Multifamily is a team sport is something you may often hear. Indeed there are many team players involved in order to execute on the business plan and make the deal a success. Apart from the lender who provides the preponderance of the capital, the property manager (“PM”) is another key deal team partner who is essential on how well the business plan is executed and thereby directly impacting the asset performance.
As an active operator, my team and I often go through a diligent and detailed screening process to ensure we have the right property manager with similar values, goals, and work ethic. In today’s quick snippet I will share high level what those criteria are. You can leverage this knowledge as you screen various opportunities and know what questions to ask to ensure the operator you invest with has properly vetted the PM.
In the beginning, it is helpful to start with a preliminary review of public information such as the Better Business Bureau as well as Google reviews of the PM and the property to get an idea of how owners and tenants like that PM and if there are recurring patterns of negative reviews. The PM’s site is also a good resource to learn how many properties they manage, how many active listings they have, type of property they manage (Class A-B-C), size of property (small-medium-large multifamily), locations, availability of an owner portal and a resident online portal, etc.. This will help you determine if their overall profile meets your criteria and fits the type of property you have/will purchase. For example, a Class A PM may struggle with a Class C asset; a PM with no presence in the location you are looking at may not have the right network of vetted contractors to service maintenance or may upcharge for the distance (mileage fees).
Next, we look to understand various facets of the PM’s management philosophy with respect to: (i) experience and market expertise, (ii) day to day management, (iii) tenant satisfaction and retention, (iv) turnover handling, (v) advertising and filling in the vacancy, (vi) tenant screening process, (vii) accounting and reporting capabilities, (viii) grounds maintenance and exterior upkeep, (ix) how and if they communicate. We have developed a detailed list of questions to ask and to better understand the above. Placing and screening the right tenant in is half of the battle (vs. placing someone in quickly who would either destroy the property or be consistently delinquent in paying rent with resulting in added costs such as eviction). Second is retaining that tenant and minimizing turnover. Lastly, having adequate systems and reporting so you can track the property performance over time against your Key Performance Indicators (KPIs).
Additional vetting resources include obtaining references from fellow investors. Just because a PM was a good fit for them does not necessarily mean they would be a good fit for you. However, a positive reference from another operator eliminates some of the risk of choosing the wrong PM. Furthermore, other external checks involve – secret shop and drive by and check other properties they manage to see how tenants are handled and how these other properties are maintained.
Even after all the vetting and positive reference, after you start working with the PM, you may discover that you are not a good fit for each other. Sometimes it might be better to start with one property or a smaller property before expanding the wallet share with that particular PM as a way to test the waters.
The overall vetting process takes time and by no means is perfect. At times it may take trial and error to find the best PM. However, by taking the time to vet the PM upfront, you mitigate the risk of partnering with the wrong one.
Should you have any questions or want to learn more about real estate investing or for an overview of our target markets, please reach out to info@dbacapitalgroup.com.
Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.