Property Management

I have only been working in property management for two months. However I did work in a residential hall while in college. Anyway, I'm a leasing consultant but I have worked in several areas including online education, staffing and the non profit sector. My husband is a maintenance tech for another property and we have been considering going into the business for ourselves. What kinds of things do we need to take into consideration?

Do you mean going into your own business such as purchasing your own properties, multifamily, duplex, or single family?
Most profitable apartment complexes are owned by well to do partners in concert with a management company running them. Some of these owner/investors have never set foot on the property, itself. They hire or own the management company who is tasked with hiring on site people to run it. In many cases, the owner/partner only receives a quarterly P&L and a bank deposit, and that is the sum total of their involvement. Many of these owners have development companies who take the property from a cow pasture to a profitable complex. These people have lots of connections along with their money, such as the various banks and finance agencies. This is how Tax Credit properties are born. Some have their own real estate companies.
An average person would need excellent credit, or lots of savings and investment money to do more than pick up a four plex or a few single family properties. Your probably going to have success breaking even for some time, but long term you might do well. Finding foreclosed properties is also possible. Some people can make a living taking Section 8, but it is a paper tiger to deal with.
Good Luck!

As someone who has managed properties for many years I say unless you have a substantial amount of wealth DON'T DO IT! Have you ever read a communities financial statement? Often times they make little to no real income. Most multi-family owners will tell you they're asset rich but cash poor. In my office we often talk about what we would do if we had a ton of money, none of us would be multi-family owners!

What would you consider a substantial amount of wealth? Also, do you feel that most properties don't have a positive NOI that would cover the cash flow of a partial loan with some equity put down. Let's say 70% leverage on a property with 30% equity. In your experience what is the average NOI of properties you have seen or worked on?

Thanks

I have noticed both the owners of my company and the owners of my husbands company come from old money. Not only is it old but it is spread through many relatives; a father owns one, an uncle another, and so on. This is my fourth job change and I'm really looking for ownership and a higher salary. Maybe I got carried away. Nice reality check! Thanks.

There are just too many variables for me to want to risk that kind of money. My community sees NOI increases monthly however that can change real quick. Anything from a deployment in a military market, to a crime wave, to the closing of a major employer can make that all go away in a matter of days. When I look at my financial statement and see the cost to run a community it's always amazes me that this is a viable business. So much money goes out every day; salaries, taxes, up-keep, utilities, turn cost, marketing, insurance, and the biggest one, the mortgage then if you are lucky there may be $1200 left over for you. Ask your manager to share your communities’ financial statement with you. I go over mine with my entire staff monthly.
@Mrs Bethea- why not start small like maybe try starting a property management company. This way you can get your feet wet and learn the nitty-gritty aspects of multi-family ownership before you sink your life savings into owning a community. I know of a couple who started small by getting one owner to give them a shot, 5 years later they have 12 communities they are still managing. I love your spirit though!

Stephani I didn't realize their was a difference between owning a property and starting a property management company. I'm am very green in this area. Is having a property management company like owing a franchise? I don't know the first place to start. All I know is the company I am currently working for needs more improvement than any place I've worked for and I don't want to keep searching for a new job. I feel like I'm getting older (27) and it's time for me to make some major moves.

There is a lot to consider when planning to work for yourself. I rented out a home I owned prior to working for a management company and I hated it! I don't want to clean gutters, pick weeds, trim bushes/blackberries, make repairs, etc.

My renters always had a great story about why they couldn't pay rent and it took me 5 months to get them out. I kept thinking that if I worked with them I'd have a better chance of getting my money than if I cut my losses. Eventually I had to cut my losses and they never paid.

I sold the home and went to work at a management company that only manages for others and does not own any property. I prefer this arrangement because if a management company also owns property, they are going to treat their owned properties with more care than their clients properties.

There are hundreds of property management companies in my state. Some only manage, some only manage what they own, and some do both. I worked (at the management company) once for an owner who was in his 90s and in a nursing home. The complex was his only source of income, so the budget was very challenging. I've also managed complexes (same company) where the owners had no mortgage and had great profits. My current community is financed and was purchased at the height of it's value, so the owners currently don't profit much from it, but as long as I'm maintaining occupancy we're doing ok. I'm lucky my owners have day jobs!

I have friends who have managed directly for owners instead of a management company, but I like the protection and benefits provided by working for someone else.

I heard landlords are the 3rd most hated people (lawyers and tow truck drivers rank above us!) Do you want that reputation? I prefer being a nice, neighborly, customer service provider.

