Realty Management | How The Approach Differs By Property Type

In a property management training article on realty management a couple of weeks ago we discussed whether single family or mutli family properties make the better investment.

Much of the answer to this is really a question of realty management, your specific real estate investment objectives, and whether or not the individual tasked with managing your rentals has the necessary property management training.

Single and Multi Tenant Properties Realty Management Review

As a review, my first article on this topic covered these points:

Consider whether or not the market has really bottomed out.  Are there too many properties on the market for the available buyers, or are unsophisticated investors bidding up property values while the smart money stays on the sidelines?

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Think through the exit strategies available with each investment. 

With single family properties you can:

• Sell to your tenant
• Sell to an owner-user who is not your tenant
• Sell your portfolio to another single family investor, although this is the toughest of the three to do and often times easier said than done

With multi tenant properties the exit strategy is more limited, but also more clear cut:

• Sell to another multi tenant investor
• Go condo, split up your multi tenant property into individual units for sale, and sell to either the current tenant, another owner-occupant, or a beginning residential investor

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Realty Management Differences

Let’s pick up where we left off last time.

There are big differences in the type of realty management required for each of these product types.

Here’s what I see the top three being in each:

Single Family Realty Management

The realty management of a group of single family homes becomes much more difficult if they aren’t close to each other.

On the other hand, the amount of ongoing repairs required is probably going to be less, since tenants in single family homes tend to have more of a “pride of ownership” in their property, even though they’re renting.

But when repairs are needed, they are probably going to run on the high side, in particular when the property needs to be turned over to another renter.  There’s simply more of everything that needs to be spruced up or replaced, compared to a small sized multi tenant rental.

Multi Family Realty Management

The realty management of multiple units is almost always easier, since each grouping of units is right next to each other.  Even if you have a real estate investment portfolio that’s spread across town you’ve still got multiple units right next to each other.

You may have a higher level of on-going repairs, since tenants in multi family property may take a lower “pride of ownership” view than those in single family properties.

When repairs are needed, the costs are probably going to be lower due to the smaller sized units, when compared to a single family home.

The Impact Of Appreciation

I’ve seen a lot of real estate investors purchase property with the idea of building a legacy that they can pass onto their kids.  Their intent is to never sell.

Sometimes this happens, sometimes it doesn’t happen, for various reasons.

My point is that buyers of investment real estate should always think through the potential selling exit strategies of each and every investment they buy, in addition to the ease of realty management.

Here’s where to start when you think about selling before buying.

Multi Tenant Investors

With multi tenant properties, you’ll most likely be selling to another investor who is driven by financial performance, CAP rates, or cash-on-cash return.  There won’t be a lot of emotion involved with this type of sale. 

So, your type of realty management should be developed with this in mind.

Single Family Buyers

Here you’re most likely selling to an owner-occupant, either the existing tenant who wants to own, or an end-user who wants to buy. 

With single family, other than the ability to finance the property, emotion is probably the number one driver for most buyers.  The color of paint, carpet or flooring, the type of appliances, and much more all come into play.

Your realty management of the property should be done with this emotional twist in mind.

Depending on whether you choose to invest in single family or multi tenant real estate, your level of property management training and realty management will go a long way toward a successful and profitable exit strategy.

Jeffrey Roark

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Property Management Training - When Tenants Hold The Last Card

Today I took a break from property management training, and had an almost three hour lunch with one of my best investment property management clients. 

Not the Mad Men type of lunch that may have jumped to mind, but a good casual meeting where we talked about a variety of topics, none of which involved property management training.

My client/friend travels internationally quite a bit, so we only have the chance to catch up and talk about his properties and tenants, and our individual investments, and the related investment property management issues every few months.

One topic of conversation was a problem tenant in a single-tenant property he had purchased a little over a year ago.  

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Every three months, almost like clockwork, the tenant pleads poverty and approaches us for aren’t concession of one type or another, nowadays an all-to-often occurrence with investment property management.

Our last meeting with the tenant was surprisingly adversarial, with the tenant, who is almost two months behind in its rent, basically giving us an ultimatum that if we didn’t reduce their went, then they would break their lease and go elsewhere.

The investment real estate property is owned free and clear, and the owner has substantial capital reserves, so if the tenant ends up leaving this won’t be a financial hardship on the owner.

