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Asset Management: Protecting Cash Flow and Maximizing Returns · The Academy Presents podcast

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Did you know that 90 % of the world's millionaires
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invest in real estate? Well, I'm Angel with the
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Academy Presents Real Estate Investing Rocks,
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and I'm here to help you if you want to go for
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your piece of that pie. Are you new? Are you
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new to this and you just don't know where to
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start? It's okay. Are you someone that has invested,
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but you feel stuck, you feel like you've lost
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momentum, you don't know where to really head
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from here? Are you a seasoned real estate investor
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who is doing great, but maybe you just want to
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hone a few skills here and there? This is the
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place for you. The Academy Presents Real Estate
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Investing Rocks podcast will connect you with
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industry experts so that you can save time, avoid
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costly mistakes, and begin living the life you've
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dreamed of all through real estate investing.
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You're already taking the first step. just by
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joining us here today. Hey guys, it's Angel and
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you are here at the Academy Presents REI Rock
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Summit. It's awesome. I love it. I've say this
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like I think every single time, but these are
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absolutely my six favorite days of the year because
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we do this twice a year. Every March and every
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September we are coming to you with the REI Rock
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Summit. So there are a couple of things I kind
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of want to just get out there so you hear them.
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This is the free tier. There is a ton of information
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here, but we also have a live side going on with
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live panels, live roundtables, master classes,
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tons of information and live stuff and interaction.
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And if you want to join us on the live side,
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there's basically two ways to do that. Well,
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kind of three. So you can get the upgrade ticket,
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the VIP ticket to come and join us. You have
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another option through the VIP subscription.
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So if you have a subscription, you get access
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to all of our live events or I hear if you know
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a speaker you might be able to get a code. So
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we'd love to have you on the live side if you
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want to join us over there or you can stay here
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because there's tons of information here as well.
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So we're going to get going into our next presentation
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and this is my friend Raya and she's going to
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be talking to us a little bit about like property
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management and the asset management side of operations
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when you are doing a syndication or you're getting
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a property you're doing some investing and she's
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got some good bad and ugly so We're going to
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get to hear some really great stuff. Rayya, I'm
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going to turn it over to you and we can get started.
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Well, thanks, Angela. I really appreciate you
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having me here today and everybody. I hope this
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is valuable information. It is just basically
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like a case study because I think most of us
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all know what asset management is to a degree
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or another. But so I just wanted to bring you
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a couple of stories that we've just been experiencing
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recently as like a case study and what to look
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for, what to do and what not to do. I will start
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here and we can just kind of go through. Give
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me just a second and get my screen moving. There
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we go. Like I said, basically, everybody knows
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what asset management is. You're a gatekeeper
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for the GP team. You're the interface between
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the GP team and the property management to make
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sure that you're executing the business plan
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and keeping the numbers within budget. Your role
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is to maximize cash flow as much as you possibly
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can, because obviously, maximizing cash flow
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maximizes returns to your investors, which is
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really what we're all in this for. Like you oversee
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the property finances, you're doing weekly meetings
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with the property management company. Certainly
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in the beginning you do want them to be weekly.
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If it turns out and things start running smoothly,
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that's certainly something that you can reduce
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to say once every other week or even once a month.
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I wouldn't go less than once a month though,
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because you really do want to keep an eye on
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what's going on on the property. But certainly
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that's something that within a margin of error
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you can. pick the frequency that you need based
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on how things are running. But when there are
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problems on the property or the budget's being
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overrun, you definitely want to be as proactive
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as possible and get with the property manager
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to put a corrective action plan in place, because
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this is all about our returns and what we're
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doing on the property. Again, you want to be
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maximizing your property investment. So reducing
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expenditures whenever possible. And some of that
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comes from your property manager, has other properties
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in the market. So you can kind of take advantage,
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even if they're not your properties, you can
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take advantage of the relationships they have
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with contractors to get better deals. Anything
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that you can do to be reducing your cost is always
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a good thing, as long as you're not reducing
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your costs and making things worse on your property.
