My business partner will be buying an apartment complex for about $400,000 in Florida.
What should he look for?
Something with value to add immediately? Something poorly managed so that we can increase the cash flow right away?
We are investing for cash flow, not for resale.
The numbers
In the end of the day, that is what matters
Does it make difference? Cash flow is cash flow, regardless of how where it comes from. Improving/routing/replacing the current management? Lowering out-of-balance expenses? Stabilizing the occupancy? Upgrading/improving the marketability of the units? Anything that improves/increases cash-flow is what you look for.
To be fair, I think it ALL boils down to people skills. Without the ability to deal effectively with people, you can’t really overcome other deficits.
There’s LOTS of investors with terrible people skills. And that’s why it’s important to hire people who do have those skills, and who can manage real estate, too.
I mean pretty much everything turns on the ability to manage, inspire, and/or motivate people to do what you need and want them to do. And those without people skills suck at real estate.
I would add that the less skilled, unqualified, and/or unprofessional the management, the worse the project will perform. It’s just the law.
I don’t think I’ve ever come across a well managed property, where the manager was an unkempt, unprofessional jackass. Just saying.
However, I have come across unkempt, unprofessional jackassy owners…
So, maybe notice where there is lots of “jackassery” happening, and pull out your axe and shovel, and start mining for gold.
FWIW
Does “people skills,” mean that I should understand why my tenants have to get $30 behind this week when they are just lying to me?
Can you give an example of the people skills necessary to manage an RV park?
Aside from maintenance issues, I would rather just come up here once per week to collect rent. In fact, I would rather get set up on PayPal so I don’t even have to do that.
No, it doesn’t mean you become stupid.
It means you earn respect, and show respect for others. It means exercising self-control and self-discipline.
It means being firm, fair, and friendly. It also means not being afraid to meet a challenge, and coming prepared.
For example, your tenant is behind $30. You know he’s lying. However, this is the first time, he’s lied to you.
You could call him a liar. Would that suggest you have good people skills, or not?
Let’s see what might happen:
Tenant: I can’t pay my rent.
You: I understand that things happen. You’re usually on time. When do you intend to bring the rent up to date?
Tenant: I’m not sure, because you guys are Jackasses about everything around here, and won’t fix anything, and I just bought a pound of medical marijuana, and my flat-screen payment is due tomorrow anyway. So, you’ll get it, when I feel like paying it.
You: OK well, I understand. You’ve brought up several issues that we can discuss later, but here’s what I can do for right now, to get your rent caught up. The park will waive the $150 late fee you now owe, but only if you have the back-rent in our office by 2:00 p.m. on the 10th. That gives you four days to bring the rent current. After that and the park will charge you the back-rent, plus $150, plus $10 for each day the payment continues to be late after the first. After 2:00 p.m. on the 10th, you’ll owe the park $280. Unfortunately, for legal purposes I must post this “Notice To Pay Or Quit,” which protects the park in the event you decide not to pay at all. Would you like to give me that $30 right now, and avoid all those hassles, or not?
That’s the best example I can give, without writing a novel. It’s using common sense, and having respect for others, even if you’re receiving none yourself.
Meantime, a person with good people skills sets limits and boundaries, and knows what to do if those limits and boundaries are crossed.
I would say that the “Golden Rule” is a great backdrop to good people skills. You treat people the way you want to be treated.
That all said, new projects are like a box of chocolates. You never know which units contain the nuts.
I’ve had tenants refuse to comply with our policy not to hang, dry, or otherwise display laundry on the balcony railings. They continued after verbal and written requests to stop.
So, it came to my attention. As I approached the apartment, I saw two men going into the apartment from the balcony. I knocked on the door. No answer. I knocked again, and waited. Nothing.
After failing to respond, I literally kicked on the bottom of their door with my foot, until the whole building shook, yelling “This is the manager. Open up.” Anyone would have thought the police were doing a drug raid.
After they opened the door, I informed them personally to remove their clothes and towels from the exterior balconies forthwith, as my earlier note had requested of them, or they could move to where this was permissible. They were gone by the end of the month, and I had a great tenant in there within two days.
Meantime, they weren’t going to pay any attention to the rules, until I made them pay attention. And it was too onerous for them to keep their balcony clear, so they moved.
Another tenant decided not to pay me for three months. I took over the building on her third month of delinquency. I knocked on her door and no answer. I took my maintenance man with me to collect, if possible, and enter the unit on the assumption that it was abandoned.
Still no answer, and no keys, so I drilled the lock. Nobody inside. I emptied the entire contents of the unit out the third floor balcony on to the lawn. The police stopped to witness the pile of crap, and asked what was going on. My assistant told them we were “evicting” whatever-her-name-was, whom they knew, and they got a laugh out of it, and drove off.
I say all this to say, you have to meet people and situations as you find them, and act accordingly. I wasn’t gentle and gentlemanly with the knuckleheads who refused to follow my rules. I escalated my response, in order to get the results I needed. I got the result, and a bonus; they moved out.
As far as the guerrilla eviction, this women was in jail for dumpster diving a pharmacy, and retrieving all manner of expired drugs, which she was known for ‘wholesaling’ to the community, as it were.
BTW, unbeknownst to me, I owned all the crap I dumped on the lawn from the third story balcony! My maintenance man told me that this apartment was furnished. Oh well, it made some college student’s bachelor pads more livable, I’m sure.
Lastly, my life motto is “He who cares least, wins.” I always try to care less.
The most important thing is that you have to be able to afford the property.
I wold physically assess the property, assess the repairs needed to bring to full market value and find out why occupancy is so low. Then buy it as a “value-add” property that you will “reposition”, lease most of the units at a higher rent and re-appraise the property at it s true value. Then refinance, pay off the existing mortgage, then use the balance as down payment on another property.
If the owner wants $400K, is it worth $400K? Only if it needs no repairs and occupancy is over 80%. Anything less and you NEED to negotiate or walk away. Or you could negotiate a master lease say at 70% of ARV with 5-10% down, get hard money for repairs, then reposition the property. Either way, buying these kinds of properties is NOT done virtually. You almost always need to physically inspect everything, to demand a T-12 and rent-rolls. And then VERIFY the numbers, because 90% of the time, sellers will
lie and/or fudge and hide the true numbers just to sell it.