Yes, but not necessarily at the time of purchase. To make “real” money in real estate, we’ve got to find a problem to solve.
Under performing properties are the most likely to have a variety of problems to solve. Mainly however we want management problems, not financing, or structural problems. We can make money from the latter, but it’s easier with the former. I think the common denominator with management problems is the failure (not always) of the owner/landlord to apply consistent, professional management to the project. There seems to be some ‘emotional’ (unprofessional) element causing a dysfunction in the operation.
I’ll give you an example. I come across landlords (or managers) that always seem to be putting out fires, chasing rents, and otherwise, spending way too much time “managing.” Why? Because they become too emotionally involved with the whole thing. Tenants push their buttons (once they find them), and then the overreactions begin; with fits; meltdowns; paranoia; lawsuits, small claims, or just plain old fashioned tests of wills. (Shaking head).
Well, multiply that by 20 units, and see what “management intensive” could actually mean. It’s silly. These are the same people that become motivated sellers. These are the kinds of sellers I like to find.
The solution in these cases is to first create uniform lease terms and conditions, and begin enforcing them consistently. It’s also, as important, that each tenant have something to lose by failing to conform to the (new) lease terms and conditions.
For us, the easiest way to attract tenants with something to lose, is to market to the prospects with credit hiccups. These are the ones that can’t rent a nice place without our help. We can command five to ten percent above retail in rents; get larger (the largest legally) deposits; often require cosigners; always charge confiscatory late fees; and only offer two-year lease terms.
All this in return for renting a nice place to someone who is getting turned down by the lazy, less profit-oriented landlords around us who can’t seem to figure out why their tenants “always” go bad.
It does take a month, or two, to train new tenants to pay on time (and live by the rules). It can be traumatic for existing tenants to fall in line, when they’re used to paying “whenever” they’ve felt like it, or late, without any real consequences, much less having to abide by the remaining lease terms.
I’ve mentioned elsewhere what I’ve done to get management control of a building at the get-go. I’m quite fine with object lessons that will convince everyone that I’ve got emotional problems, and ready to go all “psycho” on them …if they mess with me.
Meantime again, it can take some determination, negotiation and communication skills to establish control of a mismanaged property otherwise, but once it’s established, things become more routine, as a rule.
If you’re like me, taking on management problems is a satisfying challenge. It taps all my strengths, and challenges most of my weaknesses. And with each success, I can’t wait for the next “fix.”