The Apartment Consultant

The last blog, I wrote on two basic yet oh so important things to know like the back of your hand before you buy. In this blog, I want to share with you 2 very important things to watch after you buy. This will save you a lot of heartache and delays of getting paid a monthly check.

There are many “important things” to watch out for right after your acquisition, but what I’m writing about right now comes from what’s happening to me personally. Here are two of them.

The first one is…knowing the quality of your tenant. You’re in the income property business, right? Therefore, doesn’t it make sense to make sure your income source is reliable? Putting in so-called paying tenants out of desperation and hoping they pay is a disaster waiting to happen. In fact, the disaster happened when you decided to approve that tenant to move in. Please realize that buildings don’t cause problems, but the people in them do. I focus daily on the 4Ms of apartment operations – Money, Marketing, Maintenance, and Management. If you examine closely enough, you’ll see that if you have poorly qualified tenants, then you have no chance of succeeding within the 4Ms. You want the best tenant possible for your apartment, no matter what size…2 units or 100 units. Marketing to and placing the ideal tenant leads to steady income, predictable operating expenses and repairs, normal or better than normal tenant turnover, and a good community reputation. These are priceless attributes of an apartment business and lead to quality sleep on a nightly basis! On the other hand, and you’ve probably have seen or heard of properties like this, where the apartment has a bad neighborhood reputation, has a bad appearance from the street view, tenants hanging around outside way too long, and the list goes on. This is all caused by selecting poor quality tenants. And this is not a market problem, but a management problem.

The second important thing after a purchase is something that probably does not excite you much, but it is oh so important…and that is…bookkeeping. Many new investors want to be wealthy in real estate, but not pay the price of success and riches. The price to pay is to know your cash and payable position at all times, down to the penny. This goes for any business. I personally believe that additional blessing comes upon those who have proven to be good stewards over the things they are in charge of. If you take care of your business, then you deserve more. If you don’t, then you don’t. This is not only a Godly principle, but a universal one. I am in the midst of a small apartment acquisition, performing the financial portion of my due diligence. The owner of the apartment complex has supplied me with hand-written rental income and operating expenses. This is not acceptable and there is no good reason to have ever done so. Pure laziness is what I think happened. Even though I’m still interested in the deal, the price and terms has to be re-negotiated because of this (in my favor). The seller will have to give up hundreds of thousands of dollars in profits just because the property data was never recorded properly. Expensive lesson to learn!

Till next time,
Peter Harris, TheApartmentConsultant.com

Since apartments are how I make a living, I pretty much look at numbers all day and every day. They’re either my financials or someone else’s. When I’m sitting down with property managers or clients, the focus is on numbers always – income collected, delinquent income, income we’re never going to collect, vacancy percentages, and cash left in the operating account at the end of the month, just to name a few. But after all these years, I am still not a “numbers guy”. That’s not my passion, but to look them over carefully and understand them is a necessary requirement in running a business profitably and responsibly.

I want to share with you 2 very important things when reviewing numbers on your apartment deal BEFORE you buy. Then later, I’ll share with you 2 very important things to watch after you buy.

So, BEFORE you buy any apartments or just when you’re evaluating a deal, take a close look at these 2 things:

Number 1 FINANCIAL thing to look at: the actual income, what I mean by actual income is not the agent’s “proforma” income from his brochure. Proforma income is best-case, perfect world income, this is not realistic income, don’t use it. In fact, completely ignore it. Whenever you receive financial information from the agent or seller, ask where it came from. Did it come from a bookkeeper? Did it come from the property manager’s software? Those two are typical and mostly good places to start. But if it comes to you in a colorful brochure or handwritten, or gives the appearance it was made up, stop right there and ask this one question – does the income shown here match what’s reported on the property’s tax returns? This is a great question! Which one would you tend to believe: an agent’s or seller’s “made-up” income statement or a tax-return showing the income? You know the answer to that one!

