Managing properties in different locations with varying market conditions can be difficult. Keep in mind that real estate markets can be influenced by various factors such as economic conditions, local development, and population growth. It is also very important to understand that a multifamily deal is its own business and two properties within a mile could be structured and running extremely differently; one +30 cash flow and one -10 cashflow.
Preparing for different stages of the multifamily real estate market based on market location involves understanding the local market dynamics, economic indicators, and demographic trends in comparison to your asset class and business plan. One business plan can speak entirely different to the market and demographic than another. Preparing for an operating plan in any given market is not a one size fits all, or a quick cookie cutter plug and play. Your ability to forecast the next 12 months to five years is going to be the secret sauce to your success. You are carefully creating a flower that you will watch bloom. This flower that you are creating is called a community. Not a complex, not a parcel, not a property, not a unit… a community and culture that you develop within society. This is the beauty of being an operational director, asset manager, leader and business creator.
Think of your plan as a sphere from day one. Start with the end goal in mind. What is your exit strategy and base it off your forecasted market condition. Be prepared to sell, refinance, or hold properties based on your investment objectives and the market environment. Every decision and every move you make as an operator will cause a shift within the domain, like a ripple in water. Instead of waiting for a problem to come to you and constantly putting out fires, anticipate and forecast your plan in a way that you mitigate the risks. Being an operator is having the ability to stay one step ahead and anticipating management, your market dynamics, economic stressors, and demographic shifts all while embracing the three Cs; staying cool, calm and collected.
I will review some traditional ways to prepare for managing communities in different markets, and then i will share some more personal ways i prepare for the changing climate per asset class. Market research is going to be vital to any asset type you begin managing. Analyze local economic indicators such as job growth, unemployment rates and income levels. Study up on trends, migration patterns, and demographic changes in your market like colleges and main employer shifts. Also, understand the supply and demand dynamics for multifamily properties in the specific location. There have been mass deliveries of new product over the last couple years in strong markets that will tier downward due to the pipeline shrinking, leaving only demand again. Are you in one of those markets?
Your property type and class are going to have a huge factor in how your asset will perform within your market. Identify the prevalent property type and classes in the market (e.g., class A, B, C). Evaluate the demand for the different types of the product in the area. The evaluation should not just be for transition after acquisitions. Your evaluations need to be made for the entire hold period. Look past what is right in front of you. Remember, your ability to forecast will make or break your outcome. Partner this with your financing strategies. Be aware of the financing options available and understand the interest rate environment. A financial evaluation of a multifamily business is based off of its net operating income and occupancy. Adjusting financing strategies based on the market cycles and your asset class will set the foundation for your structure.
Market cycles are extremely important to understand for your micro and macro market. Recognize the current stage of the real estate market cycle that you are in. Each asset could be falling on a different tier depending on location. Stay fluid as you recognize contraction, expansions, peaks and trough periods. Adjust your investment strategies accordingly and stay more conservative during downturns and more opportunistic on upturns. Remember, cycles are driven off supply and demand. Supply is regulated by government policy factors. Stay up to date on politics within your country, state, and county. Stay informed about local zoning laws, building codes, and any regulatory changes that may impact multifamily real estate. Rent control and rent stabilization policies will also throw huge wrenches in your plan if not identified in the beginning. Staying connected with your local associations and attending economic events with the chamber of commerce will help you stay informed.
I am always one to say, Asset Managers are risk managers. One of the ways to spread risk is to diversify in different markets and across different locations. Understanding how to strategize and prepare for the different market fluctuation will set you apart. Implement risk management strategies to handle potential challenges unique to each market. Of course, there is not a crystal ball to real estate cycles, so always have a contingency plan in place for economic downturns or unexpected market changes. Understand the needs of your tenant profile. Identify your local demographics and what their generational preferences are. Tailor your property amenities and management strategies to cater to your top three tenant base. Also, embrace technology for property management, marketing and tenant communication. This will help control expenses and enhance your tenant experience.
Regular property valuations are extremely important for preparing your next move(s) as an asset manager. Show up. Periodically assess the value of your properties to stay updated on their performance in different markets. Dive in depth to your monthly operating reports provided by your property manager and share those with your investors. Read through the variance reporting and the responses to why there are variances to budget. This will tell a story as to what is working and what is not. Set your KPIs to track marketing efforts and dollars spent. Also recognize the trends and stay consistent. Remember, you cannot change something that is not being tracked and you cannot recognize a shift if there is not a trend. This also pertains to boots on the ground idiosyncrasies. Stay connected.
My last topic will rip the Band-Aid off a bit. Property Management is changing. You as an Asset Manager are leading this change. You are leveling up and with that, there is an overwhelming reality and acknowledgement that some of the layers of property management positions are changing and/or being eliminated. This will not only increase the bottom line for investors and reduce overhead, but it will eliminate the middle man and disconnect in communication often found in 3rd party management companies. More often than not, investors want to hear directly from the person working and running operations. What will happen, as restriction continues and AI picks up back of the house entry, is we will see community managers take more responsibility, oversee more units, have increased pay and a more direct communication. Or, perhaps, Regional Managers may phase to more of a community managers responsibility and being more hands on. We are already seeing the responsibility shifts happening for companies that have the ability to be flexible and creative while focusing on culture and client retainment.
Remember, market conditions can vary widely, so it’s essential to continuously monitor and adapt your strategies based on the specific location, your asset class and its unique factors. it’s crucial to stay informed and adapt your approach based on the specific conditions of each location. Our ultimate goal is to increase income and decrease expenses. Keep yourself healthy, disciplined and creative within your plan. Make it a priority, your investors are counting on you!