How to Minimize the Risk of Owning An Apartment Building

How to Minimize the Risk of Owning An Apartment Building

A question was poised on the SDICA forum that I thought would be a good one to address.

The question was, “what steps can I take to minimize my risk of buying and owning an apartment buildings right now”?

Great question

Ask and you shall receive. Here is what I am doing to keep my properties operating effectively.

    1. Tenant retention
      • You’ve heard the old saying in business it’s easier to keep a client than to get a new one. Well, your tenants are your clients, and unless you’re grossly under-rented, you need to retain as high a percentage of possible of your current apartment tenants.
        • Keep a reminder in your calendar for 60 days before their lease expiration, so you can talk to them about renewing. If they are going to move, it’s best to find out as soon as possible. It’s helpful to find out why because sometimes you may be able to convince them to stay if its an issue that is rectifiable.
      • Have a Nicer Product or Better Rents (Or Both)
        • Tenant Improvements
        • Start by spending money on items that are unsafe or may cause emergency calls. These issues will happen, and if possible deal with them before it becomes a problem. Being proactive goes a long way. It also saves a lot of money and aggravation not to get calls at midnight.
        • When making improvements to the units, some of the best ways to get maximum bang for your buck is to:
          • Paint the unit – Two-tone color choices (wall color and white ceiling) are always a good idea. This will cost more initially, but once it is complete you will rarely ever have to paint the ceiling. You also want to paint the base, case, and doors a nice white color in semi-gloss. The more you can make the place feel like a home rather than an apartment the better rents and retention you will get.
          •  I like to make sure the texture looks well-done. It does not have to be perfect,  but you definitely do not want patches everywhere.
          • If you’re looking for a good painter, I highly recommend TruLine Painting. I’ve used them on all of my projects and they really do a great job of giving my units a quality facelift.
        • Update the interior doors & hardware
        • Flooring – I like to use as much tile and or laminate (the stuff that looks like wood) as possible. It costs a little more the first time but lasts 5 times as much as carpet and you will probably get about 5% more in rent.
    2. Get ahead of the game
      • If you have vacancies coming up get on it quick and return calls immediately.
    3. Track the market
      • Do rent surveys & talk to other apartment owners of similar buildings in the area where you own property (send me an email or drop a comment if you want to know how to do rent survey report & spreadsheet). This is also a great way of finding properties for sale. Make sure to give everyone you talk to your information and let them know that if they ever think about selling to give you a call.
    4. HAVE GOOD SYSTEMS IN PLACE
      • We automate as many of the processes as possible by having good checklists of activities we do repetitively. Instruction sets are created on each item to make sure that we do it correctly and consistently. It’s hard to figure out what is and is not working if you don’t do things consistently so you can track them. It makes it so much easier to improve on what we are doing. In addition, it allows me to easily hire people and get them up to speed quickly, or, if I lose someone, I know how to do that task and I am not held hostage or overly dependent on any one person.

Here is a quick example of sample turnover procedures.

  • Once someone gives us notice to vacate (sample of one of our move out inspection flow charts)

For example we have our systems for

        • Pre-marketing,
        • Final walk through (see sample flow chart of walk-through) letters go out to tenant with instructions on ours and their responsibilities.
      • Once it is vacant we will: walk through checklists for repairs, vendor coordination, property showing, applications etc.)
        • A few things we do to make it more efficient: Use an electronic Realtor (sentry) lock box. This device allows my assistant to generate up to 10 random codes daily from the office. When someone calls my google voice number, I get a text with the voice message which I forward to her which goes in our database. She then calls them back to get the rest of their contact info including an email. We then send the prospect an email with instructions on how to get to the property, how to enter, and THEIR OWN code which we inform them to not give out to anyone because it is tracked (see sample form letter below which we EMAIL to prospects). We are then able to log on to see who looked at the property so we can follow up to see if they are ready to fill out an application and why or why not. Also now that we have their email address, if they decide not to rent with us we now can update them in the future about upcoming vacancies 6 ,12,18,24  months from now when they may be thinking of moving again. This is crucial for renting out units fast.
        • Viewing instructions for our units

