Want A Great Apartment Deal? Find A Burnt Out Landlord
Property management is such an important part of successful apartment investing. Apartment buildings are income property so their value is derived from the Net Operating Income. The higher the NOI the higher the value of the property.
What determines how high the Net Operating Income is on a property? Right, property management. Keeping the units fully rented to keep the gross rents as high as possible, and minimizing vacancy and other expenses to keep Total Operating Expenses as low as possible. The two of these done together increase the NOI to its highest level.
When an apartment investor purchases a property, he or she has a choice. They can hire the best property management company they can find, and manage the managers, or, they can choose to manage the property themselves and become a landlord.
The problem with becoming a landlord for many apartment investors is they have never had any training in property management. Without this training the landlord struggles to keep tenants in line and control the property.
Instead of treating the property as a business the landlord starts being lax on the rules laid out in the rental agreement (timely payment of rent, keeping quiet at night, tenant paying for repairs up to a certain cost, keeping the property clean) and the tenants, seeing they can get away with this, start treating it as the new normal, “training” the landlord to react to their priorities, not his.
The first place this plays out is with the payment of rent. After a couple of months of owning the property a tenant call on the 5th of the month and tell the landlord the rent will be “a few days late”. The landlord reacts to this by accommodating the tenant and waiting a few days. After playing phone tag and other assorted chasing the landlord manages to recover the rent by the 15th or 20th.
Of course, professional management has a system for rent collection. All the decisions have already been made and there are simply procedures to be followed. An invoice for the rent is sent out on the 20th of the previous month, along with a stamped self addressed envelope, making it easy for the tenant to send in an on time payment.
If the rent is not paid by the 5th, a 10 day notice is sent to the tenant notifying them if payment plus late fees are not paid by the 15th, eviction proceedings will begin. If the tenant still has not paid by the 15th,, an eviction is filed at the Clerks Office and the legal process begins. For the tenant to stay in their unit they must now pay the rent owed, the late fee, and the eviction filing fee (anywhere from $25-40).
Landlords don’t usually have “systems”, and without an inviolable system for collecting rent their career can easily devolve into “professional rent collector”.
Similarly with maintenance, instead of keeping to the rental agreement and making tenants pay for the first $100 of any maintenance to the property, when a maintenance request comes in the landlord goes right out to property and fixes it, no matter how minor it is. Instead of training the tenant to be responsible for their own minor maintenance, he has now shown them he is now at their beck and call for any maintenance request, no matter how small.
After a year or two of being run ragged, the landlord is ready to sell … anything to get free of the see tenants. His nightmare is your dream, and any offer made that gives the landlord a way to exit the property with his dignity intact will probably be accepted.
How do you find distressed landlords?
One way is by collecting owners contact info from eviction notices and mailing them, however burnt out landlords don’t always get to eviction to often; their tenants have them too well trained. The more likely way is to get a list of every multi-family property owner from the Assessor’s Office and mail the list quarterly. This will get your letter into the hands of burnt landlords, and every other motivated apartment owner/seller in your target market.
Stay alert for burnt out landlords, great deals will follow.