How to Self Manage Multifamily Properties
By Charles Carillo, Managing Partner of Harborside Partners
From the start, future self-managers must plan for the changes on day one. Setting up your investment for success starts weeks beforehand in anticipation of property closing. A good checklist of items to address includes:
- Establish a new LLC strictly for ownership of the property. Other than holding the property in this LLC, no other business transactions pass through this entity. This corporation reduces exposure from other projects.
- Next, set up a second LLC specifically for property management. Use this LLC on all leases and work orders. You will receive rent into this LLC, and you will pay all bills from this LLC.
- Establish a separate bank account for the management LLC. Having another bank account will prevent the commingling of finances between your rental property activities and any personal or other corporate interests.
- With your Accountant, set up an accounting system to manage finances:
- Make sure expenses are classified correctly to capture all depreciation opportunities.
- Speak to a cost segregation specialist to maximize the depreciation.
- Determine the move-in and move-out process.
- Make sure that only payments with certified funds are paid for move-in.
- All keys are given once utilities are on, and tenants and the management team approve and sign a move-in property inspection report.
- Security deposits are returned after the move-out inspection is approved and signed by tenants and the management team.
- Create Standard Operating Procedures for an onsite manager or yourself to follow:
- How will rent collection be managed?
- The procedure for late payments
- Develop maintenance systems for scheduled services and regular property upkeep.
- Market the property locally to bring awareness of leasing opportunities.
- The handling of the leasing process includes how to perform background checks and accept security deposits. Understand all laws and why you can or cannot lease to an applicant.
- How to properly collect, pay and record all transactions for accounting purposes.
- Determine if onsite management would be necessary or desired.
- Self-managed means building your own management team, and possibly starting with a part-time or full-time resident hired as a superintendent or onsite manager.
- A superintendent or onsite manager can collect rent, make minor repairs, assist with leasing, or perform general property maintenance.
- Determine how to compensate this individual for their services, taking into account the following:
- The size of the property
- Responsibility for daily cleaning, landscaping, repairs, and other maintenance.
- How do they want to be compensated; reduced rent, direct compensation, or a combination of both?
The real work begins for a self-managing investor once the closing occurs. Ensuring a smooth transition between the existing property management firm and the incoming investor can alleviate many problems.
One of the best ways to initiate the transfer with tenants is to prepare a document for each unit outlining the changes to expect from the new manager and what the new manager expects from the tenants. Items to include, but not limited to have:
- Name, Address, and Phone number of the new management.
- Who should they contact with an emergency, maintenance request, or other issue?
- Updated Rent Collection and Payment processes
- Timeframe each month for rent payment.
- If payments are late, the grace period and penalties for late payments.
- Respecting and not disturbing other tenants.
- If damages occur, they will be required to pay for the repairs immediately.
- Expectations for cleanliness both inside and outside apartments.
- No drug or other criminal activity.
In this letter, inform tenants as the new manager, you will reciprocate:
- Maintaining a safe and clean place to live.
- Responding promptly to legitimate maintenance requests.
While introducing themselves, managers should also update all tenant information on record. An updated tenant file can help in an emergency or essential communication. Vital information to collect includes:
- Legal Name(s), age(s), and all residents’ relationships.
- Contact information for all residents
- Employer information
If a new management team cannot collect all this information initially, requiring it during the lease renewal is the next best option.
Immediately after the closing, it is essential to notify the different companies and organizations working with the property of the changes. Any service disruption can create unnecessary problems and headaches for the new management team.
Investment properties have several service providers, contractors, and government agencies they work with consistently. The new owner should notify the following offices and departments about the sale and change:
- Utility Companies. Opening new accounts in the management company’s name and updating addresses will prevent service disruptions.
- Local Fire and Police departments. Informing these agencies of the best contact for the property will prevent confusion and delays in emergencies.
Multifamily properties have many outside contractors who have or routinely provide services to the property. Aside from updating them on who to contact, new contracts and agreements using the new management company’s name might also have to be signed. These service contractors generally include:
- HVAC
- Plumbers
- Electricians
- Trash removal
- Pest Control
- Landscapers
- Parking lot maintenance
- Swimming pool cleaners
- Vending machine operators
- Washer and Dryer equipment operators
Once these steps have been taken, the management team and tenants should be in good standing with one another and their contractors. These steps will help make the transfer process from the existing property management team to the new managers as smooth as possible.
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