Episode Transcript:  

  So you might be wondering how hard is it to really run an apartment complex? We talk a lot about real estate investing on the show, about returns, about tax strategies and benefits. But what we often don't talk about is one of the most critical fundamental components of a successful investment, which is how an asset is managed or how you run an apartment complex.

Because the truth is that operations is where, in multifamily at least, is where the real work begins after the deal has closed. When it's done well, you'll hardly notice at all. But when it's not, it can get complicated quickly. It can impact n oi tenant experience and ultimately investor returns. So today I wanted to pull back the veil and talk more about what it takes to really run an apartment complex.

Us. My name is Jeanette Friedrich. I'm the director of Investor Relations here at Blue Lake Capital, where we specialize in multi-family investments across the United States. So let's get into it. So first of all, we're gonna start with the basics. So on the surface. Managing a multi-family property seems pretty straightforward, right?

You collect the rents, you lease empty vacant units to new tenants. You maintain the property and you pay the bills. Seems easy peasy, but the reality is a lot more goes into that. What people don't see is that you're managing hundreds of moving parts often daily. So you're overseeing a team that includes leasing agents, maintenance workers, regional managers, vendors, legal counsel, and oh yeah.

The tenants. Sometimes it might be 50 tenants, sometimes it might be 400 tenants or 800 tenants. That's a lot of people to oversee and manage. In addition to that, you're dealing with compliance, resident disputes, fair housing laws. Supply chain delays and constant cost pressures because you're trying to make sure that you maintain your revenue goals and oftentimes no two days look the same.

So here's a quick example of something that just happened recently. Unfortunately, one of the buildings at one of our apartment complexes caught on fire. So thankfully everyone was safe, but obviously the team had to scramble to make sure that these people got help and assistance as quickly as possible.

Moved into other vacant units, helped coordinate with the community to bring in new supplies and donations for these families, all while dealing with obviously the fire company, the police, and the insurance company. Now in another property, we had a tenant who had an issue with plumbing, and the maintenance crew was already booked out on multiple jobs that day.

So another third party vendor had to be called in to address the plumbing issue because it was leaking not only into their apartment, but the apartments below it. Then in addition to that, we had two properties pop up next to our, one of our properties that had just completed construction, and they were both basically launching a campaign to drive up people to go and rent their apartments.

They were offering two months free if you signed a 13 month lease. That meant our property had to suddenly reassess and scramble our pricing strategy. Because our two closest competitors had launched an entirely unexpected campaign. Now, all of that happened before lunch. So the reality is that when you're managing apartment complexes, it takes a ton of work.

And it requires you to be reactive. It requires you to be proactive, and you have to have really strong systems and leadership in place to keep business on track. So yes, real estate does generate a lot of income, but there's a lot of complexity to it. Now in addition to that, a lot of people don't realize how much it costs.

It seems oh, you're just picking up all those rents. You should have loads and loads of money. But the reality is there's a lot of expense in maintaining a multifamily property. So for example, you obviously have the utility bills for common areas, which can easily run into the tens of thousands of dollars.

Property taxes typically go up year over year, especially in reassessment states. Then you've got insurance premiums that have absolutely been soaring across the nation in addition to maintenance costs landscaping, pest control, cleaning crews, and then of course you also have your onsite staff and vendors.

So small delays or cost overruns in any one of these areas can definitely impact the performance overall of the investment. Including net operating income and even ripple into sometimes distribution. So this is why it's not just about collecting rent, it's really about managing a full scale business.

So the question is, how do experienced operators actually handle all of that? What I've learned from all of this is that the difference between an average apartment complex and a really successful apartment complex is not the countertops, it's the system, the people, and the execution behind the scenes.

That makes a huge difference. The best operators are tracking metrics daily, in real time. Think occupancy leasing, delinquency velocity work orders closing times. They're holding weekly calls with the onsite teams, not just for updates, but for accountability, and they're benchmarking their expenses very aggressively in order to make sure that they're controlling their NOI Leakage.

And this part can be painful for investors, but the reality is that sometimes you have to balance long-term asset preservation against short-term performance because you have to keep the big picture in mind. But most importantly, they lead. They don't just react, they guide.

So from the investor side, this matters more than you might think because the reality is when you invest in a deal, you're not just investing in the real estate, you're investing in the operator. And that's why experienced sponsors place so much emphasis on asset management. It's not the glamorous part of the business, but it is where the real value is created and protected.

Okay, so how hard is it to run an compartment complex? It's definitely not impossible, but it is very complicated, and it's not passive by any stretch of the imagination. It takes a team, it takes a lot of structure. It takes grit experience, and a willingness to roll with a thousand unexpected variables in any given day to keep your eye on the big picture.

So that's why again, who you invest with matters just as much as what you invest in. If all of this has you stressed out, but you're still trying to find a way to create passive income through real estate investments, be sure to check us out@bluelake-capital.com to learn how you can do that with us. In the meantime, I hope you guys found this helpful and I will see you on the next episode.