Number 2 FINANCIAL thing to look at: the operating expenses over the last 3 years. If you were doing a deal today, obtain expenses for 2008, 2009, and 2010 year-to-date. Compare each year’s expenses and look for the following: consistency in the annual overall expenses, large fluctuations of any one expense (such as plumbing or any utility), and any other expense that you don’t understand. What I have found to be true about 90% of the time (that’s 9 out of 10!) is that the expenses supplied to you are what I consider to be too low for normal operations. They do this to make the property look like it’s performing better than it is actually. So, instead I want to give you a couple rule of thumbs I use to estimate expenses in EVERY deal I look at BEFORE I buy. For 5 units to 20 units, I run my expenses at 35% of the effective gross income. And for 20 units to 50 units, I run my expenses to be 40% of the effective gross income. And finally, from 50 units to 100 units, I run my expenses to be 45-50% of the effective gross income. Over the years, I have found two truths about those two thumb-rules: one, agents always present expenses that are lower than the rules and two, the biggest mistake new investors make is underestimating the expenses.
See? You don’t have to be a genius to evaluate the financials of an apartment deal…you just need common sense…and help.

Til next time my friends….Peter, The Apartment Consultant

Below is a short interview I did with my friend and client Blake. It shows that creative deals come and go, but the ones that come, you need to pursue with passion. Check it out. Excuse the grammar please!

Peter: Blake, thanks for letting me interview you on this deal. I know it was a tough one for you. But my hats off to you for being so diligent and hanging in there. Creative deals aren’t easy to do, but the reward always seems to go to those who don’t give up.

Blake: And Peter, thanks for your help too…I must have called you at least a hundred times!

Peter: So Blake, give me some background on this deal.

Blake: Sure ok. 3 units, all three bedrooms 1 bath units, 2-story, brick building, fully occupied, decent neighborhood, needs some roof work, and the seller owned it free and clear. Oh yeah, it was listed for three months or so. Didn’t sell because of the registered sex-offender home business next door. Can’t blame them. It’s kinda creepy.

Peter: How did you structure the deal?

Blake: Owner financing with a master lease agreement. I could it no other way because of the situation next door, plus I didn’t have the 20% my bank wanted for the down payment. You know at first, Brian didn’t want to do a master lease and I couldn’t understand why. But soon enough, I found out that he just didn’t understand how it worked. So that was a lesson itself Peter to tell your clients, don’t assume that the agent understands what a master lease is. Once I explained it to Brian, he was all aboard, especially after I told him that he would get his full commission. What really helped too was the owners of the property owned it free and clear, no mortgage.

Peter: How did you convince them to do the master lease with you?

Blake: It wasn’t easy Peter. This is where Brian came in as my helpful agent. Again, it really helped that Brian understood the master lease because he was able to explain it to the sellers as a viable option to sell a problem property. Plus, they wanted out badly.

Peter: How badly?

Blake: The sellers don’t live here in town. They’re out-of-state people. I come to find out that they didn’t even know about the house next door until one of their tenants called them and threatened to sue them for not telling them. They and several other tenants demanded their rent returned and deposits. It was one big mess. This was supposed to be that owner’s retirement investment, you know, build equity and income every month. The owners actually used that income to live off of, so their motivation was high. They needed a solution quick. I think attorneys for tenants got involved too. What a mess.

Peter: So, what was your offer?

Blake: Full price with a master lease for 2 years, take over his mortgage payments and management. I think two things got me the deal. First, I agreed to pay him a monthly payment on top of his mortgage payment as a way for him to feel he’s not losing out on all his income he needs to live on. Secondly, I agreed to fire the current manager who lived on the property, he was useless and a troublemaker in my opinion, and do the management myself. I would also give him a report every month of how the property was doing, digital pictures included. This was Brian’s idea since master leases can be risky for the mortgage holder or seller. I agree with that.

Peter: What did you do for a down payment and Brian’s commission?

