Let’s talk about a topic that doesn’t get enough press. While there have been tons of books, videos, webinars, boot camps, and more all highlighting and glamorizing the finding, funding, and closing of real estate deals, there is the behind the scenes part of the apartment building team that hardly ever gets mentioned: the asset manager. After the champagne is poured, it’s the asset manager that rolls up his or her sleeves and begins the implementation of the business plan.
In truth, it’s long before the sale is finalized that the asset manager is working behind the scenes, making sure that the plan is ready to go on the first day of ownership. “Time is money” is an understatement in the multifamily space, and it’s the asset manager that makes sure time is on your side.
Let’s discuss the three things you must do after the closing (and the champagne, of course!). And to find out even more details, be sure to watch the video below.
1. Walk the Property
The first thing you must do regardless of the property size is to walk the property. It honestly does not matter if you walked it the day before or even the day of. You never know when a leak sprung up or a tree fell down.
If it’s a big apartment complex, we’re going to focus on the common areas and sweep the roofs. We want to make sure there haven’t been any changes since we last saw the property since we now own it. It’s a good idea not to outsource this part of the to–do list. The larger the property, the more important it is not to rely on anyone else but your asset manager to walk the property.
2. Communicate With Tenants
The second must–do item is to communicate with the tenants. We usually have letters introducing our team ready to go at the time of closing. We want them to know that there is a new sheriff in town. Usually, we let our property manager send out this letter. But if you are self–managing, make sure you don’t skip this step.
This is your chance to make a good first impression and introduce yourself. Also, you want to let the tenant know where they can pay rent and more importantly to whom. There have been incidents where the previous property manager was paid because the tenant was not aware of the change in management.
The last part of the second step is educating the tenant on how to submit work orders. This is a critical step that should not be overlooked. While in step 1, you walked and familiarized yourself with the common areas, it is the tenant who is your eyes and ears in and around their units. You will never know what was said to the previous owner/management company, but you want to make sure you are in the know going forward.
Just be prepared. If you are purchasing from a tired owner or a property manager who skimped on expenses, you may be bombarded your first few weeks with work orders that were never fulfilled. It’s critical to have the right mindset and approach the situation as an opportunity to improve your investment, not as a hassle.
This distinction in mentality goes a long way. It often amounts to what I commonly refer to as the “home effect.” You know you are accomplishing the second step when you start seeing small gardens outside your tenants’ apartments. Just remember, tenants are quick to leave apartments but not their home. When you take their feedback seriously, you create a home for them—that’s when the stickiness occurs.
3. Start Day One
The third thing you must do is to start on day one. This is why you walk the property and establish relationships with the existing tenants. You want to communicate that things are going to be different and then let your actions speak for themselves.
On our most recent acquisition, we had bids lined up on every imaginable work order. One work order was for years of neglected tree removal and vegetation elimination. The bill was $68,000. Let me repeat that: $68,000 for the removal of trees.
When I showed up at the property, I was in a bad mood just thinking about this bill. I was ready to head over to Home Depot and purchase a chain saw and the longest ladder they had and begin cutting the trees down myself. However, when I met Scott the Arborist, we toured the property and I saw how immense the scope of work was. I would have had to purchase every chainsaw the state of North Carolina to accomplish what Scott and his team did those first few days.
More importantly, cutting down the trees was showing the tenants that their feedback was taken seriously. The overgrown trees and vegetation created multiple dark spots for crime to happen. Also, the overgrown trees masked a few hidden pathways where people could come and go into the property unseen. These were only visible after the hundreds of trees were cut back to our property lines.
These pathways connected the property to a higher-crime area. Now that we knew, we could take the necessary security precautions. All this occurred in a matter of days and every tenant witnessed years of neglect being trimmed, pruned, and cut. Every tenant saw the tree-cutting vehicles in every nook of the apartment complex. And some of the trees were even repurposed to add better drainage in the community and mulch around the buildings.
In hindsight, I am happy to say that $68,000 was an immense bargain. My asset manager nailed the project and the tenant feedback was tremendous.
Day one is also the time to implement any expense reductions on the property. A hard lesson, I learned from past projects was to not implement a utility conservation program from the start of ownership. While the trees are being trimmed and cut outside, the leaky toilets and inefficient toilets should be replaced inside the units. You have to go in with the idea that every day you don’t implement your business plan is a day too late.
The only way you can accomplish all of this is to go into the project with a healthy CapEx budget. Too often, I see operators close on a project with the bare minimum either to inflate the projects pro forma or due to difficulties raising extra capital. This is the ultimate example of counting pennies and losing dollars.
Another key component of the day one business plan is to make sure your asset manager has project management experience. Our asset manager, Justin Fraser, received close to 70 bids on projects needed to execute our vision for the complex. Besides getting the bids, it was his responsibility to create a timeline of implementing those bids.
This takes years of experience to make the process work smoothly. The last thing you want is tackling the wrong projects in the wrong order. You will end up spending more money and time fixing your mistakes. You will also create a terrible first impression with your tenants and property manager.
The Bottom Line
When you are done celebrating your new purchase, it’s time to roll up your sleeves and get to work. It’s important to walk your property, communicate with the tenant, and begin implementing your business plan from the first day of ownership.
While most business plans should be ready before you get to the closing table, be flexible and prepared to adjust on the fly. This is what reserves and an asset manager with experience are for. Just remember, it might not be as sexy as acquisitions, but asset management is equally—if not more—important.
So, you get it: There are a ton of things you have to do right after closing. Success in rental property investing comes mostly after closing. If you buy right, you have to drive your business plan home in order to achieve success to hit your targets!
By Matt Faircloth, Bigger Pockets