Updated: Mar 7
When you think of a property manager, you think of someone who keeps your property running smoothly. That includes everything from keeping vacancy rates low, making sure tenants are happy (and pay you on time!), ensuring that repairs are made quickly, along with a myriad of other things.
What many property owners and syndicators don’t think of is having their property manager help evaluate a deal they’re considering. Yes – your property manager can HELP you assess a deal. That’s right. I’ve found that the right property manager can provide valuable input and insight into a prospective deal, and I use them to help evaluate any deal that I’m contemplating. You need an experienced property manager who understands multifamily properties and one who can provide key deliverables to assist you in your evaluation. Here are some areas where a good property manager can help you when evaluating a new potential deal:
Deliverable #1: Operating Budget
A good property manager has the ability to create an operating budget for the property that will provide a good indication as to the potential profitability of the deal. The operating budget will include line items like payroll, repairs and maintenance, tenant turnover, utility costs and many others. It provides vital information that could impact the overall return on the investment, and is crucial in order to see where you’re able to potentially reduce expenses.
The property manager should have an extensive knowledge of the amount it will take to operate the property. His or her knowledge and experience should include how much it costs to turn over an apartment, including payroll, cleaning, painting, and basic repairs of each unit as tenants move out. When you think about it – how can you REALLY know how much to pay for a property if you don’t have a high confidence in how much it will cost you to operate it?
Deliverable #2: CapEx Budget
Another area where the property manager can help is with the CapEx (Capital Expenditure) budget. This would include major capital improvements like HVAC systems, roofs, and other major expenditures like furniture and appliances. Having this budget in advance is extremely helpful when evaluating a deal.
Having a property manger on premises walking the property is invaluable, as he or she can directly observe the condition of the roof, for example, and alert the buyer that a new roof would probably be needed. This is significant, as a large multifamily complex roof can run as high as $1 million. In addition to reporting on the condition of certain property assets, the property manager can also help determine the timing of potential replacement.
I never purchase a property before having my property management company walk it and send me a detailed analysis of Operating and CapEx budgets. Without verifying those factors, you are guesstimating the cost, which can be very risky.
Deliverable #3: Comps Analysis
Knowing the competition in a new market that you’re considering for a property purchase is invaluable when analyzing the deal. Having an experienced property man