Owners and management companies can both have high legal cost needs. Site managers can be sued too, but most unhappy residents would go after what they think are deeper pockets.

I think having been an owner-landlord, I have a better idea of the importance of customer relations. I think some management companies are lacking that and focusing only on getting rich. Being the middle man management company can't be easy, but being an owner sure wasn't easy either. Being a site manager may not make me rich, but it's very satisfying for me and I never want to leave.

Maybe a good staring point would be to buy an apartment complex and manage it yourself. That way you will see what aspects, managing vs. owning, appeal to you. As for me, if I became independently wealthy, I'd buy property, but I'd hire the company I work for now to manage it.

@Mrs. Bethea There is a huge difference between owning a community and managing one. I think Rose did a pretty good job of breaking it down. I'm big into the financial aspects so here is a simple breakdown:

Say you have 200 units and they all rent for $800. Your GPR is $160,000 keep in mind that is only the potential rent; if you have vacancies or delinquent accounts which you will the actual rent collected could be way less. The take off the mortgage of course it varies from property to property but let's say it's $40,000 a month. Take off another $15,000 for administrative fees such as marketing, employee training, HOAX fees if applicable, office supplies, phone, internet, cable, pagers, etc. Then there are the utilities, do you pay any or does the resident pay them all, someone has to monitor that if they pay so theirs a monitoring fee, just the elect, water, sewer, and trash for my community is around $11,000 per month. Then theirs extermination, and possibly security, a uniform service, if you have elevators that's a HUGE expense, as well as fire suppression systems, which require contracts for monthly or quarterly inspections so there's $11,000. Contracts for lawn care, painting if contracted out, carpet replacement, plumbing, replacing doors and windows, repairing the roof after a big windstorm, etc. plus the cost for in-house maintenance supplies, maybe $10,000. Then add in payroll, you get what you pay for. Yes you can hire a tech or leasing person for $10hr but are they going treat your community like it's their own business? Probably not, probably they will just take what training they get while working for you and move on at the first opportunity. What about leasing, renewal, or quarterly bonuses? At least $5000 per month (we budget for quarterly bonuses by spreading the cost over 12 months) so add $11,000 to the outgoing column. Then you have taxes and insurance mine are about $15,000. So if all rent collections are perfect that may leave you with $42,000. But chances are you will have several vacant apartments say 5 @ $4000, some evictions that tear up the unit out of spite (a bad turn can cost you tens of thousand but will cost a minimum of $1500, and at least $5000 in delinquent rent. So that leaves you with $31,000 at the end of the month. Now heaven forbid you have a fire, major flood, mold, or the dreaded Bed Bugs. Just one of those will cost you probably most of what you have left. Sure you may have insurance to cover some of these and you can even sue the resident for damages (good luck collecting that) most insurance policies have a huge deductible; I think mine is $20,000. These major events happen in our industry every day. And this is only a sample of what it cost to run a community. There are so many variables that it would make your head swim. Like Roses example of taking 5 months to evict someone, that's 5 months of rent you are losing and most likely the longer they are in the unit the more damage that will be done. Again, you can sue, but there is only a VERY slim chance you will recover any money.
I'm with Rose, I am far more happy as a community manager knowing this is my responsibility, but not having to worry about whether I'll get a paycheck.
@Rose I do have to disagree with you on management companies who own communities giving their own communities preferential treatment. My company does both, but the focus is on the communities we manage as that's our bread and butter. Our reputation as a management company is build on the communities we manage not those we own, those were just good investments

Lots of good coverage on this topic so far, and I believe we have agreed that multifamily takes large reserve accounts to be able to manage a complex. I think we can also agree that an Attorney on retainer is another very valuable asset for the owner/managers. There are, as we all know, professional testers out there who apply for a unit, hoping to get turned down over something that can lead to a law suit. Keeping one's units at four (4) or less gives some relief in my state. Landlording, as has been said above, is a vulnerable business, and one must know what one is doing at all times.
In some states the eviction processes are costly and overwelming. However, some states are Landlord friendly.
Subsidized or afforadable housing as they call it, is in my opinion a specialized part of the business. Here, your dealing with HUD/USDA-RD/HOME/Etc regulations entirely. In addition to the other elements of running an apartment complex, you take on lots of new requirements. These can break out into elderly/disabled, family, and congreate properties.
So, to me, someone is either a small landlord on their own, or part of a huge corporation who is fully in battle gear to run a business. I think everything else has been said already and well done!!