Ultimate Guide to Multifamily Management (Tips, Companies & More)
March 24, 2020
Landlords find multifamily properties attractive because multiple units provide rental cash flows. Compared to single-family homes, multifamily properties provide a more consistent and larger cash flow. A top decision for landlords is whether to hire a multifamily management company or self-manage the property. Multifamily management is the topic we tackle.
In this article, we cover:
- 10 Tips for Managing Multifamily Property
- Online Resources for Multifamily Property Management
- Self-Managing vs Management Companies
- Pros and Cons of Self-Managing
- Pros and Cons of Property Management Companies
- Important Legal Considerations
- Top 5 Multifamily Management Companies
- How to Choose the Right Company
- 10 Questions to Ask Before Hiring
- Assets America® Provides CRE Financing
- Frequently Asked Questions
- Related Articles
10 Tips for Managing Multifamily Property
Here are 10 tips to help you when you manage multifamily property. These should help you improve profitability and efficiency while reducing your stress.
1. Start Small
When you first contemplate purchasing multifamily properties, the potential profits may motivate you to think big. That’s fine, but you should start small. By starting with a single property, you’ll learn how to operate it properly before risking larger investments.
This is critical if you are new to multifamily property management because you’ll inevitably make mistakes. With a single property, those mistakes will have less impact on your wealth. You’ll benefit from learning in a controlled situation before expanding to additional properties.
2. Understand the Cash Flows
When you buy a multifamily property, do not necessarily trust the listed cash flow projections. They might contain obsolete information or, worse yet, inflated estimates.
In other words, be wary of overenthusiastic sellers who may disregard current market conditions. Research the current rents in comparable properties and make your own estimates of expenses. If the numbers don’t show the return on investment you need, look for a different property.
3. Estimate High Expenses
You should be conservative when estimating your expenses. That is, overestimate how much it will take to operate the property. Consider the extra expenses that a multifamily property requires versus a single-family home.
For example, having more tenants risks more repair requests. By projecting high expenses, you’ll have more confidence that you’ll make a profit despite high costs.
How Assets America® Can Help
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4. Pay Attention to Little Details
You will be competing for tenants. To compete effectively, your property should be in good condition with some extra perks. For example, you might offer extra parking spaces or better appliances. Adding extra appeal will attract better tenants who have higher standards. Moreover, you can add perks that benefit each tenant, such as adding free WiFi.
5. Set Tenant Ground Rules
You want to set the rules by which tenants interact with each other. Doing so upfront will help avoid friction and bad feelings. For example, establish rules for tenants to use the common trash receptacle and avoid making too much noise. Include your ground rules in your leases and discuss them with prospective tenants.
6. Build Good Relationships
Multifamily management will be easier if you establish a good relationship with each tenant. Building mutual respect will help smooth things out when little problems crop up.
It also helps you retain tenants when it’s time to renew leases. Your goal is to minimize turnovers and vacancy rates. Additionally, this will encourage tenants to relate problems so that you can quickly resolve them before they grow.
7. Monitor Tenant Interactions
Keep an eye on tenant clashes because they can cause you extra headaches and costs. You should try to resolve tensions in a fair and amicable way.
For example, don’t let tenants poach each other’s parking spaces. Set rules to limit noise that disturbs other tenants. Show respect but firmness when you address these issues. A friendly resolution is better than penalties, fees, or a lawsuit.
8. Capitalize on Vacancies
Despite your best efforts, expect that occasionally you’ll experience vacancies. Consider vacancies as opportunities to repair, maintain, and upgrade the unit. When a unit falls vacant, you have unlimited access during which you can perform uninterrupted work. This approach minimizes the need to disturb tenants.
9. Respond Quickly
It’s good business to quickly resolve maintenance requests and issues. Doing so will keep your property in good shape and reassure tenants. Sometimes, you may have to inconvenience tenants to fix a problem. If that’s the case, explain what you’re doing and why you’re doing it. Fast fixes help prevent more extensive problems and display your commitment to maintaining the property.
10. Have an Exit Strategy
You invested in multifamily property to make money. Is your goal to have a long-term source of income? Or are you looking to sell the property for a nice capital gain? If the latter is true, what is your timeframe? Will you sell it when fully occupied or wait until you have multiple vacancies? Document your exit strategy in advance so that you know when to pull the trigger.
Best Resources for Multifamily Management
When you are looking to manage your multifamily properties, you will want specific resources, such as online tutorials and multifamily property management software. Here are some important resources:
- Department of Housing and Urban Development: HUD has a web page entitled “Information of Interest to Owners and Management Agents.” The page has helpful links to important sources of information for landlords and managers.
- Multifamily Property Management Software: This is software designed to support the management of multifamily properties. This multifamily property management software should support different types of properties, including multifamily houses, apartment buildings, townhouses, and student housing. There are several websites, such as Capterra and Software Advice, that provide buying guides for multifamily property management software.
- Property Management Blogs: These blogs assist landlords and managers to succeed in running their properties. Check out this list of property manager blogs.
Self-Managing vs Property Management Companies
Multifamily property management is a challenging undertaking. Just consider this list of tasks:
- Rental rate determination
- Property advertising
- Screening of tenants
- Lease preparation
- Lease enforcement
- Rent collection
- Complaint response
- Preventative maintenance
- Tenant relations and communication
- Tenant Recruitment
- Repairs
- Tenant eviction and lawsuits
The above list indicates how challenging multifamily property management can be. A property owner must decide whether to act as a landlord or hire a property management company.
Self-Management
Owners who adopt self-management act as property landlords. You take care of daily operations to ensure everything runs smoothly. Also, you are the point of contact with tenants who have questions or requests. Tenants may pay rent directly to you by mailing a check or placing it in your hand. If you decide to self-manage your multifamily property, then consider these pros and cons.