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taking advantage of and leveraging things that
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you can do that are a good thing for reducing
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costs, but you don't want to be like nickel and
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diming things to the point where then the property
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gets mismanaged. You want to find your highest
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sources of revenue. I'm just trying to think
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of a couple of examples right now. A lot of properties
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have internet connectivity because everybody's
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streaming and doing that. And that's certainly
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a revenue stream for your property. Another thing,
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depending on the market that you're in, people
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love to pay a little extra money just to have
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a parking space right near their unit so that
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they don't have to be walking long distances
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to get. to and from but those are just a couple
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of small things. Obviously there's pets and the
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money that you can get from pet income is also
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something that you can do to increase your revenues
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as well but you want to be mitigating your liabilities
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and risks whenever possible so you want to make
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sure that you know damages on the property if
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there's a big pothole you want to get that filled
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as much as quickly as possible because you don't
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want anybody either damaging their car or god
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forbid kids out there playing fall and hurt themselves
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because everybody's first line of resources let's
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call the lawyer when they get hurt so you want
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to just make sure that you're able and taking
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care of that on a regular basis. Now, first,
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I want to say I picked this background for a
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reason. And that's because asset management sometimes
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can feel like a very lonely, isolated role. And
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your goal is to be functioning between, like
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I said, the GP and the property management. But
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you can sometimes feel like you're way out there
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and don't have a whole lot of support. So like
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our man on the mountain here, that's kind of
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why I picked it, because I really like it. Yeah,
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it's a great view, but also that's sometimes
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how asset management can feel. So communications
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is essential when you're doing asset management,
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not only communications with the GP, but also
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that turns into communications with your investors.
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So the line of communication goes from the property
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manager to the asset management, and then from
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the asset management to the GP, and then out
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to the investors. So really, what you're wanting
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to find out on a weekly basis is, are your collections
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where they need to be? Are the residents paying
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their rent? Are they paying it on time? Because
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those are all things that are going to impact
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your monthly income. Are your expenses in budget?
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And you want to be watching those on a monthly
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basis. You want to make sure your property manager
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is giving you monthly reports that you can then
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take a look at and make sure that things are
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going well. But even above and beyond that, those
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should be some questions that you're asking during
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the weekly calls as well. If you're seeing that
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they're asking you for a whole lot of money because
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things are breaking down, you know your expenses
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are going to be high that month. So the question
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is, is that a one -time scenario or is that something
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that seems to be consistently happening? Because
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those are two different types of scenarios and
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stuff that you need to be addressing. So corrective
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actions, whenever you find you've got a problem,
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you definitely want to be proactive in getting
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a solution in place as quickly as possible. And
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the ideal situation is you want to work with
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your property manager to do that. I mean, if
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they're communicating well with you, they're
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letting you know that there's a situation. And
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then as you're looking at the financials, you
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definitely want to be hopping on a call if you're
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finding that you're continually overrunning the
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budget. You want to find out why that is and
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figure out ways that you can kind of bring that
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back in and get yourself online. But if the communication
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is coming from their lack of transparency, or
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God forbid in the situation I'm going to share
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with you guys, blatant dishonesty from the property
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management company, then you need to be working
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to replace them as quickly as possible, because
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not only is it impacting the revenue on your
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property, it's going to impact your residence,
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it's going to impact your business overall. So
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it's a situation that you want to take care of
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as quickly as possible. Now, I personally recommend
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that when you're replacing the property manager,
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you do it kind of as a hostile takeover. And
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that's basically, you want to get your new property
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manager in there. the property manager replacing
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out really in a day. And you know, it does help
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you. It may sound horrible because you're going
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to be paying two property managers for one month.
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But trust me, the expense of paying a property
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manager that you're firing for one month, even
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though they aren't doing anything, is far better
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than to leave them on the property, which God
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knows what damages they can do. And I can share
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all kinds of lovely stories. And once they know
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they're being fired, they can do a wreak a whole
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lot of havoc on your property. much better to
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just replace them and have them off as quickly
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as humanly possible. So this is kind of the example
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that I want to show you. We have a property currently.
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It's in Kentucky. And we just had a scenario
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where the property manager is blatantly lying.
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So what I want to show you, this is lobby CRE
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and some of the reports that we get. Now these
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reports actually don't look so terribly bad,
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which is part of the problem because they were
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Like every database, it's only the information
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you're getting and the reports that could spit
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out are only as good as the information that's
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getting put in there. And so the property manager
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wasn't putting in bills, wasn't putting in information.
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So when we're getting these reports, we're going,
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well, yeah, we know we've got some challenges,
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but ultimately it really didn't look that bad.
