As a real estate investor, finding the deal and acquiring the deal is only half of the battle. If you purchase a great deal, but lack in your asset management skills, you will never be profitable in this business. In this article, I go through 3 asset management skills that you must master in order to become an effective operator. The whole idea of real estate investing is to gain freedom, and to take yourself out of the business overtime. If you don’t, you will spend your whole life working real estate as a job- taking away your ability to acquire more real estate, and to live a happy life. Let’s dive right into the 3 skills to button up your asset management in real estate investing.
- Track your KPI’s
In real estate investing, and business as a whole, you will never be able to know what’s wrong and what’s right with your business without tracking your KPI’s. In asset management in particular, the most important KPIs to track are your occupancy, economic occupancy, all of your vacancies (in days), and your evictions. Your property manager should be working hard to fill up your units, if you notice that your occupancy is below 90%, something is wrong. Make sure to keep track of how your property manager is marketing your units. Track the amount of leads, the amount of showings, and the amount of applications that are coming in on a weekly basis for every vacancy that you have, and adjust your marketing efforts accordingly. As for economic occupancy, it does you no good if your units are filled but your tenants aren’t paying their rent. If your economic occupancy is low, track how your property manager is collecting rents. Are they following up with non-paying tenants? Sending texts, emails, and calls? Are they knocking on doors if necessary? These are all steps that a property manager should be taking if economic occupancy is low. Again, if your economic occupancy is below 90%, there is a problem.
Next, the vacancy (in days) is a very important metric to keep track of. Is your property manager filling up your units in days? Weeks? Months? As a superb asset manager, your units should be filling up in two weeks or less, and there should certainly never be a vacancy for more than 30 days. Again, track how your property manager is marketing your units, and make adjustments if vacancies are taking too long to fill up. Lastly, how many evictions are you having on a monthly basis? If you are having evictions consistently, your property manager is not doing a good job of filling your units with good tenants. What is your property manager’s protocol for accepting tenants? Are they becoming lenient when the vacancy is taking a long time? Are they calling previous landlords, checking income, previous evictions, credit, and criminal history? DO NOT get anxious and fill up your units with just anyone if it is taking a long time to fill your unit; it is better to wait a few more weeks to get a good, paying tenant, then it is to deal with a headache down the road. Track these KPI’s with your property manager on a monthly basis, if there are gaps, adjust your business accordingly.
2. Hire Right
One of the most important skills of an entrepreneur is the ability to hire the right people for the job. If you don’t take this seriously, you are in for a world of anxiety and heartache. When interviewing a property manager, make sure that your goals align. Also, make sure that the property manager you hire has experience managing the asset class that you own. If the property manager is mostly skilled in multifamily, it is not a good idea to hire them to manage a single family home, and vice versa. Does your property manager manage mostly in Class A and B+ areas? DO NOT hire them to manage areas that are Class C and lower; they will be much too strict in accepting tenants, and they won’t know how to handle all of the nuances that come with managing lower class assets.
If you find that your property manager is not doing a good job, or that they are behind on your KPI goals, let them go, and find a new one. If you bring the issue to your property manager, and you can tell that they are making rapid changes, it will ultimately be up to you what you want to do for your business. If you are confident that they will adjust to your business needs quickly, then it may be a good idea to stick it out and see what happens. If you don’t see a light at the end of the tunnel, it is your duty (to you and your investors) to fire quickly and move on. You are not in this business to make friends; you are in this business to make a profit!
3. Track Your Capital Expenditures
A large part of this business is going to be deciding where to spend money to improve your asset. Should you repaint your hallways, add laundry in your apartment, add a carport for your residents, include Wi-Fi or other amenities? A good rule of thumb in making these decisions is you should get your money back on these capital expenditures (investments) in 3 years or less. If you are going to install laundry in your apartment, and you don’t see a return on your investment in 3 years, consider a different improvement to your asset. Your property manager should be walking your property routinely, looking for items that need to be completed in order to keep your residents safe and happy, as well as looking for ways to better attract new residents. Keep track of your capital expenditures, and make sure not to dig into your reserves (or cash flow) in order to make improvements to your property. Reserves are a separate necessity to this business, and utilizing them for the wrong reasons can lead to a loss of your assets down the road.
In mastering these 3 skills of asset management, you are well on your way to becoming an effective real estate investor and asset manager. Track your KPI’s, hire right, and track your capital expenditures consistently. In doing this, you will be able to track what’s working and what isn’t, put the right people in place for the business improvements that you need to make, and improve your property consistently in order to attract the best of the best tenants.