But cash flow is still cash flow, and the odds of getting the building rented quickly aren’t that great, given the area of the market that it’s in.  So we decided our best investment property management approach is to continue with the strong, firm, reasonable hand we’d taken with the tenant from day one.

The problem is that in this case, the tenant really does have the upper hand if the negotiations get tough.

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Here’s the investment property management problem.

The building is leased to a private social club with national exposure.  While at first glance that might sound good, the problem with the lease is that the party on the hook as the tenant is only that specific location entity, not the national group.

Nor are there any personal guarantors.

Which gives us a weak hand to play in this specific game of investment property management.

The situation we have is similar to leasing a free standing building to Walgreens or CVS, and not having a corporate guaranty but instead only the guaranty of that individual store location being around. 

If that store goes, you’re out of luck.

I don’t think my client quite understood this until our lunch meeting.

Most problems that arise with investment property management and real estate are foreseeable and can be determined with even some very basic due diligence or research, but for various reasons are often overlooked.

Sometimes:

The buying real estate investor is motivated by a hot market

Currency exchange rates plays a factor

People buy into the ‘market hype’ going on at the time

Bad advice is given, or the investors will second guess themselves and not go with their first instincts.

Let’s face it, it’s easy to over analyze anything and find data to rationalize the decision you’d like to see.

In the case of our problem tenant, there are a few simple things that my client/friend could have done prior to buying the property that would have made his investment property management go much smoother:

Have a trusted independent advisor review the lease. 

This can be an attorney, a friend in the business, or a real estate consultant.  But for sure somebody who does not have a vested financial interest in whether or not the property sale closes.

Determine what the tenant actually does and who the management really is. 

It’s very easy to assume that because a tenant has been paying their rent, they will continue to do so. 

The problem is, things always change.  There can be a new competitor, a change in the market demand, a family situation with the tenant, or a management change in the staff.

In our case, with one short pre-purchase meeting with the tenant, my client could have discovered that not a single member of the management group had any prior experience running a business, let alone the one they were currently involved in.

Figure out who is actually liable on the lease. 

This is the easiest thing to do, but also the area that is often overlooked or erroneous assumptions made.  It’s easy to assume that the tenant wants to stay in the lease, or values their business.  To an extent, they probably do. 

But if you’re operating in a market environment where increasingly people blame other for their problems and bankruptcy becomes more and more common place, understand that your tenant is likely going to be influenced by whatever the prevailing attitude is at the time.

In the case of our tenant, essentially nobody or thing is on the hook.  There were no personal guarantees, and if the entity on the lease decided to become insolvent, my client would have very little to go after.

Yes, you can always get the attorneys involved, but then nobody wins, except the attorneys.

Doing a little basic investment property management due diligence on an existing lease can go a long ways to keeping your hard earned investment money in real estate that generates cash flow.

Jeffrey Roark

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How To Rent My House Real Estate Program

Is It Better To Buy Single-Family or Multi-Family Rental Property?

Most property management training and property management consultants start with a real estate property that’s already owned by the investor.

In today’s article I wanted to take a step back, ignore what you already own, and think about potential future purchases.

As a property management consultant I’m often asked if single-family or multi-family investments are the better choice.

There’s not a right or wrong answer to this question and I think a lot of this answer comes down to what your personal preferences are regarding residential rental property investments.

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Is This The Time To Buy?

Either way, as I advise my property management consultant clients, there will certainly be strong opportunities coming up in the residential investment market, on both the single-family and multi-family investment side.

I don’t have a crystal ball, and I’m not ready to advise my property management clients to move just yet.  Instead, I think it’s time to keep an eye on the market, do some on-going investment analysis, so that when the time is right you’re ready to pull the trigger and make decisions you’re comfortable with.

My personal view as a property management consultant is that the market hasn’t bottomed out yet.

The way I define a bottomed out market is When there are 10 properties for every one buyer.

Don’t get me wrong, I never suggest trying to time the top or bottom of the market.  I’ve personally tried to do this – maybe it’s human nature – and the results are never good.

The definition I like to use of a bottomed market is, "When there are 10 properties for every one buyer."

So while we're not at the bottom yet I think we soon will be, and there will soon be excellent investment opportunities for rentals, short-term buy-rent up-flip, and long-term hold positions.