          • If they want to fill out an application, we  use my smart move/transunion credit/criminal check which they do online and either pay for or they give us the cashiers check and we then pay for (I like this way better because they are more committed after giving us the credit check fee) which we get a copy of along with the prospect. With this service, I do not have to collect social security codes and worry about certain compliance issues. In addition, it also speeds up the process. We then get an approve or disapprove based on our criteria and can then make a decision.
          • Once an application is accepted we send them an approval letter/email/phone call and let them know they will shortly receive a lease package via email for electronic signature using a service called docusign which is legally binding.
          • My assistant puts together the resident package which includes some of these items
            • lease agreement
            • resident welcome manual which spells out the rules in detail and what is expected from all parties
            • non smoking/drug addendum
            • maintenance addendum (look on blog for sample)
          • All of these are put into docusign for email/electronic email distribution. An email get’s sent out which is signed by both parties (legally binding) and no paper has to be printed. The fully executed copy goes in their file which is on our computer server for any reference in the future.

Hopefully this can give you some ideas on better ways to operate your apartments which will reduce your risk. As always feel free to give me a call or drop me an email to discuss further.

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Curtis Gabhart and Gabhart Investments, Inc – 2018 All Rights Reserved
The material contained in articles that appear on gabhartinvestments.com is not intended to provide legal, tax or other professional advice or to substitute for the proper professional advice and/or commercial real estate due diligence. We urge you to consult a licensed real estate broker, attorney, tax professional or other appropriate professionals before taking any action in regard to matters discussed in any article or posting. The posting of an article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.

 

Funding Your Real Estate Deals

Funding Your Real Estate Deals

 

Our workshop series covers the 5 F’s of Residential Redevelopment: Finding, Feasibility, Funding, Fixing, and Flipping. In our upcoming workshop we will be focusing on FUNDING.

Some highlights include:

  • The 3 most important things an Equity Partner looks for.
  • Hard Money Loans: How to get them and how to make them work for you.
  • Private Lenders and Trust Deeds
  • Leverage: When it helps & when it hurts.
  • How to determine what souce of funding is right for you.

 

We are hosting this event at our Ciera Project, located in the prestigious Heritage Community in Poway. We we will use the Ciera Project as a case study for applying the various funding methods in relation to high-end ‘flipping’. For more information on the Ciera Project visit our WEBSITE.

 

Visit EVENTBRITE to register!
Thanks to our sponsor

 

I like to get our name out there.


Thanks




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Our Real Estate Goals for 2012

We are big on setting and achieving goals so we’d like to share our 4 main goals for 2012:

1) We will exceed the return expectations and needs of our investor partners.

Thus far, 3 of our funds have been completed. We are pleased to report that our investors received the following average IRR on their capital:

Fund 1 – 24%
Fund 2 – 26%
Fund 3 – has only one property (rincon) remaining in escrow to sell in early March and we are projecting a 22% average investor IRR for that fund.
Fund 4 – 33%
Fund 5 – has two properties left, linwood which went into escrow the first day on market and they both look solid. This may be our best fund to date.
Fund 6 – We have purchased a $510,000 property on a golf course with minimum work & a condo so far with a few more in the pipe.

2) We will purchase 30 properties and 20 sales in our single family funds

while continuing to maintain a conservative selection process and high profit margins. We have increased our manpower here in the office by hiring Max Frank for accounting support and Tamara Peterson for administrative and project support. We have the team and resources to expand on our current model and start exploring new opportunities within our residential niche.

  • 4 Properties in the first quarter
  • 6 properties in the second quarter
  • 8 properties in the third quarter
  • 12 properties in the third quarter

3) We will diversify our funds with some higher-end homes.

With the success ($140k profit in one month) of the Via Divertirse project, a 4,000 sf home in San Clemente, we have started exploring opportunities in the higher-end $600k+ markets within the jumbo loan limits. We are seeing some price compression and much fewer competitors chasing deals in that market. More of our time could be spent on fewer projects with higher profit margins.

4) We will open a separate fund to buy and hold property.

