Advanced Property Management, Part IIb: The Property Lifecycle
Is Your Property Having a Mid-Life Crisis?
Last week, we talked about the tenant lifecycle and how keeping an eye on the cycle as a whole as you perform each step can make you a better property manager. Today, we’re going to go one step further ‘out’ from that, to the lifecycle of a piece of investment property as a whole.
The Lifecycle of an Investment Property
- Search: The investor uses several avenues to find potential investment properties.
- Analysis: Based on a variety of factors, the investor screens potential property ‘deals’ for profitable ones.
- Acquisition: The investor purchases the property. The investor may hire a property manager immediately, turning over the management of the next step to them.
- Renovation: The investor/PM finalizes property improvements in order to make it rentable and attractive. They hire a contractor and crew, and those repairs are made.
- Tenant Lifecycle: Covered in the last post.
- Reinvestment: Potentially, the investor decides to invest in further renovations: circle back to step 4 and go again — or decides to invest in a new rental property: circle back to step 1 and go again from there.
- Exit: If the property has outlived its purpose for the investor, they invoke their exit plan — usually some form of “sell the property” — and the lifecycle ends.
We discussed the property manager’s role in Step 5 last week, so this week we’re going to look at the other six steps — except that a PM only has an active role in some of them.
A PM’s Role in Steps 1, 2 & 3
Most PM’s don’t get involved in finding investment properties for their clients. Often when it happens, it’s the PM facilitating a deal between two of their clients – one wanting to sell, the other looking for acquisitions. In a previous post we covered PM’s that try to both find investment deals and manage them, and the potential conflict of interest that creates.
It’s not that rare for an existing client to ask for their PM’s input while doing their potential acquisition analysis. In those cases, you’ll be best served by sticking to the areas you know best and relying on your understanding of the area combined with their statistical examination to come up with a reliable result.
Keep in mind that the goal is always profitability, but profitability is a very different beast from (gross) profit. As a property manager you often have a lot more experience with the costs of keeping a piece of rental property going. If your experience with a neighborhood or a particular feature of a home is that it causes more problems than it’s worth, don’t hesitate to say so. Reducing your own future headaches while nudging them toward a more profitable long-term is a pure win/win situation.
A PM’s Role in Step 4
Many real estate investors don’t really know a lot about the realm of contractors and construction — and a significant minority of them are investing from quite a distance away — which means it will frequently fall on you to arrange the rehab and renovation of a newly-purchased property. This is often your first chance to really impress your new client, so attend to this process carefully.
Again, with an eye on long-term profitability, your goal in managing the rehab/renovation is to end up with a home that is above-average for the neighborhood — but definitely not the best house on the block (or even in the top 3!). If the house threatens to outshine its neighborhood, you’ll find that no one wants it — it’ll be too expensive for some, and too slummy for others at the same time. Play to the strengths of the individual home and its environs, and you’ll end up ‘fishing in the right pond’ with some serious bait.
A PM’s Role in Step 7
As the person who is in control of the month-to-month fate of the property (more or less), part of your job is to learn the owner’s intended exit strategy, and keep it in mind as you manage. If the owner plans to sell the property within a year or two, for example, you’re going to want to make sure that your monthly maintenance includes a bit of extra focus on curb appeal. If the owner is planning on holding onto the property for the long-term, you’ll want to keep an eye on when the property will need a major makeover so it doesn’t unintentionally become a slummy property.
By managing the short-term month-to-month effectively while keeping the long-term, big-picture lifecycle concerns in mind, you can ramp up your property management game to the next level. Don’t worry — we’re not done upgrading your PMing skills yet, but you will have to wait until next month for more.