Apartment Turnaround Mastery Virtual Boot Camp Session #5 REMINDER: Dial in to the conference call number on your webinar screen. Lance Edwards Session #4 Topics (Last Session) On-line Video Curriculum and LIVE Curriculum Field Assignment Review Instruction Section 3: Finding Deals Strategy: Partnering with Owners Q&A Field Assignment On-Line Videos released weekly: Video Series #1 How to Recognize a Turnaround Opp Video Series #2 How to Find & Create Turnaround Deals Video Series #3 - Asset Management Video Series #4 Closing & Getting it Done This curriculum is being added to and spread over 6 weeks of these calls. Field Assignment Review Session #5 Agenda 1. Listen/read Module 6 in Home Study System. 2. Call & speak to at least 2 brokers. 3. Bring your comments and questions next week. 4. Optional: Download RealCoach QuickStart Audio at www.realcoachtrial.com; Create your daily mindset routine. 5. Optional Accelerator: Watch 1 st HALF of Video Series #3 Field Assignment Review Instruction Section 4: Due Diligence Strategy: Making the Property Irresistable Section 5: Property Management Strategy: How to Cut Expenses Q&A Field Assignment 1
The Turnaround Process Looking for Value Plays aka Forced Appreciation 1. Find the Deal 2. Qualify It 3. Get it Under Control 4. Find the Resources 5. Finalize the Turnaround Plan This is Tonight s Focus 6. Implement the Turnaround Plan 7. Exit Put on your money goggles Section 4 Develop your Turnaround Plan Due Diligence How to Validate the Deal Process starts with the initial analysis Continues thru the due diligence 3 Areas always looking at: 1. Increase Occupancy 2. Increase Rents 3. Decrease Expenses Reference: Module 5 in Home Study System You Are Here Apartment Due Diligence Go to the Process Flow Chart Trust but Verify Validate the basis for the deal Conducted after the contracts are signed If you discover a discrepancy, you can either Exit with no penalty Renegotiate 2 Types of due diligence Financial Due Diligence Physical Due Diligence Develop your Turnaround Plan in the process 2
Financial Due Diligence Review all financial records: Rent rolls P&L Review your Due Diligence Check List Lease Agreements Resident Applications City permits Tax records Bank statements Do the numbers for forced appreciation match? Use of 3 rd Party Due Diligence Co. You can do yourself or hire it out. Probably need 3 rd party for large properties. Charge $0-$25/door or $5000 flat fee. Walk each unit and report condition Inspect & itemize each lease and application Analyze & report on the competition Itemize all vendor & utility contracts Review all bank statement for deposits Prepare a sample budget Financial Due Diligence (cont d) Where to Find Due Diligence Co? Paper work intensive process Review every page of every lease Review months of bank statements, etc. Get an Assistant Review the lease pages File & organize Make copies, etc. Or hire a 3 rd party due diligence company. Maintain a schedule of all milestones Do this from your home FIRST. 1. Prospective Property Management Co. 2. Independent Apartment due diligence companies (niche area) 3. Google Apartment Due Diligence KEY: In all cases, you track their progress and guide them on the areas you are interested in. Do NOT sit back and wait for the report. Financial Due Diligence (cont d) Fine tune your Turnaround Plan Occupancy Increase? Rent Increase? Expense Reduction? Add income sources? How has the business been trending? 3
Physical Due Diligence Physical Due Diligence Do this after financial due diligence passes Hire inspector(s) (member of your Team) Inspect interiors Inspect roof, foundation, boiler, etc. Inspect the submarket area What is the quality of the competition Is it Class B, C or D area? Shopping, Bus Stops, Laundromats, other amenities Local businesses to fee resident traffic? Marketability? Visit the local police station crime stats www.spotcrime.com How to find property management companies Later in this session How to find resources, i.e. Inspectors, Appraisers, etc Ask Brokers (not necessarily the Seller Broker) Complete your Turnaround Plan Physical Due Diligence (cont d) Inspect the competition - mystery shop What are their rents? Market Rent Ask for their Move-In Special How good are their models? 1 st Impression What would it take to be 10% better than them? Physical Due Diligence Strategy Making the Property Irresistible Meet your management company candidates Let them walk the property with you Ask Their knowledge of the property history Their Turnaround Plan recommendations About the area Visit other properties they manage as a reference What residents want #1 Feelings of security #2 Respect #3 Feeling of home 4