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And it looked like something we were going to
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be able to turn around. It wasn't until it was
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clear that we had a higher vacancy rate than
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they were telling us. And those rents that they
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were saying people weren't paying rent, those
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units were actually vacant and they weren't turning
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the units. So these are just some of the, you
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know, a couple of the reports. Like I said, Lobby
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CRE is a great tool for asset management. But
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again, you have to be making sure that the information
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that you're seeing kind of lines up with your
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Monday morning report. Because if they're not
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lining up, that means the information that's
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being put into the database which feeds into
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Lobby CRE is not correct. In which case then
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it's garbage in, garbage out. But anyway, so
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these are just a couple of the types of reports
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that we get from them. Now here we're going to
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take a look at the Monday morning report that
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we have and this is where you can on a weekly
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basis you can take a look at what your vacancy
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is you know how many what are your work orders
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looking like are they you know closing them in
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a timely manner you can also you should have
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access to the property management system too
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so on an occasional basis you want to download
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what are the work orders so that you can take
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a look at what's you know are you having consistent
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problems with the residents or you know, is everything
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seemed to be kind of just a one up, you know,
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situation and then it's getting closed in a quick
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manner. You want to be able to see what the flow
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of traffic is into the property. How many people
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are they getting to put in applications? How
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many of those are being accepted? Because that's
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all impacting all of your revenue. And so this
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information on a weekly basis and this, if I
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were to say one thing about the property, the
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issue that we had, we were not. We missed a beat.
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We were trying to be nice. We were trying to
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work with the property manager and we should
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have been more diligent noticing that the Monday
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morning report information wasn't lining up with
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what we were getting from lobby CRE. So I take
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my responsibility as one of the asset managers
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on this deal that we should have been doing a
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better job. But as you can see right down here,
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our economic occupancy at the end of July was
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only 73%. That's really bad. And basically, we
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were still being told that our physical occupancy
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was over 90%. So it meant like 20 % of our residents
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were living there but not paying rent. But that's
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not what ended up happening. We ended up having
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GP go out to the site. And we found out instead
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of having four vacancies, we had 14. And we had
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a couple of residents who were Section 8 residents
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who were because we were failing our inspections,
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Section 8 wasn't paying their rent. So yeah,
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they were living there free of charge because
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the maintenance people weren't doing their work
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orders, weren't making sure prior to the inspection
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that everything was going to pass. And so we
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had not only 14 vacant units, but we had four
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units that we weren't getting any income because
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of Section 8 failures. So definitely some things
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that you want to be taking care of. Ultimately,
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I've kind of come up with a whole bunch of things
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that I like to see in a property management agreement.
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And this actually came even prior to this situation.
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But this situation, absolutely, I wish we had
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had some of these things and we didn't. And so
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that again is on us. but I just want to kind
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of go over a couple of several of these with
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you, but you want these are must haves that you
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really want to have in your property management
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agreement. So you want to make sure you've got
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one, a property manager that specializes in the
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type of asset that you are purchasing. It does
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not help you to have a Class A property manager
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in a Class C property. because the type of work
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and the type of expenses are going to be different,
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and vice versa, it doesn't help to have a Class
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C type of property manager if you're in a Class
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A property in Brand New. that things get managed
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completely differently. So you want to have somebody
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that knows how to manage the type of property
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you're buying. If possible, and this is the ideal
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situation, as owners you want to be setting up
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the operating account and giving access to the
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property manager. I know in a lot of scenarios
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that's not possible. They won't let you do it.
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And that doesn't mean it precludes you from using
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that property manager, but then they must provide
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you with access to the bank account so that you
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can see what's going in, when it's going in,
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and making sure that the cash flow is what they're
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saying it is. So if they won't do either, then
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that's a property manager you absolutely don't
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want. Let's see, property managers, okay, we
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already did that one. So you just want to make
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sure that their fee is based on cash collected.
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There are a lot of property managers out there
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that want to have a minimum fee and that's fine
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if you've got a large property but if you've
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got a smaller property like the one I'm talking
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about today is actually under 100 units and so
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when they have a minimum fee that can literally
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crush your income pretty quickly because you
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have to give them x amount of dollars regardless
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of how much money they bring in. So you definitely
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want your fee to be set up based on a percentage
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of the cash collected.