Returns have been good, but our investors have expressed interest in the returns and capital gain tax advantages of buying and holding property. Values are firming up in San Diego and the availability of longer term private financing for stabilized rentals has prompted us to open a fund to capture returns from rental cash flow and longer term appreciation.
Here is a couple of links to our most recent posts on goal setting taken from our workshop “goal setting & business planning”

Goal Setting & Modeling others

Goal Setting

Here is a great video from Brian Tracy on goal setting. If you’ve never heard of him, you should strongly consider hearing what he has to say. He is a great teacher and motivator and has inspired me for years.

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planning for the FUTURE of your business

planning for the FUTURE of your business

Our workshop series covers the 5 F’s of Residential Redevelopment: Finding, Feasibility, Funding, Fixing, and Flipping. None of which would be possible without the “6th F” (we had to use an “F”): planning for the FUTURE of your business. Having a successful real estate business starts with knowing what you want to accomplish and then creating a plan you can execute.

With the new year upon us, it’s a great time to step back and evaluate your Real Estate business and set some measurable goals for 2012. In this workshop we’ll share with you our plans and goals for 2012 as well as the process we’ve used to develop our plan.

 

Some highlights include:

  • Developing a business plan for yourself and to give to investors and lenders.
  • Setting, tracking, and measuring goals.

Space is limited, so visit EVENTBRITE to sign up & reserve your spot!

 

Thank you Trilion Capital for sponsoring this event.

 

 

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Part 2 of 3: Utilizing Virtual Teams to Grow Your Real Estate Business

Part 2 of 3: Utilizing Virtual Teams to Grow Your Real Estate Business

In part 1 of this series I explained the many benefits of hiring virtual teams. In part 2, I will discuss where to find the right people for your virtual teams.

There are several quality online vendor marketplaces that can help you find the right person, not only for your assistant needs, but for any work you need that doesn’t need to be done in person. A few of these include ODESK.com, Guru.com, and ELance.com. ODESK has some key features that I feel help it stand out from the others. The vendor signs in when beginning work for you, ODESK then takes screen shots every 30 seconds. You are then able to check and see what work they were doing and how long it took to get each project done. This provides accountability for the work they’re doing and allows you to confirm you’re getting what you pay for.

You can go to these sites yourself and search for a vendor to get the work done or post a job and have vendors post bids for the work. You also have the option of going through a hiring company. When going through a company you send them an application for your company. They will find applicants, narrow down 2-3 for you to interview, and then hire them for you. Some of these companies also have offices where the VAs work from, allowing them to assist you in managing your virtual team. You can learn more about this option by checking out supportsave.com or myoutdesk.com. Myoutdesk.com specializes in virtual real estate assistants.

It is often assumed that virtual team members are always working from out of country. However, this isn’t always the case. You have the ability to hire someone from your local community, within the state, out of state, or out of country. When determining whether to hire locally or abroad, there are a few things to consider. When hiring locally, you have the ability to meet with your virtual team member face to face and you are able to have them come to the office if needed. Depending on the kind of work needed, this can be a strong incentive to work with someone locally. A potential downside to hiring locally is that the cost may be higher than hiring someone out of area.

A benefit of hiring out of country can be the cost savings since foreign labor is generally less expensive. However, there are some challenges that need to be considered. Firstly, there can sometimes be language barriers to contend with. While the majority of out of country virtual assistants are English proficient, there can still be language issues that can come into play. Another challenge can be the time zone differences. You may be just getting into the office while your VA is getting ready to be done with their day. Although, this has the potential to be a benefit if you have 24 hour staffing needs.

Once you have narrowed down you search, there several tests you can use to help narrow your search ever further. Typing, Word, and Excel tests can be extremely helpful in determining the skill level of your potential virtual employees. You can click here to access links to several different tests I use when hiring my VA.

After you have found the right VA members, providing them with the right training and resources can help eliminate many of the challenges of working with people remotely. In Part 3 will we cover the many tools available to help you effectively equip your virtual team and streamline the work process.

You can read the rest of this series by visiting  PART 1  and  PART 3.

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