The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
In the 4th installment of this series, I wanted to talk about how critically important regional managers are in your business. These folks are your decision makers and ultimately responsible for charting a course for improvements and optimizations, making sure that things are getting done. They should be in constant communication with you and your partners about literally everything.
Your property managers, leasing agents, and maintenance techs are the people who keep the lights on in your buildings–and they all report to a regional manager. They wear a lot of hats and are often overseeing hundreds or thousands of units, and when they underperform, it hurts your bottom line.
So today, I’m going to talk about why great regional managers are a key part of your business–and the red flags to look out for when working with one. You’ll learn how badly things can go wrong when working with regional managers, as well as an easy and very effective way to eliminate this threat from your operations once and for all.
One last thing: I’ll be hosting a 3 Day Live Virtual Event from January 23-26, 2023. This event is free for members of our Mastermind Group but tickets can be purchased by non-members as well. Book your spot today by visiting: ForeverPassiveIncome.com
Key Takeaways with Josh Cantwell
- Why great regional managers are experienced, hard headed, and not simply yes men and women.
- How regional managers can fail to properly monetize your buildings by undercharging, overspending, and not planning adequately.
- How to secret shop your buildings to asset manage your regional managers.
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Josh Cantwell: So, hey there. Welcome back to the show. Hey, this is Josh. And today I want to talk a little bit about regional managers. We’ve had this series going now for the last couple of weeks, which we call operational threats. We’ve talked about lack of a business plan, number one. We talked about capital improvement threats, number two. Property manager mistakes and failures, number three. Today, I want to talk about regional managers. If you look at any major property management company, it could be Lincoln, it could be Asset Living, Trinity Multifamily, RHM. There’s a bazillion property managers out there. Most of them have a property manager, what they call in-the-house property manager who’s the lead property manager at your buildings. I’ve got one building that’s got a lead property manager and then five other property managers and leasing agents in the house. That building is so big, it also has five maintenance techs that are out of the house. Got another building. It’s a 300 unit. It’s got a full-time property manager, full-time leasing agent, and then two maintenance techs.
Well, those are the people that manage the building on a daily basis. And often those property managers and maintenance techs, they work hard to keep their head down but they often have a boss who is a regional manager, and that regional manager has a portfolio of buildings that they manage. They might manage a thousand units, let’s say, or maybe 2,000 units, and that regional manager is ultimately the decision maker. And that regional manager is the one that’s going to be working more directly with the general partner like me or like you and that regional manager is the person who is helping to kind of chart the course, come up with the renewal plan, come up with a maintenance plan, come up with utility payments. That regional manager is also going to help with looking at the budget, looking at the P&L, and basically helping to optimize the property. There are more in the clouds. So, the regional manager is kind of in the clouds with the general partner and the property manager, the maintenance techs are more in the dirt, if you will, doing the work, doing the actual work at the building, leasing, collections, evictions, moving people in, moving people out, trouble tickets, maintenance calls, stuff like that.
Well, regional managers are critical. We’ve seen many good and many bad ones over the last six or seven years that we’ve been owning apartment buildings and regional managers, first of all, number one, they must have a lot of experience. Number two, they must be pretty hard-headed. And what I mean is, by hardheaded, they must be somebody who believes in what they’re doing and is going to dig their heels in if they feel very passionate about what they’re doing. So, we want somebody that’s got a lot of experience but somebody that’s also not just a yes man. And so, those two things, experience, experience with property management, experience with construction, experience with capital improvements, experience working with vendors, and also somebody that’s pretty hard-headed that feels like, “Hey, I know what needs to happen at this building to optimize it.” And so, they’re part of the solution team. They’re not an order taker. And so, if you’re a general partner who lives out of the area, let’s say you live in Delaware and you own a building in Texas, well, you’re not in Texas every day to manage your building.
So, you rely a lot on that regional manager, their experience, their recommendations on what to do with your building. And you may have an owner meeting with that regional manager and the property managers once a week. Well, if that’s the case, if you’re an out-of-town landlord and you’re taking the advice of that regional manager, they are essentially running the building for you.
And here are some of the failures I’ve seen from regional managers. Number one is going significantly over budget. I’ll give you an idea. We bought a 220-unit about a year ago. It was built by the original developer. That developer built the buildings about 50 years ago in the 1970s. And ultimately, that developer passed away. He left the building to his three adult children. Those adult children hired a property manager, and basically, the property manager designated a regional manager to run the building.
