Who is the most important member of your team and how to maximize their potential?

Multifamily investment takes a team approach to effectively find, purchase, and operate a sound investment. It is highly unlikely one person will have the time and expertise to efficiently navigate and carry out every step of the multifamily investment process. This is why a team approach is necessary. Multifamily real estate investment requires a host of professionals working together to include real estate brokers, lawyers, accountants, insurance agents, mortgage brokers, property managers, and others. While each of these professionals play an integral role on the team, in this edition of the WD Chronicle we highlight why we believe the most important member of your team is your property manager. We will also discuss how to find a quality property manager, and how to work with them to maximize their full potential in acquiring, managing, and ultimately selling or refinancing your multifamily asset.

Why are they the most important?

Each team member plays a role at different points in the multifamily life cycle, but it is only your property manager that plays an integral role throughout every step of the process. It is true without your broker, or lender you will likely not be able to make an acquisition, but these team members often step to the side until the end of the property’s lifecycle in either a sale or refinance.

In contrast, your property manager plays an important role at every step of the multifamily life cycle, from purchase to disposition. To start, your property manager plays an integral role in the acquisition process given their considerable involvement throughout the due diligence process. Waiting until a property is under contract to find a property management team is too late. In addition to likely formulating their own pro forma for the property, your property manager should act as another auditor of the operator’s underwriting, and affirm or push back on their assumptions. A good property manager has their finger on the pulse of the rental market, generally far better than the operator because the property manager rents, maintains, and renovates properties, day in and day out. Additionally, a property manager can play a key role in bringing deals to the table, as they likely manage other properties and are often the first to know when an owner is looking to sell, or would be interested in a sale.

During the operating phase, the management team executes the operator’s business plan, and no other team member has a bigger impact on ensuring its success. Even if a broker helped you find the best deal, the deal’s full potential will not be realized without effective management. This is particularly important when looking at the property’s operating efficiency; cutting expenses all the while delivering a quality product is one of the best methods to realize a significant upside on net operating income (NOI).

Finally, during the sale, or refinance of the asset, the property management team continues to play an integral role. In anticipation of these capital events, and with full knowledge of the business plan, a sound management team will ensure the property is operating at peak efficiency, and set the property up to achieve the highest return. Similar to how a management team can aid in the acquisition stage, the management team may also be aware of other owners looking to add to their portfolio, and could broker that deal.

Aligning The Team With The Business Plan

With the understanding that the property manager is the most important member of a multifamily investment team, it is necessary that this priority is reflected throughout your search. Additionally, it is imperative your search criteria matches the business plan associated with the asset you plan to acquire and operate. To start, the management company should be focused on multifamily properties. Managing a property with numerous units is a very different and separate skillset than managing single family, or multifamily homes with fewer units. Additionally, the management company you select should have experience in the specific asset class you target. Having experience managing a class A asset does not necessarily translate to effectively managing a class B or C property. This will be especially important when addressing renovations and leasing matters. Finally, the management company should have experience with the type of business plan the operator is implementing. For example, if executing a value add reposition of a class C asset, a management company that understands the necessary steps in this process, and who can effectively manage tenant turnover, is crucial to ensuring the reposition’s success.

How to Find This Team Member

The process of finding this key team member can take time. It involves copious research and interviews. From Wren Davis Capital’s experience, even if you have found a solid contender in a market, it is often worth continuing the search to see what other companies are out there. Referrals can also play a key role in this process. Seeking out other owners who own a similar property, or have executed a similar business plan, can be a significant benefit in understanding the management company’s credentials. Similarly, during interviews where a certain property management company isn’t necessarily the right fit, ask for recommendations of other companies who manage the type of asset you are focusing on. Finally, it is imperative to meet with these management companies, and ask to interview the person who will be directly overseeing your property after purchase. While this person has the backing of the company as a whole, the specific onsite manager is just as important as the company’s reputation, and should have the specific experience and expertise required to execute your business plan.

How to Effectively Utilize Your Property Manager

Even with the best management team in place, it is important that the asset manager (the owner) work effectively with, and harness the management team’s full potential. To start, be sure to share your vision for your property from the very beginning. This should happen as early as the due diligence process, because the management team can provide input on your assumptions and projections.

Additionally, set the groundwork with how communication between the asset manager and management team will take place. During renovations, this could take place as often as daily updates from the onsite management team. During a stabilization phase, check-ins may change to weekly or monthly. Having these open lines of communication are key to ensuring your business plan is being executed, and will allow for the quickest course correction along the way, if necessary.

Finally, ensure you hold up your end of the bargain. Treat your property management company as a valued member of the team, and follow through on your contract, just as you expect them to the same. This is especially important because in the end, your property manager is the team member who has the biggest impact on your success!