“Everything rises and falls on leadership.” — John Maxwell
A good property manager is important to make your deal succeed.
I would say it’s the number one thing that makes real estate deals succeed or fail.
What separates a good property manager from a bad property manager?
How do you find a good one?
What should you look for?
How does this process work?
I’ll go over all of these questions in three easy steps!
It should be noted that today we’ll talk specifically about multi-family properties.
A lot of these principles do apply to single family properties.
But because we have $200 million in multifamily real estate, we’re going to stick to our wheelhouse.
1. A Property Manager’s Job is to Execute Your Business Plan
A property manager’s job is to execute your business plan.
For us, we do a lot of value-add apartment investing.
We’ll come into an older property that we call B Class or C Class.
We’ll do renovations on the common areas or specific units.
Some tenants move out each month and we are able to complete these renovations and increase rents by a couple hundred dollars a month.
This will dramatically increase the value of the property.
We’ll maybe spend around $10,000 per unit.
If we can see a $200 per month rent increase, we will dramatically increase the property value.
That’s what we’re trying to do.
It almost becomes like a long term flip.
Maybe you hold your property for three to six years.
That will allow you to dramatically increase the value of that property.
It doesn’t matter how good the plan looks on paper.
This is where a lot of people go wrong.
They think everything will go off without a hitch.
Unfortunately, it doesn’t always go that way.
We’ve had a deal that we faced a lot of problems with.
Typically, issues are due to property management issues.
Maybe they weren’t able to lease units quickly.
Maybe they weren’t able to finish construction in a reasonable time.
Maybe there were certain things they neglected.
There are lots of stories, but you learn from them.
A good property manager will be able to execute the plan.
They’ll be able to take your vision and run with it.
You won’t have to supervise them because they’re good at their job.
They know what things cost.
They’re not overspending.
So the question comes down to: How do you find a good property manager?
Let’s talk about it!
2. How Do You Find a Good Property Manager?
Good property managers don’t grow on trees.
You can’t just find them wherever.
So how do you find them?
One way is when you’re looking at properties.
We look for properties that are similar to the property we’re looking to purchase.
We do this to know what rents should be.
But another thing you can do is scout for property managers.
If you like the way a property is run, you can figure out who the property manager is.
That’s a great way to find potential manager.
Another way is through a broker.
You’re typically working through a broker when you’re buying an apartment building.
Ask the broker: Who does a good job managing properties in town?
It’s really important to ask around.
You might very well find the perfect fit for you!
You should also keep certain things in mind when you are talking with property managers.
We’ll typically sit down with potential managers and ask questions.
There are whole lists of questions you could ask, but you should definitely start with:
What type of property do you manage?
There are property managers that only manage single family houses.
You can imagine that might not be the best fit for multifamily.
If they manage a three-unit property, that may not jive if you have a 300-unity property.
You want to get a breakdown of what they manage, where they manage, and how they manage.
We typically will work with groups that manage at least a couple thousand units.
We do this so when they manage our building with 200 units, they have some experience.
If they only manage 200 units and we’re adding 200 more, that’s a lot for them to figure out.
Another question to ask is:
Which markets are they in?
If they’re only in markets that are 2-3 hours away, it could be really challenging to bring them to a new market.
We brought in somebody from another market and it didn’t work out well.
(I talk about it in my video about horror stories that you can check out here!)
Other people may have had better experiences.
But it’s something we will not do because there are a lot of unknowns.
The property manager may not be able to find vendors or staff in the new area.
The things they take for granted in their old area may not necessarily work.
It may not even be their fault.
You want to try and set people up for success.
You want to make sure the deal performs well.
What we try to do is remove all the mystery and all the things that could go wrong.
Instead, we take the surest way.
We pursue a route where the property manager fulfills our business plan by having the right experience.
Another question to consider is:
What is the property manager’s reputation?
Ask around and find out how people who have worked with them feel.
They could say they are jerks or they’re terrible.
They might have lost a particular property.
You want to pay attention to what people say.
You can ask other property managers (though they do have an incentive to talk negatively about other groups), brokers, or even other investors.
It’s really good to make sure you get good people in your properties.
If you don’t have good people or a good property management group, the property will not perform well.
You could also ask them:
What are some of your success stories?
We’re multifamily operators.
We need to have success stories when we go to our investors.
We want them to look at the great things that have happened as we’ve taken over properties.
These examples can be how we’ve increased investor returns way more than we thought.
Or we’ve refinanced and returned a bunch of capital.
Property managers should have similar track records.
They should be able to say that they increased revenue by X-amount.
Maybe they turned a property around in X-amount of time.
Those examples are really powerful.
There are many other questions to ask, but the last one we’ll go over is:
What has gone wrong?
Another way you can ask this is:
What are some things you have learned in your career?
If they answer these questions with a blank stare or claim that everything has gone fine, they might be very inexperienced.
Things will always go wrong in every single deal.
The important thing is learning from those things and striving to do better.
You will learn what to avoid and what to plan for.
Everything will balance out.
This question looks for specific information from property managers about what they have learned along the way.
3. What to Watch Out For
There will always be red flags that come up in the search for a property manager.
We try to catch them early.
These flags can be shortcuts as we’re looking to get where we want to go in real estate.
So we have to pay attention.
A wise man learns from their own mistakes, but a genius will learn from the mistakes of others.
Hopefully you can learn from some of my mistakes as well.
Watch out for a property manager in a new market.
We had this issue with a property in Little Rock, Arkansas.
We brought a property management group from a different market and they did not have the network to make it happen.
Because of this, we had some issues with that property.
That was something that we learned along the way.
Whether you’re working with an investment group, or it’s an investment partner, or it’s a property manager…
If somebody doesn’t have stories, that’s a red flag.
Real estate involves continual learning.
You should always be tweaking things to make them the most optimal they can be.
I do competitive Spartan racing.
I measure how and when I eat and keep changing those habits to get a better performance.
I train in different ways to get better and better.
It’s the same way with property management!
You should be continually learning and tweaking and growing.
If a certain software system didn’t work, maybe try a different one.
A lot of property management is stuck in the 1960s.
It’s not very high tech.
Apartments.com can replace the need for someone to be there for a property appointment.
You can get a code that’s good for 24 hours and go tour a property for certain properties.
This tech is dependent on the property and the location.
But there are many innovative things that can be done.
Property managers should be continually looking at that kind of stuff.
They should have stories of increasing performance and making property more attractive.
Watch out for inexperience.
Ideally, the property manager also has access to the property management company and a regional person and person dedicated to your property.
That’s if the property is within the 80-100 unit range.
You want the person on site to be very experienced.
If the regional has a lot of experience, they can provide more support as well.
These are really big projects.
If you give referrals and they’re giving bad feedback, that’s not good.
They’re saying they worked with them once and they wouldn’t again.
That’s why it is important to check in with referrals.
Referrals typically will give good feedback.
Ask them questions like:
What’s something that didn’t go well with a property?
How did the property manager respond when you had a problem?
Were they responsive to your feedback or were they more defensive?
Whether you’re the owner or an investor or a syndicator, this is your property.
You have to make sure your property manager or group can achieve your business plan.
I hope that you achieve all your goals.
I hope you find the best property manager.
The quote at the top of this article really is true:
“Everything rises and falls on leadership.”
If you have good leadership in a country, the country will do well.
If you have bad leadership, the country won’t do as well.
It’s the same with a multifamily property.
If you have good leadership, it will go much better than if you have really poor leadership.
Now I want to hear from you in the comments!
What’s been your experience with property managers?
Have you had a good experience or bad experience?
Share those stories down below and help grow our community!
Before you leave, make sure to check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.