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More than twenty years ago, I was responsible for a very large portfolio of rental property; it included tens of thousands of apartment units handled by hundreds of property managers spread across the country. Managing apartments was a tough business, one that wasn’t known for generous salaries. Employee turnover for certain positions and situations would commonly approach 100 percent per year and this meant a never-ending training process. Some problems were clearly industry-wide, and I thought that the apartment management business could benefit from a uniform set of policies and procedures—but such a source did not seem to exist. People entering the field were expected to learn by experience and make decisions on their feet. Many of those quick decisions proved to be incorrect and some were even damaging to the long-term viability of the properties managed. People new to the industry needed a central source of information regarding the common problems and workable solutions associated with the management of rental apartments—so I created this manual.
I wanted to present an organized discussion of the situations that commonly occur during the management of an apartment property. One of the complaints frequently expressed at gatherings of property managers was the absence of web information that could be given to people about to enter the business, a comprehensive manual new employees could read before reporting to work. Over the years, people in the industry have tried different solutions to common problems and learned valuable lessons that are easier to read about than they are to experience. Why should people struggle with old problems? This manual is written to help the apartment manager understand common problems and their solutions.
THE BUSINESS OF PROPERTY MANAGEMENT
Real estate and wealth are terms that are frequently used as synonyms. In vestment real estate is considered the ultimate in personal and financial attainment. Unfortunately, real estate ownership is not a typical career path; it is most often the result of success in another field. This sets up a rather interesting relationship—one person provides the necessary funds and assumes the primary risk, while a second person provides the imagination, skill, and energy to maximize profits. The latter is you, the property manager.
While I didn’t realize it at the time, I received some sage advice from one of my first employers when I was still in high school. The man’s name was James and he operated an auto parts store. He advised me to choose a business that offered a product that was in high demand and wore out rather quickly—just as his auto parts store offered such items as tires, spark plugs, lubricating oil, etc. James often cited positive examples from other industries; for example, he would point to razor blades and explain to me why a razor blade company would sacrifice profits on the sale of blade handles to encourage future purchases of special-fitting blades. How does this story relate to the apartment business? Rental apartments are certainly needed by a large segment of the population, but they don’t wear out like razor blades—or do they?
It has taken me a long time to focus on this point, but I am now learning that apartments do wear out and lose their usefulness and appeal. In the past, an apartment was an apartment. Granted, some units were nicer, larger, or better located; but basically an apartment was a simple “box” that was designed to accommodate the basic needs of residents. If well-maintained, a rental apartment could be recycled time and again with virtually no loss in appeal while the rent escalated regularly and almost kept pace with the units in newer buildings. Today, building age has a profound impact on apartment rents and rental property values. Apartments built in the 1970s or 1980s cannot compete effectively with buildings built in the 1990s and 2000s. Most rental units look much like they did when they first came into the marketplace because owners have been woefully slow in discovering that their apartments are wearing out and barely meet today’s needs. At first, lowering the rent of older units adjusts for any deficiencies; but the owner remains saddled with increasing maintenance costs at the same time that the rent is decreasing.
In the past, buyers of rental apartment complexes made few allowances for the age of the property and often believed that properties of different ages had the same operating expenses. Consequently, a number of rental dwellings have worn out and now need to he replaced. Values for these older buildings are going down, contrary to the belief of some investors. We shouldn’t be surprised by this, because we have seen the same pattern of decay in the hotel and motel business. A lot of money is going to be lost in the rental housing business while people reach the realization that the commodity being offered does wear out and must be regularly updated or replaced.
My former employer, James, offered advice that definitely applies to the rental property business. First of all, there is a huge market for rental units (over thirty-two million households and that number is rising faster than the number of homeowners). Secondly, apartments do wear out and many are doing so with alarming speed. This sets the stage for the future. Managing and repositioning rental housing units will become a significant career opportunity in the future. People who understand what is happening will surface and succeed. Profit will not be available to those who choose to wait in the hope that their aging properties will somehow become rejuvenated. The policies that we have employed in the past won’t work either; we need a completely new approach.
So what can we expect in the field of apartment management? The owners will change. The policies and procedures will change. The product will change as well. This doesn’t mean that more than thirty million rental units will be demolished. Decisions should be based on the location and basic structure of each building—many buildings will be completely reworked to fit changing lifestyles. Facades will undergo dramatic and innovative changes, interior layouts will be modified to fit household requirements, many bathrooms will be doubled in size, kitchens will be made more efficient, and the importance of privacy and identity will be emphasized. All of these changes should be made using up-to-date materials and colors.
People in the apartment management business who work with renters every day are learning what is acceptable and what is not. This knowledge is extremely valuable to developers and potential buyers. The advice of skilled property managers will be sought prior to the purchase or repositioning of investment real estate. Such advice wasn’t as crucial during the days of syndications and large tax shelters—decisions were driven by a different set of motivators then. We, as property managers, will participate in the process of salvaging billions and billions of dollars worth of poor decisions that were a result of times of plenty. The apartment manager will also profit from the thousands of new and repositioned units that will be created and offered to fill the needs of today’s renters. The necessary marketing process will be much more sophisticated than efforts in the past.
One of the most important reasons for selecting apartment management as a career is that a single individual can make a d There are very few industries or job opportunities that offer that advantage. A dedicated and skilled property manager can take on the responsibilities of an apartment community that is in physical or fiscal trouble and, often within months, restore the community’s viability, direction, and reputation. Real estate investments are often in the millions of dollars, so there is a great deal of money at stake. Developers and owners will pay handsome rewards to individuals who produce better-than-average results.
When property managers achieve some success, they are in a position to capitalize even more on their acquired skills. Unlike the successful business professional I spoke of earlier, property managers can invest their surplus funds in their own field. Isn’t that the ideal goal, to learn a craft that essentially creates more and more investment value? You should market your skills to others who are desperately searching for help man aging their investments, and charge accordingly. Then, take some of your fees and invest the money in properties that require your help—only this time your skills will be used for your own benefit.
Property management offers a career opportunity with an unusual amount of stability plus enormous growth potential. As a property manager, you have control over your destiny, and your proficiency can mean the difference between mediocre and dramatic results. Finally, the fact that you can apply property management skills to your own investments certainly adds to the positive aspects of being a part of the industry. If I had the chance to do it all over again, I would select the same career path. I would only change two things: I would choose to work a little harder and be a bit more daring. Now, with that introduction, let’s begin our study of the subject of practical apartment management.
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