Operate 100+ unit apartment complex with expenses below $4,500?

Property Managers/Owners/Investors: Is anyone able to operate a 100+ unit apartment complex with expenses below $4,500/unit/year?

4500.00 a unit per year? Maintenance, the cost of turnsovers, repairs (carpets, vinyl. What condition are they in? How old are the heating units and carpet? I would say yes if water heaters are flushed, heater maintenanced and filters changed. Yes it is possible.

I would say yes, because we actually have sites that size operating at that or a bit less. However, it depends on the condition of the asset. How old is the asset, and how are the conditions of the units? Any upgrades? How old are the HVAC units? How big is the yard? Does it have pools or not? To give you an accurate response, we will need to evaluate that site and complete a proposed budget. Can't do it without seeing the actual site, but YES, it can be done at that cost on the right site.

Yes.........less than $4500/yr. expenses under 100 units might be a bit of a challenge but for larger properties, it can be done. Lots of variables....age, market area, location of property, includes Cap. Ex. or not, etc., etc.

Yes. I operate my 160 property in Broward County Florida for less than $4500 per year. I owner manage and am very aggressive on negotiating discounts

David, thank you for your response. May I ask how much are you paying yourself as a Property manager ($$$/unit/yr)? I am finding that paying a management company 3% of GOI is reasonable, but limits my ability to be hands off.

I'm not a big fan of management companies. They have no vested interest and provide pedestrian returns. Every property I've looked to buy, over 100 units, with a management company has high expenses, poor occupancy and high bad debts. Management companies tend to collect the easy money. If you pay 3% of GOI, what incentive do they have to collect the last $5,000? $150. Yet, it is the last $5,000 or $10,000 that enhances your profit. If your GOI is $100,000 per month and they need to spend 10 hours to collect the last $10,000, they are not going to do it because it is only worth $300 to them. For the owner manager, if it takes 10 hours to collect, it is worth $1,000 per hour. I think a better structure would be 1% of GOI for the first 80% collected and a rising scale to incent them to collect the last 10%.

David, Thanks for sharing your incentive compensation idea. I am true believer in incentives, never thought to apply to the property management fee in this manner. Great Idea- thanks for sharing.

Hi Pete, $4,500 per unit per year for a 100+ unit individually metered apartment in Texas is very reasonable. Assuming that the property is NOT all bills paid or theft is taking place, there should be room to actually cut expenses. The other thing to take into consideration is how the capital expenses are booked in the accounting detail. If Capx costs are captured in recurring expenses and that is how the $4,500/unit was calculated then there are probably some AC units, appliances or a roof replacement that needs to be dropped below the expense line and put into the CapX line. I'd be happy to review the expenses with you and take a hard look at how we might optimize the asset. I specialize only in multifamily work exclusively with a NAA award winning CAM manager with both management and ownership experience. If you can send me 12 months trailing income and expense statements to [email protected] or 512-904-9900, I'd be happy to help you.

We have had success with Apogee New Dawn as a property management company. They have in house maintenance divisions, landscape divisions, licensed general contractors, & attorneys to assist with contracts - evictions if necessary, as well as collections. We have found them to be experienced, knowledgable, and professional. It's always worth a conversation to speak with any professional.
There info is 561-264-2001 ex. 1110 Pedro Maysonet - Business Development

Scott, Thanks for the feedback and response. I will contact you off line.

Ken, Thank you for your comments. This is a great idea to have in house maintenance divisions, landscape, attorneys, etc. Seems that owners' will either love it or leave it!

Pete, We manage over 4,000 units in the Florida market and the cheapest we are able to run a class B asset for is about $4,000 per unit. The biggest expenses are the Insurance and property taxes in Florida. Most of our portfolio insurance costs are equal to 1 months rent and property taxes are sometimes higher. Class C assets cannot be managed for less the $5000 per unit. The wear and tear on units is much higher and turn over is much greater. Class A assets are eaiser to manage but clients are much more demanding of ammenties and hence the cost factor. NAI Tampa Bay & J.B.I Property Management.