Back To Our Original Property Management Consultant Question

Is it better to invest in single-family or multi-family residential property?

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A good property management consultant will go through the investment process step-by-step.

To try and answer this question, let's start from the end first and take a look at potential exit strategies:

Single-Family Investments

With single-family rental investments there are three main exit strategies:

1. Sell to an owner-occupant, with the first step being to sell to the tenant renting your home
2. Sell to an owner-occupant who’s not your tenant, which means you’re probably going to need to do a lot of updating and some improvements before you put the single-family rental back on the market.
3. Sell your single-family portfolio to another investor, and let them go through the first steps above.  This exit strategy is easiest to do if you own your rental homes free and clear, since you won’t have to deal with each of the lenders involved on the individual properties.

Multi-Family Investments

With multi-family investments your exit strategies are a little more limited, but also require a little less work.

1. Sell to another multi-family investor
2. Try to “go condo”, assuming planning and zoning allows this and you’ve got sufficient upside to through the time and expense in doing this.
3. After you go condo, sell the individual units using the methods I covered in single-family exit strategies.

Property Management Differences and Investment Appreciation

Two other factors to consider in single-family vs. multi-family investments are the differences in property management and the appreciation between the two property categories.

I’ll cover these topics in future articles.

I hope you’ve found this property management training article useful on determining whether single-family or multi-family residential investments are the better choice for you, and have gotten some good information to discuss with your property management consultant.

Jeffrey Roark

Property Management Training eBook

Tips To Rent A House

The IRS and Property Management Training

What That IRS Taught Me About Property Management Training

The recent mail contained a letter from the Internal Revenue Service regarding a 1099 individual that we had filed on last year, and the conversation that followed ended up providing an excellent lesson on property management training and how not to rent your house.

The gist of the complaint correspondence was that the individual’s last name didn’t match the tax payer identification number we’d supplied on the IRS return form.  That’s because the IRS had combined the vendor’s middle initial with his last name, creating a unique new last name that of course didn’t match the tax payer ID.

I figured this out in less than a minute after accessing the PDF reports on my computer.

Scanning documents, by the way, is something that’s incredibly helpful and time saving if you ever decide to rent your house.

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Telephone Call To The IRS

Granted, anyone can make mistakes.  When you rent your house there are going to be errors, and it’s best focus on problem solving instead of worrying about the cause of the mistake.

The problem was that the IRS letter only said what to do if I’d made a mistake, not what to do if the IRS made a mistake.

So to cover my basis I made the IRS phone call seeking clarification, pressed my extension and held for not too long of a time.

My talk with the IRS representative was pleasant enough, but she wasn’t really focused on solving the problem – the combination of the middle initial with the last name – but instead cited various tax publications, rules and regulations.

After a few minutes on the phone the representative determined that I really didn’t have to do anything since it was an IRS error, but suggested I retain the notice for a few years.

How To Rent Your House – What I Learned From The IRS

This exchange got me thinking about how we interact with tenants when they call with a general issue or question, a task that frequently comes up when we discuss how to rent a house.

For instance, when a tenant calls with a repair request or question, it’s tempting to refer to the lease and use the terms and conditions as guidance, and cite those to the tenant.

Doing this is sort of like following the letter of the law and not the spirit of the law, which is not a good way to rent your house.

After much experience in working with renters, property owners and many property management issues, and training real estate investors that want to now how to you’re your house, I can tell you that it’s the little things that rub tenants the wrong way, not the big things. 

Charging tenants for little things, or asking them to do the work themselves, usually ends up creating bad will and can lead to a good tenant not renewing its lease.

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How To Rent Your House

Here are a few actual ‘how to rent your house’ situations I've had recently and how they were handled.

Replace air conditioning filters

Pay for a door lock replacement

Replace lights and ballasts

Repair toilets and faucets

Re-plant the landscaping

Replace cracked or broken glass in the doors and windows

Cover or split the costs of important air conditioning, heating, plumbing or electrical work that would normally be paid for by the tenant

Clear clogged toilets, sinks and drains

All of these tenants had clauses in their rental agreements that placed the cost of repair on the tenants.

Surely we could have asked the tenant to read the lease, pointing out to the tenant the terms and conditions, and rules and regulations? 

Yes, but our goal is to keep renters satisfied and keep their rent money coming in on time, every time.  But unless there's any abuse of property, we will take care of any repairs as they arise.

