, an owner can waste valuable time and money trying to get these type of problems corrected.
A successful property investor usually owns or manages their own property management company or has already taken steps to contract with a manager to oversee his investment.
In either case, they have delegated a great amount of the
responsibility to someone else so that they are free from the
countless amounts of detail and constant stress that often plaques a property manager.
When the successful investor is about ready to purchase an
apartment building, they will generally bring their property
manager along for one of the inspections prior to signing any
agreement. The purpose, of course, is to gain some insight from another perspective. Often the investor will overlook certain aspects or characteristics that the property manager may quickly recognize.
The property manager may see signs of serious maintenance problems that an owner might overlook. The experienced manager can point out certain hazards or potential problems that might go unnoticed.
The job of the manager is not to discourage an investor from making the purchase, but to help the purchaser see the whole package.
Property Management is not just providing an apartment for an
individual or a family. The property manager essentially manages all types of services for the owner. Shelter is the obvious but along with that you have to include plumbing, heat, flooring, tile showers and tubs, roofs, ceilings, walls, windows, kitchen appliances, water heaters, carports, garage door openers, fans, smoke detectors, cabinets, landscaping, walkways, stucco, siding,fireplaces, brick and spark arresters. Not to mention fencing, sprinklers and swimming pools.
Aside from all of the equipment and materials that is used for a
housing unit, your property manager must be able to manage people. Those people are your customers and they are the individuals that will keep your building afloat. The good managers know who should be renting your unit and who shouldn’t.
The manager will do credit checks, verify income and
previous residence. They check with references and look to see if the tenant has ever been evicted before or asked to move. After all the checks, once in awhile a property manager is fooled. It is unfortunate but sometimes circumstances change in an individuals life and the manager may be forced to evict an individual or a family.
One other item, a very important item, which the manager will
know… the law.
Owning a single family home or an apartment building is a business. A business with many aspects to consider. An insightful investor will recognize the tremendous advantage to good property management.
Aiden Win