Blake: I got a little creative with the down payment, thanks to you Peter. My offer was 10% down with two options on how I pay him that. First option was to pay him 5% down at close minus credits for security deposits, rents, and repairs, and then he would get the other 5% at the end of the master lease, 2 years. Second option was to give him no money down, but give him a 10% bonus payment, on top of the purchase price, at the end of the lease, also increase his monthly payments by 1.5 times for the first year.

Peter: He took the first one, huh?

Blake: Yeah, he did, and I expected him too. I like your strategy of giving him an option with really not giving him an option of me putting down a lot of money. Cool idea and it worked just like you said.

Peter: What about Brian’s commission? Who paid for that?

Blake: Again, I had to get creative here. I had the owner pay half of the commission, the 1.5%, out of the down payment I gave him, then I had Brian put the other 1.5% back into the deal as ownership interest. His 1.5% bought him a 5% ownership in the deal. So, at the end of the lease, Brian will be getting 5% of the profits. If everything goes right, according to my calculations, Brian can triple his commission. And if everything goes south, Brian get’s his 1.5%.

Me: How’s the property doing today?

Blake: It’s doing fine. Both of those problem tenants did move out, the owner had to pay for their moving expenses and sign a release. I advertised on Craigslist and got people right away to move in. I disclosed to them who their neighbors were and they were fine with it. I was worried that the insurance would go up because of that, but it hasn’t. So, all is well down there.

Peter: You ever talk with the owner?

Blake: Every month I send him a couple of pictures, a copy of the check for the mortgage, and a quick note with stuff going on, that’s about it. Other than that, he’s just happy to be out of a bad situation and making a little money still.

Peter: Blake, good job and thanks for sharing this deal or “ordeal” with us.

Blake: You bet. Have a good one Peter.

Til next time my friends….Peter, The Apartment Consultant

Four years ago, there were many millionaire apartment investors nationwide, and I knew quite a few of them personally. But unfortunately today, most are no longer millionaires. Thousandaires perhaps. (I just made up a new word!) The way I look at life is a big educational journey. And the most priceless thing you can learn is life-experience. In other words, you can’t put a price on wisdom. I define wisdom as the application of your life’s experience. I know a few people who not only remained millionaires after the fall of the market, but are even prospering at this time. To me, these people have learned from their life-experiences and have applied their highly valued knowledge to their investing. I observed that they have certain traits and mindsets that no one else has. Here’s what traits I have observed in keeping up with today’s millionaire apartment investors. Traits you can surely adopt yourself – it’s not too late!

1. Independent Thinking
Millionaire apartment investors think differently. Not just about money, about everything. The time and energy everybody else spends attempting to conform, millionaires spend creating their own path. They don’t wait around waiting for someone to make a move before they do. They think, and then they do. How about you? Have you been wanting to invest in apartments, but……..???

2. Vision
Millionaire apartment investors today are creative visionaries with a positive attitude. In other words, wealthy people not only have big dreams, they also believe they will come true. Wealth seekers set lofty goals and are not afraid of uncharted territories. When setting real estate investment goals, have the mindset that…”impossible is nothing”. Millionaire apartment investors believe when others don’t – that’s what sets them apart.

3. Skills
Writer Dennis Kimbro interviewed successful people to determine the traits they had in common for his book, “Think and Grow Rich”. He found that they concentrated on their area of excellence. Millionaires also tend to partner with others to supplement their weaker skills. They use training and mentors to refine their strong skills. Focus, focus, focus is what the best of the best in apartment investing do. They don’t stray from apartments – they master one thing.

4. Passion
Billionaire investing guru Warren Buffett says “Money is a by-product of something I like to do very much.” Enjoying your work allows you to have the discipline to work hard at it every day. People who interact with money for a living often love creating new deals and persuading others to complete a transaction. But finding your dream job may take time. The average millionaire doesn’t find it until age 45, and tends to be 54 (on average) before becoming a millionaire. Wow, so there’s still hope! Woo-hoo!

