Actually, this is not an either/or situation. You can have a resident manager and a management company without paying a huge amount of money. A rule of thumb says that a fifty-unit apartment complex will support a resident manager. He or she will need to save you enough money on management company fees, minor repairs, timely rent collections, and lower vacancy rates in order to cover his or her salary and benefits. You will need to factor into your expense the lost revenues from the manager's apartment.
A good on-site manager can result in lower tenant turnover because of the relationship and loyalty felt by the tenants, and because of the manager's ability to quickly respond to problems. A manager with good sales skills can fill vacant units more quickly than off-site management.
Unless you have excellent management skills yourself, I recommend keeping a management company even if you have resident staff at your complex. It is a very unusual manager who can remain motivated and energetic year after year. Employees often become lax about some forms and procedures over time, especially if nothing bad happens as a result. A management company can keep your resident manager happy and fulfilled in his or her job, and focused and consistent regarding all policies and procedures. The resident manager becomes part of a management team.
Of course, if you hire a resident manager but keep your management company, the company should reduce its fees. Many of its former obligations are now being performed by your employee, not its own employee. As an alternative, many apartment owners ask their management company to place a resident manager at the complex. That person is an employee of the management company. This arrangement insulates the owner from liability for the manager's actions and avoids all employee-related paperwork obligations.
Owning apartments may expose you to some expenses different than those encountered in single-family housing. When reviewing financial information provided by the seller, ask for the detailed trial balance if available. If not, ask for the check register. Both of these will provide expense details not ordinarily revealed on a profit and loss statement. You want to see exactly what expenses the project has, not just a figure for a general category such as "maintenance."
This will give you a good education about the subject. It also gives you an early warning if some expenses have been omitted by the seller in order to make the finances look better. Depending on the size of the project and how much work you do yourself, you can expect the following additional expenses, besides the normal mortgage payments, taxes, and insurance.
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