Jeffrey Roark
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How To Rent My House Articles

Strategies For Tenants On How To Renew A Lease

Tenants Tips For Renewing A Lease

The majority of my topics to date have been addressed to real estate investors or asset managers with the idea of precisely how to actually qualify tenants, the way to renew a lease, or other real estate investments property concerns.

In The Basic Property Management eBook, my first book on property asset management, as well as in The 5 Step House Rental eBook, in which I talk about what to do to rent your investment rental home, you will find chapters on the way to market, to locate excellent tenants, and the way to qualify and continue to keep those tenants.

My article today is produced for our tenant readers who would like to strategize on meeting with their landlord to renegotiate a lease or one that’s about to expire and needs to be renewed.

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Before I get into the specifics of how to renew a lease, let me suggest that you as a tenant should seriously consider hiring a real estate broker to represent you in a lease negotiation with the landlord.

Why Hire a Broker to Represent You to Renew a Lease?

 

Here are four reasons why:

1. It normally costs you nothing to do this since the broker will be paid a renewal fee from the landlord.
2. Usually this fee is less than what it would cost a landlord to procure a brand new tenant.
3. The broker has a better feel for what spaces are actually leasing for, what concessions are being made, and what the viable space alternatives really are.
4. Using a broker to represent you may also add some credibility to your cause.

But in order for this approach to work, in order for a broker to effectively represent you and expect to get paid something from the landlord to renew a lease, you as the tenant need to negotiate from a position of strength.

A position of strength means that you are a tenant that the landlord wants to renew a lease with.

 

We deal with a lot of tenants and here are some common misconceptions that tenants have about landlords:

1. It's a tenant's market, therefore the landlord is lucky to have me as a tenant
2. It's better for the landlord to get some rent, even if it is reduced, than no rent at all
3. The last thing a landlord wants is vacant space

Having the right mindset and frame of reference are important in any negotiation.  Here are the correct perceptions to have when dealing with a landlord:

1. The landlord may be lucky to have you as a tenant, but only up to a certain point.  The more value a tenant adds to a property the "luckier" the landlord is going to feel.  If you're a tenant that brings traffic into a shopping center, adds some prestige to an office building, doesn't require a lot of extra management from the landlord and who is otherwise "low maintenance", then your luck ratio will increase.
2. Many times landlords will opt for no rent over some rent.  One reason is that having a tenant costs the landlord money.  It might be in additional overhead, or NNN, expenses.  Or it might be in rent or improvement concessions.  Investors buy rental property for the cash flow.  If a tenant isn't contributing to that cash flow, the landlord may very well start looking around for a replacement tenant, or decide the the time and effort invested in the short-paying tenant isn't worth the return.
3. Vacant space, some vacant space, is not always a bad thing.  If a tenant is high maintenance, sucks up a lot of property management time, doesn't add value to the property, if the landlord starts to think that she might be better off having the space vacant and rolling the dice on finding a replacement tenant, then she probably isn't going to renew a lease.

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Now that we've cleared up some of these tenant misconceptions, let's talk about you as a tenant negotiating from a position of strength and how to renew a lease.

 

How solid you might be as a lessee or tenant will undoubtedly vary a bit according to the property you happen to be in, as well as the market place circumstances, however in general here are just a few points that will likely make a landlord view you as a solid lessee:

• Rent is paid promptly, or in case a payment arrangement is created, you attempt to do the things you assured the landlord you would do
• You are a lessee that doesn’t take up a great deal of additional property administration time
• You create site visitors and traffic into the shopping mall or increase the attraction of an office building
• You recognize just what the competition is providing, you understand everything about your particular alternatives, and may present those involved with a strong, non-threatening method to the landlord.  This is when allowing a broker to fully handle your case may well be very helpful.

Think About The Alternatives To This

Time after time we’ll have tenants who wish to renew a lease, yet they are in arrears with their own rent, haven’t kept promises made about payment plans, or have impossibly unrealistic thoughts of the items other landlords will provide.

Those are the tenants that do not get their leases renewed or in the event that they do, do not get the conditions they may be seeking.

As with my other articles on this site, I sincerely hope you’ve found the tips on how to renew a lease useful.

Jeffrey Roark

Property Management Training

How To Rent My House