5. Investment
Millionaire apartment investors are willing to sacrifice time and money to achieve their goals. They are willing to take a risk now for the opportunity of achieving something greater in the future. The majority of millionaires in the US today, achieved that status from real estate investing – and they still do it. Yes, they took a chance. They took some of their own money Or borrowed it from someone else) and took the plunge. Leo Bascaglia quotes, “the person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing”. Ouch!

6. Salesmanship
Millionaire apartment investor are constantly presenting their ideas and deals and persuading others to buy into them. They are good salespersons and are oblivious to critics and naysayers. In other words, they don’t take “no” for an answer. Millionaire apartment investors also have good social skills. In fact, when writer T. Harv Eker analyzed the results of a survey of 753 millionaires for his book, “Secrets of the Millionaire Mind”, he found social skills were more important than IQ. Just look at Donald Trump. His fortune has fluctuated over the years, but his ability to sell himself - whether as a TV personality or as the force behind a line of neckties - has always brought him back among the ranks of celebrity millionaires. I personally learned from Robert Kiyosaki that no matter where we are, at the gym, the beauty shop, shopping for groceries, we should ALWAYS BE SELLING!
Til next time my friends….Peter, The Apartment Consultant

I’d rather have lower but steady cash flow than potentially higher cash flow, but it be inconsistent. Right? Let’s discuss this a little further. It’s a tough world out there for apartment owners right now. Even if you’re not an owner yet, you should pay attention to this as well. Even though we apartment owners are surviving the recession better than the average investor of other commercial real estate property types, we still are admittedly struggling with keeping tenants anchored in our apartments long term. There’s so much competition and so many choices out there. What I am discovering are that apartment amenities are key to attracting targeted tenants and keeping them long-term. Amenities include things such as: parking, storage, pools, laundry, clubhouses, on-site management, playground areas, fitness centers, gated access, and internet services, just to name a few. These “little” things are more important than you think.
Research indicated that at least 8 out of 10 individuals wanted internet services in their apartment complex. About 85% preferred having both on-site-management and maintenance available at their apartment complex. When asked about the issue of parking, about 65% agreed that parking spaces maybe a deciding factor on which apartment complex was chosen.
Less than 10% was interested in having a clubhouse as part of the apartment complex, which left an astounding 80% that did not care for such amenities. Isn’t this interesting? Laundry received a 65% “Must Have”.
When asked about storage spaces, only 35% believed that this would pose an issue for them.
The pool received high remarks with over 85% agreeing that the question about a pool will surface. Fitness center and a playground area both received about 45% of the surveyed audience who agreed that having these amenities would persuade their rental decision. 20% was interested in having a gated community and believe that this would be a top priority for them. This should be taken all into consideration even when thinking of adding an apartment investment into your portfolio.

Here are the Top 10 Apartment Must-Have Amenities:

1. Pools
2. Dishwashers
3. Covered parking
4. Washers and dryers
5. Pet-friendly community
6. Gated access
7. In-unit security
8. Fitness center
9. Guest bathrooms
10. Club house
And here’s an interesting thing about these amenities that may surprise you: Even though the tenants want things such as a pool and a fitness center, it is used rarely by them. Incredible, huh? But in order to attract them, you gotta have it. Just crazy if you ask me.
So there you have it. Money-making information straight from the tenants themselves. They are telling us something aren’t they? Are we going to listen? I sure have been. Steady cash flow, even if it’s a little lower is better than none.
Til next time my friends….Peter, The Apartment Consultant.com

Early on in the recession, I believed it was just my imagination. But later I saw the effects of a recession I thought was make-believe. I saw massive job losses and too many foreclosures to think of. But the one thing that has continued to pay me are my apartments. The cash flow may not be as high as it was in prior years, but it’s still there. And believe it or not, so far in 2010, the cash flow has increased slightly. And that’s due to the fact that I’m running a lot more efficiently and cost consciously. I have turned my staff and myself into lean n’ mean apartment investing machines. So far, and God willing, our apartment investing has been recession-proof. Amazing, huh?

I’m going to share with you 4 tips what I believe has caused our apartment investments to not be negatively affected by the current recession.

