As the asset manager of an apartment investment, one of your main responsibilities is to oversee the property management company.
Here is a blog post where we outline all the GP’s duties after the acquisition.
This blog post will address five frequently asked questions about interacting with and managing the property management company after you’ve acquired a deal and assumed your position as the asset manager.
For all of the FAQs, your property management company may or may not be onboard (for example, they may not send you every report that you ask for), which means you must set expectations with them BEFORE finding a deal. You need to ask the right questions based on the FAQs below when conducting property management interviews.
1 – How often do I interact with the property management company?
You should have monthly performance calls with your property management company at minimum. During the stabilization period (i.e., when you are performing renovations), the calls should be on a weekly basis. Once the asset is stabilized, you can continue the weekly calls, change to monthly calls, or have calls on an as-needed basis.
The weekly performance calls should include you and the onsite manager at a minimum, and ideally the regional manager as well.
During the calls, you will review property reports and key metrics (more on these two things below).
2 – What reports should I expect from my property management company?
You will get what you ask for. If you ask for nothing, you will likely receive nothing or just the bare minimum.
The reports you want to receive on a weekly basis are:
- Box score: summary of leasing activity, including the number of move-ins and move-outs and unit occupancy status (vacant-leased, vacant-not leased, vacant-ready, notice-leased, notice-not leased, model, down, other use)
- Occupancy: physical occupancy (percentage of total units occupied) and economic occupancy (rate of paying tenants)
- Occupancy forecast: the projected occupancy based on future occupancy status (i.e., units that are occupied, units with expiring leases that are leased, and vacant units that are leased)
- Delinquency report: list of resident delinquent (i.e., past due) amounts
- Leasing reports: summary of leasing activity (traffic information, leasing information, concession information, marketing information, projection information)
- Accounts payable: summary of money owed to vendors (including to the management company)
- Cash on hand: the asset’s liquidity
The reports you want to receive on a monthly basis in addition to the weekly reports above are:
- Income and expense statements: detailed monthly report with all income and expense line items, as well as the dollar and percent variance compare to the budget
- Deposits: summary of security deposit information (balance, forfeits, returned checks, refunded)
- General ledger: summary of all financial transactions
- Balance sheet: summary of assets, liabilities, and capital
- Trial balance: summary of all debits and credits
- Rent roll: summary of all unit information (occupancy status, market rent, current rent, move in, lease start and end, other fees, deposit)
- Expiration reports: summary of expiring leases
- Maintenance reports: summary of maintenance issues and costs
Again, make sure you set reporting expectations with your management company BEFORE you have a deal.
3 – How do I obtain these reports?
The simplest way to obtain these reports to is to ask your management company to create custom reports using their management software and have them sent to your email on a weekly/monthly basis.
Another option is to ask for access to their management software so that you can have real-time access to these reports.
If your management company doesn’t use a software or if you don’t like the look of their reports, you can create your own custom spreadsheet and ask your management company to update it on a weekly/monthly basis. Click here to download a free Weekly Performance Review tracker.
4 – What metrics should I focus on the most?
The most important metric to track is the cash flow relative to the projections you presented to your investors. Track the forecasted vs. actuals on the income and expense report, focus on the line items with the greatest variance, and create a strategy to bring those line items back on track during your weekly performance calls.
For the value-add business plan, the number of units renovated relative to your forecasted timeline and the rental premiums demanded are important during the first 12 to 24 months because both will have a large impact on your cash flow.
Additionally, certain metrics, like leasing metrics, capital expenditure costs, and total income, may vary from your projections during the value-add portion of your business plan. For example, the total income may be lower than forecasted after owning the asset for 3 months due to a higher number of move-outs than anticipated. Or, you spent a larger percentage of your capital expenditure budget in the first three months because you are ahead of schedule. So, the key metric during the value-add portion of the business plan is the forecasted vs. actual rent premiums for renovated units.
Other metrics to track that may be the cause of a high income and/or expense variance are the turnover rate, economic occupancy, average days to lease, revenue growth, traffic, evictions, leasing ratio and other metrics from the reports outlined above.
Again, the best strategy is to track the variance on the income and expense reports, strategize with your management company to identify the cause by reviewing the other reports and come up with a solution if needed.
5 – What other things do the best asset managers do?
First, look at your property management company as a partner and screen them accordingly. Are they someone you want to work with for a long-time? Does their track record speak for itself? What are the tenants saying about them? How professional are they when speaking with a potential tenant (you can role play as a potential tenant to find out)? Are they willing to change if needed? Do the employees like working at the company? Are they engaged on social media?
Next, the best asset managers always look ahead. You should evaluate the market, evaluate the competition to compare your property to, track and maximize income growth and expense decline, and ensure tenant satisfaction by checking reviews, social media, and hosting community events.
Also, even though the property management company is your partner, you should watch them like a hawk. Most people focus on the front-end activities, like finding deals, sourcing capital, whether they need to form an LLC, etc. Fewer people focus on the back-end activities, like asset management, which take years and decades to do. So much of the asset’s success and your company’s ability to scale is dependent on your property staff and property management company, so you have to watch them like your career depends on it, because it does. If things don’t work out, don’t be afraid to part ways.
Lastly, visit the property at least once a month in-person. If you invest out-of-state, a great strategy is to ask someone local to mount a GoPro on their vehicle and drive the property on your behalf.
How to Manage Your Apartment Property Manager
Set up frequent phone calls with your property management company, starting with weekly calls.
Request the proper weekly and monthly reports to see how well or poorly the property management company is implementing your business plan. Track the most relevant KPIs, like cash flow variance, number of units renovated, rent premiums, etc.
Properly screen the property management company upfront and continuously evaluate their performance.
Visit the property in person to make sure the reports match reality.