Four Keys Every Owner Needs to Hold
Many of us grew up playing Monopoly, hoping to score Park Place and Board Walk with a couple of hotels placed on them. You could win the game by employing a few strategies and owning just these two properties. Although the game can teach us how to buy the property, I don’t remember learning anything about how to manage the asset once you own it. You can imagine my surprise upon entering the property management business and realizing there is far more to this game than landing on the right space and picking up the keys.
As much as I love Monopoly, following are four things I have learned from real-life experience:
1. Create a business plan with an operating budget. During this process you must understand your market and how to establish your rental rates. You should complete a rental survey of surrounding communities in the area. One option is to call for pricing information, but physically visiting and “shopping” the property is even better. You should know what the other properties in your area offer a potential resident. If your property doesn’t suit the prospect’s needs, refer them to another community. You never know when the favor might be returned.
You should also physically inspect (both externally and internally) each property you own during the budget process. I would also recommend continuing this process once a year going forward. Review the property contracts and expenses. Make certain you do not allow contracts to automatically renew. Look at utility expenses and conserve energy where possible (low wattage, energy-efficient fixtures). Although reducing expenses and minimizing costs can provide short-term cash flow, it is also important to have a long-term maintenance plan to keep your project looking good and habitable.
2. Hire the right people. Whether you have a portfolio large enough to support your own staff or you outsource these jobs to independent companies or contractors, employ hiring practices that keep you operating within the legal guidelines. When making hiring decisions, attitude may be the most important factor. You can train most people to do any task, but if they don’t have the right attitude, nothing else matters. If a prospective employee is not up for problem solving on a daily basis, you might think twice before hiring them.
3. Prepare for the unknown by protecting the asset. There are lions and tigers and bears…oh my! I can’t stress enough how important it is to have systems and processes in place before you require them. The hope is that you will never have to rely on emergency planning, or face significant insurance losses, but you should prepare anyway. Begin by creating a written policy on how you handle emergencies. This emergency plan should include things like chain of command, telephone numbers for employees and contractors, insurance providers and contact details, location of utility cut-offs, current resident information, evacuation plans, and a plan for working with the media. When you are faced with an emergency at your community, it's best to check with your attorney before issuing a media statement.
4. Know what marketing and leasing vehicles will get you the biggest bang for your buck. There are many resources available today to bring prospects to your door. Whichever you choose, evaluate and monitor these resources on a consistent basis. You should track your leads and follow-up. If something isn’t working, make adjustments. Once you attract the prospect, the next step is critical to the leasing process. Regardless of the length of vacancy, do not just lease to anyone (this is known as the “warm body” syndrome.) Always run a thorough criminal background and credit check on prospective residents.
This was just a quick run-down of lessons learned, but the Independent Rental Owner Professional (IROP) designation is far more comprehensive. The program is offered to rental owners who manage their personally-held multifamily property or properties, and offers insight on all aspects of property management.
It’s a worthwhile investment. If a game of Monopoly takes three hours, winning the game of life—and property management—is going to take a lot longer.
By Dori J. Locke, Vice President, Multifamily Operations, McWhinney