Recession-proof tip # 1 – Invest in apartments. Yep, that’s right. You can’t beat them! I’m so glad I didn’t invest in a shopping center or office building. Those guys are a nervous wreck right now. In 2008, we raised our rents three times as people down-sized and moved into apartments. In 2009, our rents went flat, but we were still able to be over 90% occupied for the year by reducing our rents by a few dollars. In 2010, we’ve learned an important lesson about tenants that I explain in tip #2.

Recession-proof tip # 2 – Tenants are like gold coins. What do I mean by that? When someone gives you a gold coin, you treasure it. You don’t spend it. You keep it protected and secure. Treating our tenants like gold coins has caused our apartments to stay full while many other complexes struggle with high turnover. What’s our secret? Simple. We created a great lifestyle in our apartment complexes for our tenants. Happy tenants don’t move out. Happy tenants pay on time. We created a lifestyle that tenants don’t want to leave. Pretty simple stuff. Shhh…it’s a secret.

Recession-proof tip # 3 – Intensify your marketing to tenants. Once we saw how well creating a desirable lifestyle worked for us, we set out to market this lifestyle like crazy. Don’t tell anyone this, but we actually marketed to our competitors that we knew of that couldn’t match the lifestyle we created (and for the same rents). In simpler terms, we stole tenants away from other lesser complexes. Our marketing program was very targeted, very focused, very intense, and we knew the exact tenant profile we wanted. And we got it.

Recession-proof tip # 4 – Adopt cutting-edge technologies. Today, it’s all about being more efficient. It’s about using the tools you have available to make your job easier (so that we can pile more onto you!). Our whole office system is automated and the staff is well-trained on the system. Our maintenance guys are literally tracked hour-by-hour during their shift using technology not available to us two years ago. Our marketing system has amazing follow-up abilities where absolutely nothing gets through the cracks. I-Pads are next (but that’s a secret, okay?)

Til next time my friends….Peter Harris, The Apartment Consultant

Can you imagine if Warren Buffett was your investment advisor? Wow, that would be awesome wouldn’t it? Getting advice from the most successful investor in the world would be incredible, huh?

A few years ago, myself and bunch of other real estate investors gathered from around the country to study the man, the legend, the Oracle of Omaha, Warren Buffett himself. We studied in-depth a book called “Buffettology”, a book that embodies his investing principles and techniques throughout his decades of making billions of dollars for himself and his shareholders. We all learned so much from it. And our goal was to take from that book how Warren approached investments, how he bought them, how he made money from them, and lastly, how we could take what we learned and apply it to our own real estate investing lives. Here’s are 5 what I call, Buffett Nuggets below:

This week, I’m going to share with the two remaining Buffett Nuggets and how you can use them in your very own apartment business.

Buffett Nugget #3: Warren seeks expansion in his investments

I can tell you once I understood this nugget, it really sold me that investing in apartments rather than single family homes. How I saw expansion was literally playing the game of monopoly with my real estate investments. First buy a few small green houses and later exchange them into large red hotels. I realized that having a 25-unit apartment complex was better than having 25 single family homes. I no longer had to worry about 25 aging roofs! Also, when I had a tenant move out of one of my homes, that investment was 0% occupied with no income. On the other hand, my 4-plex, when it had one tenant missing, I was 75% occupied with excess income – cash flow. So, I took several of my single family rentals and sold them and started buying apartments. In one transaction, I went from a single family home into an 87-unit apartment building by using the 4th nugget we’ll learn below, leveraging. That was both, expansion and leveraging. I’m sure Warren would have been proud of me!