Pros
- Control: You call the shots when it comes to daily operations. You don’t have to depend on anyone else to make decisions. This suits people who don’t like to delegate control to others.
- Relationships: Being the landlord allows you to maintain closer relationships with your tenants. You are the point of contact in good times and bad. This will appeal to you if you are a people person.
- Experience: You gain firsthand experience when you’re the landlord. This will help you later if you decide to hire a management company. If you hire one, your experience will help you knowledgeably evaluate its performance.
- Finance: It’s cheaper to be a landlord than to pay for a management company. Typically, these companies charge 6% to 10% of gross rental income for their services. That will be your savings if you do it yourself, as long as you have the time to do it.
Cons
- Time: Being a landlord can turn into a full-time job, especially if you own multiple properties. This might not be the way you want to spend your time, especially if you have other business plans.
- Stress: It’s stressful when you get a 2:00 AM phone call about a broken pipe. Being a landlord can be a headache. There can be sudden emergencies, tenant problems, vacancies, and many other stresses. If that’s not your ideal lifestyle, hire a management company.
- Lack of Expertise: You may encounter many situations that require more expert knowledge that you don’t have. This can include both operational and legal problems. If you worry about this, you might not want to be a property manager.
- Setting the Wrong Rents: You’ll face problems if you don’t know how to set rents properly. If you set them too high, then you might experience elevated vacancy rates. Conversely, you’ll reduce your profits if you set rents too low. Setting rents correctly, in and of itself, might be worth the price of a professional management company.
Multifamily Property Management Companies
Multifamily property management companies act as the landlords for property owners. They take care of daily tasks, large and small. It’s their job to maintain and grow the value of your investment by minimizing costs while maximizing revenues. You can turn over all decisions to the manager, or you can participate in some of the decisions.
Pros
- More Time: Hiring a manager frees up your time for other pursuits, whether work or leisure. Many people purchase properties to gain a cash flow without having to work at it full time. That’s the property manager’s job.
- Ordering Your Life: Beyond saving time, you may want to effectively separate your work life from your personal life. If you want to protect the latter, it’s good to know you won’t be fielding requests from tenants. Also, you can travel without worrying about being away from your property.
- Management Expertise: A property manager has the expertise to deal with issues efficiently and effectively. A good property manager keeps current with the latest practices in the rental industry and any changes to regulations.
- Filling Vacancies: Property managers have screening procedures that help fill your vacancies with quality tenants. If you don’t have this expertise, then you could suffer elevated vacancy rates if you try to manage the property yourself.
Cons
- Isolation: By hiring a property manager, you lose contact with your tenants. That’s not helpful if you eventually want to become a great property manager yourself. It might also run counter to your personality if you are gregarious.
- Risk: You run the risk that the manager you select will disappoint you. You may feel foolish for hiring a manager that fails to deliver on its promises. It’s important to perform due diligence before hiring a property manager.
State Premises Laws
Several states have laws requiring a responsible person to live on premises under certain conditions. For example, California Law Civil Code Title 25, Section 42 requires a manager, janitor, housekeeper, or other responsible person to:
- Live on the premises, and
- Have charge of every apartment complex that has 16 or more apartments units on the property if the property owner does not live on the premises.
Top 5 Multifamily Management Companies
The top 5 multifamily management companies are:
- Greystar Real Estate Partners – 418,475 Units: This company has headquarters in Charleston, SC. It is the nation’s largest apartment management company, bigger than the next two combined. Bob Faith founded the company in 1994 and continues to run it.
- Lincoln Property Company – 190,542 Units: Headquartered in Dallas, TX, CEO Tim Byrne leads this company. The company started in 1965 and manage both commercial and mixed-use properties. Assets exceed $76 billion.
- Pinnacle – 162,000 Units: Pinnacle is also located in Dallas, TX. The current CEO is Rick Graf, who runs this private company.
- Alliance Residential – 110,712 Units: This privately-held company resides in Phoenix, AX. Bruce Ward is the company’s current Chairman.
- FPI Management, Inc. – 107,996 Units: Headquartered in Folsom, CA, 35% of its holdings are affordable housing units. They own no properties on their own.
How to Choose the Right Company
Here are some tips to evaluate multifamily property management companies and select the right one.
- Get Referrals: You can speak to other property owners for recommendations. Get a wide sample so that you minimize biases.
- Online Research: Use the Internet to search out for local property managers. After you identify a few candidates, check their ratings and reviews.
- Organize Interviews: Interview representatives from each finalist. The interviews should be one-on-one where you can specify your exact requirements. You’ll also learn the manager’s terms and conditions.
- Vacancy Handling: See if the manager charges fees for vacant units. Some do, but others don’t. Also, find out how the manager will advertise and rent out vacant units.
- Tenant Screening and Collections: You also want to know how the manager will screen prospective candidates and weed out the bad apples. Furthermore, find out how they ensure that tenants will pay rent on time.
10 Questions When Hiring Multifamily Property Management Company
Frequently Asked Questions
How much does multifamily property management cost?
Multifamily property management usually costs between 6% and 10% of your rental income. You may also have to pay extra for additional services. In addition, there may be fees based on the total number of units or occupied units.
What do multifamily management companies do?
The multifamily property management companies perform all the operational, legal, and financial tasks necessary to manage a property. They also handle interactions with tenants, fill vacant units, and collect rents.
How often does HUD perform a management and operating review on multifamily?
HUD didn’t conduct any MORs in 42 states from 2011 to 2016. However, HUD performed a full set of reviews in 2016. Since then, the MOR schedule has been erratic, due to concerns about overly meddlesome regulations promulgated by the deep state.