One of the keys to profitable real estate ownership is your front line management. A good manager often increases both the cash flow and the value of a property, while a bad one can turn a top property into a fixer.
There’s both an art and a science to hiring and keeping a good manager. In this article, I’ll give you some tips to help you improve at both.
The first step in bringing on board a good property manager is to take time to determine exactly what you want their specific responsibilities to be. This will depend to a great extent on the type of property you’ll be expecting them to manage.
Managing Low Income Housing and Section 8 Properties
For a Section 8 or other low income property, the manager’s key responsibilities must include handling all the paperwork required by the relevant programs. This normally includes move-in documents, tenant re-certifications, and a host of government compliance details.
Your key focus in evaluating applicants should be on whether or not they have adequate prior experience in doing the kinds of paperwork required of your property. For Section 8 paperwork, for example, I look for a minimum of five years hands-on experience.
It’s also important to find out the last time they were trained on government subsidized housing paperwork. Good applicants stay current on all this, taking annual training courses and attending local HUD meetings designed to keep them up to date with changes in the relevant laws.
References count a great deal in finding a good manager for Section 8 and other low-income housing property. Check with the applicant’s previous employer, ask about their performance and their attitude, and require their most receive Management Occupancy Review scores. They should perform no worse than average on these tests.
As you talk with the applicants, find out if they can detail for you exactly what goes into a tenant file. Pose some hypotheticals and try to determine their level of tenant relations skills, as well as their attitude toward the kinds of tenants who occupy your buildings.
Managing Conventional Property
With conventional properties, you can be far less concerned about the applicants’ paperwork skills or familiarity with government mandates. Here you want to evaluate their marketing and salesmanship abilities, as well as their flair for tenant relations.
Ideally, you want to hire a “rainmaker” who can keep your units fully rented, and who can think outside the box in ways to make deals happen. With conventional properties, the manager’s primary role is really sales. Just do the math and you’ll see what I’m talking about.
Let’s say, for illustration, that your average unit brings in $1,000 a month in rent. Every day that apartment is empty, you’re losing something like $33 dollars. As you can see, vacancies begin to get expensive after a very short while. I’ve seen situations where the wrong manager ends up costing the owner millions.
It happens because each dollar of rent is worth several times more than that in property valuation. For example, if you’re buying apartments in a six GRM area (where the gross rent multiplier is six), then each dollar a month you receive in rent translates into $72 dollars in property value ($1 x 12 months x 6 – the GRM).
If your new manager can rent an apartment for an extra dollar a month, he or she has increased the value of your property by $72. On the other hand, if he can’t keep rents and occupancy rates at high levels, your property will inevitably decline in value.
The Power of Marketing and Salesmanship
I cannot overstate the importance of good marketing and salesmanship in a property manager. And I’m not alone in realizing this. That is why most good leasing agents and apartment managers have gone through some type of formal rental salesmanship course, and many have taken a variety of such courses and done extra reading on the side.
Salesmanship and marketing ability are a little difficult to evaluate during a normal interview, so give yourself a better chance of spotting a qualified property manager by walking every applicant through an apartment that’s currently for rent. Have them give you a “sales job” right on the spot, with no preparation.
If the applicant can’t develop and deliver to you a professional quality presentation, basically off the cuff, they probably haven’t been formally trained, and they likely won’t do as good a job for you as someone with more on the marketing ball.
At a minimum, a good manager should immediately start pointing out such factors as:
• The view, if any
• All the amenities in the apartment and the property
• The size of the closets
• Favorable comparisons with competitive properties on the same street
• The parking space(s) that come with the unit
• Attributes of the neighborhood, what you can walk to, and so forth
• The “wonderful neighbors” elsewhere in the building.
Sure, an applicant can’t possibly know some of these items, but a good one should nevertheless be able to make up a compelling presentation, right on the spot.
It’s also important your manager is classified as “clerical” for Workers’ Compensation. In California, property managers who do handyman work cost you extra.
Manager’s Eye Important In Apartment Turnaround
Another way to separate potentially good managers from bad ones is to walk them through a recently vacated apartment and have them create a punch list of what needs to be done to make it ready for showing, renting, and occupancy. If the candidate doesn’t catch most of what needs to be done, and get most of the recommendations and estimates right, he or she is not the manager you’re looking for.
For those who do well on the sales presentation and the turn-around test, try showing them a vacant apartment you consider rent-ready. Ask for a critique. A good manager should be able to find something wrong with it. Whatever they tell you, it will reveal much about their eye for detail, their standards of quality, and their taste.
You can dig even deeper by looking at the candidate’s current residence. If it’s in poor shape, the candidate’s standards and expectations may be too low for you. If it looks good, you can have a reasonable expectation that your own property will look like that under the manager’s regime.
Finally, try to get a sense of a good candidate’s level of organization. Ask how they keep track of their appointments, their responsibilities, their notes. You want someone who relies on an organizer, a Smartphone, or some kind of filing and tracking scheme. If a candidate has no standard mechanism for these matters, you’ve uncovered another warning sign that you should recognize and remember.
Good Managers Earn Their Pay
As I’ve said, the quality of your property manager is the key to your property income. In today’s market, you must be willing to pay well for a good one. The specific level of pay will depend on several factors, including the size of the property and the market it’s in.
For conventional properties in top rental markets, managers handling 100 or more units can earn up to $75,000 per year. Similar properties with only 10 units can probably attract a good manager by offering half a month’s free rent.
For project based Section 8 properties, a good manager who can handle all the necessary HUD paperwork is worth between $40,000 and $55,000 per year.
For live-in managers, be sure to specify in their contracts that they do not have the right to work overtime. In Los Angeles, for example, managers may be considered full time employees who are working 24 hours a day. To prevent this, their contract must expressly state the maximum number of hours they may work.
It’s also important your manager is classified as “clerical” for Workers’ Compensation. In California, property managers who do handyman work cost you extra. Their Workers’ Compensation premium rate goes from 2% of their salary (for clerical work) to 10% of their salary (for handyman work).
Among the candidates you consider interesting, be sure to look for:
- Any criminal background, even misdemeanors. There are professional screening services that can do this for you for $150 or so, and if you’ve ever had any trouble with a substandard manager, you’ll know the low price is extremely worthwhile.
- Evidence of illegal drug usage or excessive alcohol usage.
- Some maintenance ability, or at least a familiarity with repairs.
The reason you want a property manager who is an upstanding citizen is that there are many ways a property manager can steal from a property owner. For example, in possession of all the keys to all the units, managers can easily let themselves in and walk off with anything of value that catches their attention.
They can also rent one or more units “off the books,” pocketing the full rental payment for a month or two before letting the paperwork show the tenant has moved actually in.
A potentially larger problem is kickbacks. An unscrupulous manager can choose a favored vendor and direct much of the building’s work their way. Suddenly $9 per yard carpet is costing you $20 per yard, or the cost of painting an apartment escalates from $225 to $425. All this extra finds its way into the shady manager’s pocket, and such fraud can go on for years.
Marc Menowitz graduated from USC with a BS in Business and a concentration in Real Estate, from UCLA with an MBA and is a fourth generation investor in apartments, retail space and office buildings across 22 states. His portfolio includes approximately 16,000 apartments, over 4,350,000 square feet of commercial property and low income Section 8 housing. Marc’s primary focus is to expand his multifamily holdings nationwide into new markets, as well as to acquire additional properties in areas where the company currently has an established presence. Collectively, the principals of the company possess over 100 years of real estate investment experience. For more information, please visit www.marctheapartmentguy.com or email [email protected].