Buffett Nugget #4: Warren maneuvers leverage in and out of his investments

Warren found a way to acquire other people’s money to manage so he could profit from his investing expertise. He did this by starting an investment partnership and later by acquiring insurance companies. Once he acquired their money (I call this leverage), he even leveraged that. And the rest is history – all of his early investors are now millionaires several times over. As apartment investors, we are like Warren where we don’t have unlimited money in our personal bank accounts to acquire apartment complexes. Like Warren though, we need rich friends. Warren hosted chicken dinners at his home for doctors who wanted to invest their money so they wouldn’t have to work forever or hard as they have been. Once I saw this, that’s exactly what I set out to do – acquire other people’s money and use my expertise in investing it. You should do the same thing. Start small is my best advice. A second way to leverage your apartment investment is to understand the power of the net operating income the property generates. On an 8 cap rate property, for every dollar you increase the net operating income, your property value goes up by $12.50. Now, is that leverage or what?! Increasing your net operating income by $5,000, which is not hard to do, will increase your property value by $62,500!!

Doesn’t all this make sense? There’s no rocket-science or complex formulas here, right? That’s what I like about Warren’s style of investing. So, there you are folks…plain ol’ fashion good advice that you can apply yourself to your apartment investing right now.

Can you imagine if Warren Buffett was your investment advisor? Wow, that would be awesome wouldn’t it? Getting advice from the most successful investor in the world would be incredible, huh?

A few years ago, myself and bunch of other real estate investors gathered from around the country to study the man, the legend, the Oracle of Omaha, Warren Buffett himself. We studied in-depth a book called “Buffettology”, a book that embodies Warren’s investing principles and techniques throughout his decades of making billions of dollars for himself and his shareholders. And our goal was to take from that book how Warren approached investments, how he bought them, how he made money from them, and lastly, how we could take what we learned and apply it to our own real estate investing lives. There are 4 what I call, Buffett Nuggets. I will discuss 2 this week and the other 2 next week.

I’ll take each one and show you how to use them in your apartment investing to be just as successful as Warren. Guaranteed!

Buffett Nugget #1: Warren wants and gets predictability of CASH FLOW!

When Warren invests in any company, he demands that it has reliable, consistent, and reproducible cash flow. Cash is KING to him! He does this by extensively researching the company’s financial history and where the company sells its products or services. Once his research is complete, he can more or less tell if the company is reliably liquid or not.

As an apartment investor, you should do no different. After all, you are in the income-producing business and therefore, you should confirm the property’s income, right? You do this by getting a hold of the seller’s three years of the property’s financial records, a current-month rent roll, a six-month report of income collection, a rent delinquency report for all the tenants, and last but not least, the seller’s income tax returns for the property’s last three years. The reason you want to get the seller’s tax returns is to compare the tax return’s reported income amount to the amount given to you on the seller’s “computer generated” financial records. You see where I’m going here? Which do you believe most – a computer generated report or an amount reported on an income tax return? Easy answer…

Buffett Nugget #2: Warren demands CONTROL of the company (6 controls he always gets!)

The reason why Warren is considered to be the best investor in the world is because he’s a control freak where it matters most. Do you think you could be successful if you controlled the income, the expenses, the asset itself, the debt, the management, and you had insurance just in case something went horribly wrong? I bet you could! Well, that’s exactly what Warren sets out to do when he makes a substantial investment into a company. They either let him do that or he walks. It’s that simple.

As apartment investors, if you get the right education and sound advice, you should construct your deals the same way…nothing less. Please don’t settle for less! If done right and without being too over-enthusiastic, you too, should these 6 investor controls in your next apartment deal – income, expense, asset, debt, management, and insurance. If you don’t, call me, stop your deal, or call someone who’s an expert in apartments. Anything less and you’re putting yourself at above normal risk.

I could go on forever, but then a blog wouldn’t be a blog wouldn’t it? So, I’ll stop here. Next week, I’ll share with you the 2 remaining Warren Buffett Nuggets I learned and how to apply them to your apartment investing.

Til next week,

Peter Harris, The Apartment Consultant

First of all let me make it clear that there are other significant causes of apartment investment failures such as making a bad deal, investing in a declining market area, having too much debt, and incurring lawsuits, but the number one cause is, by far, poor property management. Now this goes for apartments being managed by its owners or by professional management companies.

