Hiring Property Managers for Build-to-RentSep 02, 2021
Your ownership structure is key here, you're going to buy your build-to-rent property in one of a couple of ways. You buy it, you're funding it all cash, and maybe it's a small property, a house, or a duplex, right? That's the easiest you answer to you, you're all cash, this begins to get more complicated as we go increase in Project size, we go to 20 3040 units, guess what you're answering to lots of people.
Number one, you're answering to the bank, you need to get those leases in the books so that you can get your final refinance done, because build for rent typically involves a construction loan, which is not a long-term loan. So you got to get those leases going. So you're kind of shooting for that too like, "Hey, I need to work with my property manager to get me leased up so that I can get my final refinance done, walk that line between getting those done, and sacrificing possibly higher rents, at least in the short term."
Now, that also begs the question of, What's your ownership structure? Is it just you? Are you selling these units to other investors? Are you a syndication? Do you report to a large group of investors that you answer to because that manager, they're going to be the one that delivers the goods, and if they're not getting units, least, you have to get out ahead of that and advance and provide a solution because nobody wants to be hearing about how units aren't renting, or we're having to take big, big cuts, involve that manager from the very beginning so that you're working in sync with them?
Whether you answer to your own bank account or the bank account of your investors in a syndicate, this is probably where the rubber meets the road the most. Right? in many of these other issues. We had some bad construction, well, we can fix that. Right? Well, we had maybe the area that we invested in isn't super great. That's harder to fix. But usually lowering rents is going to deal with that and tell the tale. Incompetent property management has gotta go.
Just do your homework, and maybe even ask them what are some of the properties you manage go drive-bys, properties that they already managed. So you can kind of see what does that looks like? I mean, some of that may be that the tenants taking care of the exterior of the yard or whatever, but kind of give you a good idea.
Some of them may even give you a referral or two of some of the investors that they're currently managed for, and you can chat with them and see what their thoughts are. Sometimes people are a little more open with you.
Well, you can also look at reviews of properties that they manage. And I would do that with a grain of salt. Tenants complain. They're gonna complain no matter what. But it's the nature, the frequency of those complaints, you can read between the lines, you know, if it's, "they wouldn't give me my security deposit back". I'm not so sure that's a bad thing. It might be the property manager holding somebody's feet to the fire. But if there are 100 people and "they never answered the phone", that might tell you something.
Interview a couple of property managers. I've seen some investors or groups that have a list of 80 questions that they ask a property manager or several of them to interview them. See if they meet your criteria.
We’re talking about property managers, but when we're building a build-to-rent unit up out of the ground, how does property management apply? What would you look for?
Somebody, It has good marketing because obviously, you want to get those units out to tenants. So somebody that's going to market somebody that's a go-getter, somebody that's not afraid of rents, obviously, if you're bringing a lot of inventory on, we had talked about in an earlier episode that you may want to offer some kind of an incentive at the very beginning, because we're bringing 50 doors on, right.
But if you have that set with the property manager ahead of time, I think that's key, but then for them to know when they can bump that rent up. And when they can't kind of play that game, you know, let it ebb and flow.
You're going to want somebody that's a little bit aggressive, has good marketing skills, and then can communicate with you because I think, again, we've talked about this bad news is better than no news. So as long as they're telling you something, right?
Even if it's not that your unit's lease, but they got some other leases in the project if you're in a whole project, or maybe they only got you one lease this month, and you were planning on two or three, some communication, just keeping people informed.
Proactive communication of, "Hey, this problem happened. And this is what we're doing."