A CASE STUDY IN CHOOSING THE RIGHT PROPERTY MANAGER
The SituationThe client first approached us about one of their multifamily complexes, because they felt their current property manager was lacking transparency. They were looking for a management company that would be able to help them understand the true status of the property with up to the minute details about income and costs and what was affecting or causing the progress. The property (160 units in the Atlanta metro area), although being managed by a well-known company, was suffering from massive unnecessary expenses, a high rate of delinquent renters, illegal drug use, and noncompliant residents on the premises. The maintenance technicians were inefficient, and the office staff were poorly managed. More than anything, there was no transparency regarding the property and no regular status reports. This is not to say the company was not trying their best, just that their system was not effective in this situation. The owner was frustrated and feeling stuck after pouring hundreds of thousands of dollars into the property.
What We DidWe started with a full analysis of the property at its current condition. This includes reviewing the financials, management style, tenant base and more. Working together with our clients, we made a list of every aspect and what we wanted to add, change, or understand better. We created an online account specifically for their property to allow for full transparency and reporting, giving them access to the whole platform. The steps we took:
- Interview, monitor, and change the staff to be efficient, empowered, and motivated. “Think of your office staff as a “team” and take the time to find the right players. Once you have your team, empower them!” This applies to both the onsite office and the maintenance staff. In the office we were able to reduce the team to one staff member who was already working at the property, but not being empowered or appreciated. With better staff management, she has become a true star, and better yet, even after giving her a raise we lowered the cost of the onsite staff by about $45,000 a year.
- Analyze workflow of maintenance technicians and adjust what is done in-house versus contracted out to lower costs and increase productivity. We were able to deduce that we only needed one in-house maintenance tech and not two, which cut the in-house maintenance cost by half. By replacing the technician with a truly capable one, we were able to save an exponential amount of money and have room to outsource only when needed and at better prices.
- Better monitoring of the supply cost. It went from $55,000 in 12 months to $26,000 in only 10 months. That’s a 56.7% savings.
- We did not just evict delinquent tenants, but also those who caused damage or invited illegal activities.
- We picked quality tenants over caving to the pressure of filling a property fast. The right tenants have long term positive effects and reduce an immense cost associated with turnover, resident happiness, and usage of staff time.
- Use the right online marketing platforms to attract the best tenants. We had to change from one company to another even though both are good companies, in our market one works better than the other.
- Know your market! We increased the rents initially $100 and currently by $226 without spending more on extra improvements. The units that are upgraded are additionally increased.
- It is also vital to increase the renewal rates for current tenants. By offering them a small upgrade we were able to move the rents up from $60-$100 per unit plus water and trash fees for a total of $70 additional. As 80% of the tenants have been renewing, it will eventually add $120,000 dollars of income per year.
- Renegotiate with suppliers and other contracts such as the internet bill, the sanitation fees, and office supply costs. These fees may be small, but they can add up to thousands.
- Save on utilities and government services. (Fix all leaks quickly, seek out adjustments for the invoices for large water line pipe replacements). For this property we also worked with our representative at the city to get them to change the allocation of the CCF usage allocated to the building which saved about $800 per month.
- For difficult projects we set weekly meetings with our clients for full transparency and reporting. As the property becomes stabilized, we reduce meetings to bi-weekly, and then a call once a month meeting with reports at the owners’ fingertips and the reconciled financials ( P&L / Balance sheet / Status update) report each month.
- Once the income stabilized, we upgraded the property with both cosmetic upgrades like kitchens, tile work, exterior cosmetics to increase the rent potential and also with security upgrades and coming soon resident amenities. For this property we also renovated a previously fire burned unit adding $1150 per month rent income to the property immediately upon completion as it was pre rented.
Case Study Details
One of the first and most important changes we made was to the staff on site. We truly believe that happy and satisfied employees make running a property easier, better and more efficient.
We started with two full-time onsite maintenance technicians and gave them two weeks to try to improve their efficiency and updated their responsibilities to be more cost effective and productive. Most multifamily managers have their onsite staff do only minor repairs and then outsource for everything else. We saw that with the rate of turnover, the outsourced painting alone cost thousands of extra dollars a month that wasn’t necessary. The current work order flow was not pressing enough for the technicians to be unable to handle both jobs. We dedicated one technician to turnovers and one to work orders, unfortunately, the technicians did not want to accept the new expectations so by the third month we found the right maintenance technician for the job. With just one full-time technician, we were able to cut the cost to half of what the previous manager had. This left a lot of room in the budget for extra help only when needed, which cut the outsourcing costs tremendously. An additional issue was the supply cost. The previous technicians spent $55,000 in 12 months, whereas our new tech spent only $26,000 in 10 months. That’s a 56.7% savings.
The office staff also underwent changes. There was originally a full-time staff member and a part-time staff member. After interviewing both, we realized we should let the part-time staff member go as she was not reliable and not interested in complying with the new program. For the full-time staff member, we identified that the previous company had treated her with a lack of respect and appreciation. She turned out to be an amazing asset who had a detailed knowledge of the property but was not being empowered. We worked together to promote her to the proper authorization level and increased her responsibilities, allowing her to run the entire property alone, while giving her a better infrastructure to do so. We take her opinions and thoughts seriously, so she feels great and so do we! Even after giving her a raise we lowered the cost of the onsite staff by about $45,000.
The next step was to deal with the tenant base. While this change took time and effort, the long-term effects were crucial. We evicted delinquent tenants, and just as important, we evicted those who caused damage and partook in illegal activities or invited those who did.
We were able to add value simply by raising the rents initially by $100 and currently to approximately $226 more than the previous rents to be in line with the market value. The units that are upgraded are additionally increased. We also added water and trash fees which help offset the expenses dramatically, as well as increasing the renewal rates for current tenants which is a slower process but has the long-term effect of adding almost $10,000 of income per month. Many managers are worried about increasing renewals because of the possible turnover, but by adding value to the property and finding ways to reward the tenant for renewing we kept 80% of the tenants even after increasing the rents up to $100 plus fees.
These changes saved over a $100,000 for the year combined. After completing the first stage, it was time to take a look at the smaller expenses to gain maximum profit. This included cutting the internet bill in half, lowering the sanitation fees by renegotiating the contract, lowering office supply costs, and charging less in management fees. One large change was to continue the owner’s work on lowering the water bill by working with our representative in the city to change the allocation of the CCF usage allocated to the building which lowered the bill by about $800 dollars a month. Many of these changes were relatively minor and easy but made a significant difference in spending.
After we finished with increasing savings and efficiency, we worked with the owner to upgrade the property. This included security changes such as adding another guard and cameras as well as more lighting. We made pavement repairs and supervised and coordinated the renovation of a fire burned unit which added $1150 income to the property immediately upon completion. We changed marketing platforms to increase traffic, we replaced or secured walkways, removed harmful trees, and now have the room to add resident benefits like communal barbecues and new ideas to increase resident satisfaction.
The results were significant, quick, and much more than our clients expected! Not only did our client save money, but their property management experience also vastly improved by working with a transparent company with clear reporting and status updates.
The staff on site have never been happier. Our office manager even noted:
By changing their property management company, our client was able to change their entire property ownership experience. Their liability has decreased, their profit increased. Their property is running smoothly, their staff is happy and treated well, and best of all, they don’t have to worry about the day-to-day operations.
Ready to see how we can turn your property around and increase profits drastically? Contact E&E Capital Management, LLC today!
Emma Grin, [email protected]
References are available upon request