First of all let me make it clear that there are other significant causes of apartment failures such as making a bad deal, investing in a declining market area, having too much debt, and incurring lawsuits, but the number one cause is, by far, poor property management. Now this goes for apartments being managed by its owners or by professional management companies.
Here are #s 5, 6, and 7 of the most common mistakes that poor property managers make. Here’s some good advice to being successful in the apartment business: don’t make these same mistakes!
Mistake #5: Not running your apartment building like a business. The real estate investing business is not a passive one. It is not “hands-off” as others might have sold you into. If you are self-managing the property then you have to deal with things such as collecting rents, overseeing maintenance, manage contractors, pay bills, and the list goes on. If you’ve hired a property management company to manage the property, do you trust them to make ALL the right and major decisions with the life savings you put into this investment? Get involved and stay involved – no one care more about your property than you do. Oh, and don’t forget, just as in any business don’t have anything in your personal name. If you do, you’re just asking for a lawsuit from an opportunistic tenant or passer-by.
Mistake #6: Treating tenants like secondhand furniture. Paying tenants are gold and should be treated as treasure. The number one reason why tenants move out on their own will is due to the lack of customer service. They are not satisfied with the product you’ve offered them. It’s that simple. Paying tenants that don’t renew their leases when they’re up, is throwing money down the drain. The waste adds up and is a telling sign that you have huge problem that’s going to take cash flow, time, and effort to fix. A satisfied tenant that renews does not cost you any money. However, a tenant that does not renew and moves out – costs you a month(s) of rent, cleaning and fixing up the now vacant apartment, marketing expense, and employee labor hours spent on showing the apartment to prospective tenants. Now imagine how a poorly run apartment building can have 50% or higher tenant turnover per year.
Mistake #7: If you fail to plan (for a new roof), then plan on failing. Managers that don’t understand that every apartment building has a lifetime will encounter surprises that could doom them. Here’s an example. Let’s say you have owned a 50-unit apartment building for seven years now and you knew when you bought it, the roof would need to be replaced by now. A complete roof replacement on a 50-unit apartment building will cost approximately $50,000 on average. If you budgeted and planned smartly for this upcoming expense over the years, you are in good shape for when the roof starts leaking badly when the first rainstorms hit. If you didn’t, this could cause failure. If the rainstorm leaked water into the top floor units, you may have to evacuate them and put them up in a hotel. Who pays for this? You do – out of your own pocket. Now, where does the money come from for a new roof? You guessed it, you. Ouch. You get the message. A critical part of the manager’s role is to plan for capital expenses, big or small, next month or next year.