Here are four of seven of the most common mistakes that poor property managers make. I will include the other three next week. Here’s some good advice to being successful in the apartment business: don’t make these same mistakes!

Mistake #1: Have none or very little property management skills. You can see here I used the word “skills” and not “experience”. I know a few property managers who have years of experience but lack the skills to manage their property most profitably. The skills I am referring to can be obtained through supervised training and education. Poor skills lead to poor choices which lead to poor results. And failure is the inevitable outcome.

Mistake#2: Lack of market knowledge. Not knowing levels of rents for the area and vacancy rates will guarantee subpar results for your apartment investment. Not having an aggressive marketing plan or not targeting your ideal tenant profile is a very common mistake. You can’t just hang a sign outside and expect to have your 50-unit apartment building at 100% occupancy with a waiting list – it’s not going to happen. Know your market and its demographics like the back of your hand.

Mistake #3: Not watching the flow of money like a hawk. Human nature says to the property manager, “money is available and I can surely spend it, so I will”. Poor cash control is a property killer. It’s like giving your ten year-old his college education savings in advance and asking him to make sure he takes care of it. Human nature will take over and he will look for opportunities to spend it unwisely and/or foolishly. Know the cash position of the property on at least a weekly basis. Make an effort to understand monthly financial reports of the property. How can you make sound business decisions concerning the direction of the property if you don’t know how much money is in the bank or is due to come in?

Mistake #4: Now knowing the ins and outs of the property, literally. If you don’t know the strengths and weaknesses of your property, how do you then go against your competition? You should easily know the rents and square footages of your one and two bedrooms, what makes them appealing, what amenities (pools, laundry, club house, internet, etc.) are on the premises, highlights of the surrounding area, and so on. You should also have a grasp of the property’s incoming rent amounts on a monthly basis and a deeper grasp of its operating expenses. The more you know, the better the decisions that can be made.

First of all let me make it clear that there are other significant causes of apartment investment failures such as making a bad deal, investing in a declining market area, having too much debt, and incurring lawsuits, but the number one cause is, by far, poor property management. Now this goes for apartments being managed by its owners or by professional management companies.

Here are four of seven of the most common mistakes that poor property managers make. I will include the other three next week. Here’s some good advice to being successful in the apartment business: don’t make these same mistakes!

Mistake #1: Have none or very little property management skills. You can see here I used the word “skills” and not “experience”. I know a few property managers who have years of experience but lack the skills to manage their property most profitably. The skills I am referring to can be obtained through supervised training and education. Poor skills lead to poor choices which lead to poor results. And failure is the inevitable outcome.

Mistake#2: Lack of market knowledge. Not knowing levels of rents for the area and vacancy rates will guarantee subpar results for your apartment investment. Not having an aggressive marketing plan or not targeting your ideal tenant profile is a very common mistake. You can’t just hang a sign outside and expect to have your 50-unit apartment building at 100% occupancy with a waiting list – it’s not going to happen. Know your market and its demographics like the back of your hand.

Mistake #3: Not watching the flow of money like a hawk. Human nature says to the property manager, “money is available and I can surely spend it, so I will”. Poor cash control is a property killer. It’s like giving your ten year-old his college education savings in advance and asking him to make sure he takes care of it. Human nature will take over and he will look for opportunities to spend it unwisely and/or foolishly. Know the cash position of the property on at least a weekly basis. Make an effort to understand monthly financial reports of the property. How can you make sound business decisions concerning the direction of the property if you don’t know how much money is in the bank or is due to come in?

Mistake #4: Now knowing the ins and outs of the property, literally. If you don’t know the strengths and weaknesses of your property, how do you then go against your competition? You should easily know the rents and square footages of your one and two bedrooms, what makes them appealing, what amenities (pools, laundry, club house, internet, etc.) are on the premises, highlights of the surrounding area, and so on. You should also have a grasp of the property’s incoming rent amounts on a monthly basis and a deeper grasp of its operating expenses. The more you know, the better the decisions that can be made.