#1 Adding Feelings of Security Lots of signage Exterior Lights property lit at night Sturdy doors and locks Gated access Video cameras with signs Smile, You re on Candid Camera Courtesy Patrol Police officer living on-site #2 Showing Respect Section 5 Respond to their maintenance requests in timely manner Speak to them if it s an unreasonable request Role of a good on-site manager You will track this via management reports (later) Property Management How to Select and Manage Managers Reference: Module 6 in Home Study System #3 Feeling of Community Business = Marketing + Innovation Warm leasing office Warm on-site manager with people skills Gift basket when they move in Newsletter Photos of birthday kids Birthday cards to residents Hot dog cook outs Marketing for 3 Things 1. Deals 2. Dollars 3. Clients (Tenants) 5
Asset Management - Creating Value Options & Requirements Asset Management is different than Property Management Asset Management is: 1. Property Management 2. Repositioning 3. Innovation We are not Property Managers. We are Asset Managers. We manage the managers. We add marketing and innovation. 1. Hire property management co that oversees the on-site manager and they handle the books, OR 2. Hire strong on-site manager that has initiative & experience and you handle the books separately 3. You always interview & approve the On- Site Manager 3 Areas of Property Management How to Choose a Property Manager Some of the Most Important Points Apartments Are Businesses: 1. Client Care (Maintenance) 2. Accounts Receivable (Rent Collection) 3. Marketing (Leasing) Property Management Companies really don t understand Marketing. We do and that s bad news for our competition. Ask them What is your approach to marketing? Can I see samples of your operating reports? A strong on-site leasing agent with people skills is critical. Don t hesitate to pay occupancy & collection bonuses. Most CRITICAL Component: On-Site Manager Step-By-Step Cook Book Property Manager Selection Honest Experienced with the class type People person Can sell / lease make anyone feel at home Can resolve conflicts Can collect embarrassed when money not paid Can manage the maintenance staff Is tight with a dollar Tools: 1. Broker access 2. Interview Questions 3. Management Reports 1. Locate them 2. Interview them 3. Choose them 4. Manage them 6
#1 Locating Property Manager Candidates Manage them (cont d) Referrals from Brokers Property Owners / other Colleagues Apartment Association REI Club Commercial Clubs IREM.org Find out who manages the properties you like. Classified Ads Google Craigs List I only allow my bank to be used so I have control and on-line access to the property account Strict, strict expense approval Weekly phone meeting which includes the on-site manager #2-3 Interview & Choose Them What to Look Out For See Property Manager Interview Questions Expense Control They buy with no regard to revenue There is no expense control I control the checks on my properties Written policy that they order nothing without my approval How on-site managers steal: Collect cash rents Lease empty units and report as vacant Pawn on-site equipment Lack of initiative #4 Manage Them You manage them thru the reporting process 1. Profit & Loss (monthly) 2. Check Register (monthly or on-line) 3. Occupancy & Traffic Report (weekly) 4. Maintenance Work Order Report (weekly) 5. Collections Report (weekly) 6. Inventory Report 7
Strategy How to Cut Expenses Property Tax reduction Hire contingency-based tax reduction consultant Utility reduction (electric, gas, water, trash) Shop the power costs around Hire Utility Reduction consultants to audit past bills Audit each unit for leaky toilets, sinks, valves Volume discounts thru the Management Co. Insurance Master Policy discount thru the Management Co. Strategy How to Cut Expenses (cont d) Field Assignment Session #5 Material costs (paint, carpet, appliances are biggest costs) Buy refurbished appliances Buy used carpet Use degreaser to extend carpet life Shop at Habitat for Humanity outlets Join Buying clubs or create co-op Buying Clubs Tight expense and approval control on ALL purchases Ask: How we can do this for absolute minimal costs? 1. Listen/read Module 5 in Home Study System. 2. Call & speak to at least 2 brokers. 3. Identify 3 (min) property management companies. 4. Bring your comments and questions next week. 5. Optional: Download RealCoach QuickStart Audio at www.realcoachtrial.com; Create your daily mindset routine. 6. Optional Accelerator: Watch 2nd HALF of Video Series #3 Strategy How to Cut Expenses (cont d) Labor costs On-site maintenance man A/C certified is best Property management co. roving maintenance team Share resources with other apartment owners (co-op maintenance crew) General vendor Discounts thru the Management Co. Create your own co-op End of this Session See you Next Sesion Please answer the brief survey as you exit the webinar. Thank you. 8