John, thank you for your comment. I am learning same. Class C is higher cost to operate because of the turnover/wear and tear. Class B a bit less and Class A is not my interest. My analysis (almost 100 properties) have revealed the same that property taxes and property insurance are two of the biggest expense items. In some cases, Payroll and Maintenance and Repair trump the insurance cost! Of course, I am separating capital expenditures from Maintenance and Repair. What do you see as the top 5 most expensive items? Can you assign a % of GOI to each? Thank you in advance- I appreciate you sharing your insights.

Pete, Top expense items for us are turnover items such as carpet, appliances and paint. Most guys try to hide them below the bottom line and line itemize them as capital improvements but to us it is a direct cost. We have been able to actually decrease labor cost by 20% since 2008 due to economy. We use in house maintenance and have been able to replace $18 an hour labor with $12 and hour labor. We have just put together a in house lawn service that will be a shared cost across the portfolio. We feel we can control the quality and service much better.

Absolutely. I can operate many All Bills Paid properties for less than $4,500 per year per unit in expenses. I have done it many times in the last 10 years. I have one now that is all small one bedroom units that I am operating at way (way, way) under that- all bills paid.

It simply depends on where the property is located. I am in Texas and you can run 1980s large properties under $4,500 and sometimes with the right capital work/architecture/mechanical configuration you can run 1960's properties as all-bills-paid for under $4,500.

You need a specific geographic answer to your question. I have on my desk the summary of the 2010 NAA operating expense survey and of all market rate individually metered properties only mid-rise/hi rise were over $4,500 per unit before capital/replacements.

The master metered properties they have on here must be skewed way to the east coast as expenses per unit were in the $7K-9K range. I can run two master metered units in Texas for that with the right mix of capital.

Energy efficiency retrofits that we have been doing for the last 10 years pay off for us more now because there are some properties that are dinosaurs for not-so-obvious reasons and we know not to buy them at any price.

Never seen that one.

We do both 3rd party and manage our own portfolio. I am operating a 100 unit asset in Southern CA for $3300 a door before capex and insurance and $3800 a door with, which includes a 4% management fee. On average, we are operating our portfolio accross the country at less then $4k a door all in, with the exception of mortgage and interest. Our incentive to manage 3rd party assets just as aggressively as we manage our own assets is as basic as wanting to maintain our reputation. I do feel like the fact that we manage every asset the same is because our fundamental core is to manage as if the money were ours. By far, our C class asset in Kansas City runs the richest to operate at right at $4k a door for a 370 unit community with a 5% management fee. Again, that is all in, including insurance and Capex but not Mortgage and Insurance. Our assets in Texas and Oklahoma run the leanes likely as a result of labor costs be less than other parts of the country.

Thank you all for the comments and feedback. I am analyzing broker packages and we all know how rosey brokers make their listing appear. Thanks for sharing real world insight! Continued Success, Pete

I have a question. Are there any buyers out there purchasing C and B properties? And if so, how many units and what are you getting a door?

Peter, yes there are buyers. Just read a WSJ article articulating the fact that BIG money is moving with acquisitions. Don't know the details as to property types. Last week, I spoke to a former fund manager who is bullish on "high barrier to entry" markets and bearish on sunbelt areas like TX, AZ, etc. So this team was not following the masses- of course they are content with a lower return rate in exchange for stability or "core" market.
Some of the C properties I am reviewing are offered at $14k/door- trouble is, they are probably worth $9K/door. When the lenders realize that there are easier properties to turn and operate then they will take the next offer and move on. My $0.02

I have recently financed several acquisitions including an older, vintage 70s subsidized property. You can often find good deals but make sure when you are negotiating the price you account for your lender's engineer's inspection. The property capital needs assessment is going to look at everything and buyers need to have the cash to set up reserves. Windows are the latest hot button and if you are buying a 30 year old property that hasn't seen much attention the windows are probably past their prime and may need to be replaced.

I oversee a portfolio of Class C properties in the Bronx and I have a grouping of buildings that throw off a lot of cash. However the 2 supers I have for these buildings don't do vacancies and I pay through the nose for my vacants and my CPU ranges between $9k-11k.

To keep your costs down you may also want to look at how items are being purchased. You may want to look at getting with a company that can use combined purchasing power across the country to lower out of pocket as well as have a tighter control on spending. This can also let you know what is trending with breakdowns which may lead to correcting something which will alleviate a systemic problem.

Another thing I run into is that many properties when they are replacing appliances are not putting and tracking in service dates to take advantage of warranties and such.