Well, when we took over the building and bought it, what we found was that the rents were at least $200 under market value and their expense ratio was 73%. So, out of every dollar they brought in, $0.73 was going out in the form of expenses. So, the three adult children who inherited the property, they’re not making very much money. After they pay the bills, after they pay the debt service, there’s not very much cash flow. So, ultimately, they decide to sell the building to us because they’re just not making much money from it.
The reason why the rents are $200 under market value and its 73% expense ratio is because the regional manager was allowing that to happen. The regional manager was not pushing rents. The regional manager was not pushing down expenses. The regional manager was not turning units. The regional manager was not directing a capital improvement program.
Another thing that we want regional managers to have on top of a lot of experience and be pretty hard-headed is contacts. Often, your property manager is much more in the dirt working in the deal, but your regional manager is going to be the one that has contacts. They’re going to know roofers, they’re going to know the vendors, they’re going to know window contractors, they’re going to know contractors that do seal and stripe.
And so, the regional manager can provide quotes and proposals to you as a general partner. And what we do is we have a regional manager go source those items, and we also have our VP of construction. Dave goes to source the same items, and then we compare the quote. Believe it or not, most of the time, Dave’s quote is less expensive than what the regional property manager’s quote is for the same work, whether it’s top pointing, whether it’s sealing and striping a driveway, whether it’s been landscaping, whether it’s getting a fence built or a dog park. For whatever reason, our VP of construction with his contacts has been able to get a lower price for the same job than the different regional managers that we use.
We want the regional manager to have contacts so that we can basically double-check and get multiple proposals. And so, that regional manager, if they’re good, should be your main boots on the ground. They should be walking the buildings. They should be coming up with the renewal plan. They should be coming up with a capital improvement plan. They should be suggesting certain contacts to use. They should be talking through and understanding the budget. But these are all things that we’ve had bad regional managers at some of our buildings, and certainly, I’ve bought a lot of properties from owners who had bad regional managers.
And that regional manager, one of the mistakes that they make is that they’re not on the ground. Number one, they’re not walking buildings. They’re not walking units. Number two, they’re not managing their managers. They’re not actually sitting down with their property managers and suggesting things to do or coming up with a renewal plan, coming up with a marketing plan. Another failure of the regional managers is they don’t understand your budget and when they’re over budget or they don’t even care about the budget.
And so, ultimately, the solution here, the way to eliminate this regional manager threat to your operation is to secret shop your buildings. What I found is that when I show up unannounced at my buildings roughly twice a month, sometimes I show up on Monday and sometimes I show up on Thursday and sometimes it’s on Friday morning and sometimes it’s on Tuesday afternoon. I secret shop my buildings at random times. I walk in and talk to the property manager. I walk the units. I walk the comments. The only way to keep your regional manager in check is to secret shop your properties.
So, if you do live in, let’s say, New York and you own a building in Florida, then take part of the asset management fee that you’re charging and make sure you bring in and hire somebody to go walk the building for you, somebody that’s on your side of the table. So, they might get paid a little bit of scratch every month to go walk the buildings twice, three times a month, and provide you a report of what they found, plus pictures.
And so, they’re essentially managing the regional manager, and the regional manager is then managing the property manager, property manager is then managing the leasing agents and the maintenance tax. For me, I don’t need an asset manager because I’m going to go personally walk those buildings twice or three times a month. I’m not leaving it up to the regional manager and tell me what’s going on. I want them to have a lot of experience. I want them to be hard-headed. I want them to have contacts. I want them to suggest renewal schedules. But ultimately, I need to asset manage the regional manager. And that is our fourth operational threat. Is it regional management failures or regional management overwhelm or regional management being unengaged?
And so, again, as we wrap up this episode, guys, just encourage you to do a couple of things. One, smash down on the Subscribe button, leave us a rating and review right now. Open up your phone. Leave us that rating. Leave us that review. Let us know how we’re doing. And then three things, number one, limited partners, go to FreelandVentures.com/passive. And there you can register for an account to get access to our deal flow.
Number two, if you want to take a look at our mastermind group, we’ve got about 100 members, very experienced, building amazing portfolios. If you want to share best practices and create a bigger network and more joint venture partners, go to JoshCantwellCoaching.com to apply there. And finally, number three, I’m going to be teaching a three-day virtual boot camp. Make sure you go to ForeverPassiveIncome.com to grab your ticket. That’s obviously free if you’re in our mastermind, but if you’re not in our mastermind, it’s a few hundred bucks to attend. Go to ForeverPassiveIncome.com to grab your ticket to our upcoming boot camp.
All right. Thanks a lot for being here, guys, on Accelerated Investor. Thanks for being one of our members. So, we’ll talk to you soon. Take care.