September 29, 2023
Asset management is a sophisticated and complex topic. It demands a lot of expertise to get a clear view of the forest amidst all the trees.
If you are new to multifamily real estate, asset management might seem quite straightforward at first. However, there are many hidden pitfalls that you must be aware of. In this article, I will share with you the 5 biggest lessons I learned in my first 6 months as an asset manager
This will help you get started and avoid mistakes that many people make when they are just at the beginning of their multifamily journey.
This point may seem fairly obvious, but the importance of having an excellent on-site manager (aka “property manager” or “community manager”) has repeatedly been reinforced in my short time as an asset manager.
They are truly one of the single individuals that can make or break a property’s performance. Being in charge of the day-to-day operations of 100/200/300+ units, with perhaps 200+ residents, is no small task. The manager oversees leasing, renewals, work orders, unit turns and upgrades, and perhaps other CapEx projects.
They must also track key performance indicators (KPIs) and ensure that the property is meeting income and expense budgets. Failure to execute on any one of these tasks will result in the underperformance of the property.
That’s to say nothing of the potential for outright fraud and negligence. The manager truly has the key to the castle, so they must be highly competent and highly trustworthy.
I have heard horror stories of property managers accepting unqualified tenants to meet their leasing quota, later leading to mass evictions when those tenants fail to pay rent or commit other lease violations. I have also heard about cases where the manager skimmed income or took under-the-table payments and cooked the books.
A good manager is worth their weight in gold, and it’s worth spending a little extra to find a truly great one.
As a relatively inexperienced asset manager with only one deal under my belt, I tend to micromanage every aspect of property management. However, I see that there are two big problems with micromanagement:
Optimizing your, your property manager’s, and regional manager’s time is critical to efficiently address issues and set action items during weekly or bi-weekly calls. The manager and regional typically have a lot on their plate. Therefore, the less time they waste in meetings and calls, the more time they can spend on their core tasks.
To that end, we have found that setting an agenda before every call is critical to efficiency and productivity. We use a shared document. Consequently, the manager and regional can make their own comments and additions to the agenda before the call. It often answers many of our questions beforehand, so we don’t waste time going over them on the call itself. We have also explored using collaborative project management software. For example, Asana allows us to track progress on action items.
Throughout my career, first as a paralegal and now as a full-time real estate professional, I have almost always found that whenever I start out tracking or calculating something in a regular document or with notes, I ultimately end up creating a spreadsheet. So I might as well just start with the spreadsheet, to begin with. We use spreadsheets to track KPIs, CapEx spending, unit upgrade costs, and monthly income and expenses, among other metrics.
A spreadsheet is not always the best or most efficient way to track a given metric. However, it generally gets the job done (and it’s free). Several software platforms specifically designed for real estate operators may come to replace some of the functions for which we now use spreadsheets — Cash Flow Portal being a prime example. But for now, the humble spreadsheet soldiers on.
The solution to micromanagement is to implement systems that do not depend on any individual’s knowledge or expertise. In my previous career, I noticed problems would often arise when an individual who had been with the firm for many years left their position.
That person may have had a large amount of institutional knowledge that nobody formally recorded or systematized. Therefore, their successor had to figure out how to do the job without a road map.
This is obviously an inefficient way to operate. It is impossible to scale a business up without systems that allow new people to quickly learn their roles. With only one property under management, the need to create systems is not necessarily pressing. However, it is something that we are always thinking about and planning for.