Scattered Site Rental Toolkit:

Business Planning for Development & Management

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VII.B. In-House or Third Party Property Management?

Property management requires its own expertise, staffing patterns and management and tracking systems. It may be appropriate for your organization, but it is a considerable enterprise that has spelled disaster for many competent developers.

Before launching SSR development, you must identify how you will secure strong property management services, either through in-house operations or via contract with a management company. You will not survive without good management and you need to know who your property manager or management company is and consult with them before completing financing and construction planning.[i]

Ideally, you will be able to secure the services of a seasoned professional property management company with experience in scattered site management. Look for a property manager with a track record specifically with dispersed properties. You need to find out if they are doing it well and if they are available to work for you at a price your project can afford. However, interviews with NeighborWorks affiliates indicate that finding for-profit management companies who can effectively manage dispersed units for a cost-effective fee is difficult at best and often impossible. You may have to cultivate this capacity in-house. In fact, all but one of the organizations we interviewed and visited conducted management in-house. One organization contracts with a unique non-profit management company described in part “D” of this section.

You must answer questions such as:

·         Will you manage units in-house or via 3rd party contract?

·         How much in-house staff will you need?

·         If you don’t have in-house capacity, how will we cultivate it?

·         Can you engage a 3rd party, for-profit manager?  At what cost?  How will this affect the ongoing revenue your organization earns?

·         If managing lease purchase units, do you have the ability to manage them as long-term rentals if they chronically fail to sell?

 

Advice from the Field: In-House Property Management

  1. You will have to allocate FAR MORE TIME to property management than you anticipate. Management is time intensive and scattered sites make it more so. If you have 1,600 units, then you have 1,600 water bills!
  2. Previous experience in property/asset management is an indicator of success.
  3. Adding SSR units to an existing portfolio is easier than creating a new rental portfolio starting with scattered units, but being good at multifamily manager is no guarantee for SSR success.
  4. Leadership is essential. The most successful property management CDCs have hands-on leaders involved in every level of operational detail. Strong leaders act as “team captain” for this complex work, solving problems and engendering respect and confidence in staff, residents and regulators.
  5. You will not have the advantage of an on-site office or resident staff. Management has to be highly mobile. You may have to decentralize or regionalize the work for a scattered portfolio.
  6. Create systems to make maintenance more scheduled than reactive. Establish a maintenance policy and schedule and stick to it. Conduct regular unit inspections.


Why Maintenance is More Difficult with a SSR Portfolio

  1. You will not have the advantage of an on-site office to monitor property conditions.
  2. Increased travel time between units.
  3. Increased time and costs related to non-standardized units. A scattered portfolio of rehabbed units makes it difficult to achieve efficiencies of standardization. Furthermore, lack of standardization can make accurate budgeting for future replacements (roofs, appliances, etc.) difficult.
  4. Maintenance staff will not be as efficient as with multi-family properties, due to increase travel time, decreased standardization, and greater opportunity for major repairs to be needed at each property. The number of maintenance work orders per FTE employee could be reduced by half as compared to traditional rental portfolios.
  5. You will have to invest in technology solutions to aid SSR maintenance. You may need to install monitored security systems to prevent theft and major fire damage. Webcams and water sensor can help you oversee scattered vacant units.
  6. If you require tenants to perform some maintenance themselves, insuring they meet this obligation can be time consuming across a scattered portfolio.
  7. If your program includes a short-term lease purchase component, your maintenance work load will fluctuate as units come into and leave your portfolio. If you sell 5 homes of your 25-home portfolio, can you simply reduce maintenance staff by 20 percent? If not, per-unit operating costs may go up for the remaining units, and your long-term feasibility may change significantly.

Next: VII.C. Asset Management

 



[i] Developing and Managing Scattered Site Rental Housing: A Complete Overview of the Skills and Finances Needed to Run a Successful Program (1999) by Matt Perrenod, published Enterprise Community Partners.