Part 1 of 2
LAS VEGAS-The Las Vegas investment market is really heating up, and both seasoned and new investors are buying multifamily properties at record paces. GlobeSt.com caught up with Western National Property Management's VP of business development, Nick Alicastro, to see what advice his firm has for owners when it comes to acquisition new multifamily properties.
GlobeSt.com: What advice would you give potential owners?
Nick Alicastro: The greatest advice potential owners can follow is to get a management team involved before deciding to purchase a property. It is imperative that the owner has what we call “continuity of vision” before a property is even purchased. This means that the owner and any other teams involved with the property are all on the same page with regard to the goal for the asset, and how to accomplish that goal.
Once a team is selected, the most essential element a buyer should consider is diligence, diligence, diligence. We cannot stress just how important truly exceptional due diligence is when purchasing a property. Potential buyers must examine every aspect of a property. This includes not only the physical property, but the rent roll, financials, all resident files and many other items.
Performing an exceptional due diligence is the only way to determine the potential return a property will deliver; and is the best way to ensure that the property can achieve future earnings in hopes of matching investors' expectations.
For example, without proper due diligence, something as seemingly simple as the need for a new roof can be overlooked. If this happens, it can mean the difference between achieving the desired returns or not. The entire investment criteria can be destroyed if a thorough due diligence is not performed, and if the owner does not understand the property's needs inside and out.
The bottom line is, in the Las Vegas market, there is simply zero margin for error in due diligence.
GlobeSt.com: As investors acquire new properties, it's important that property management is in place from the start. What should new owners in Las Vegas look for in a property management company?
Alicastro: When it comes to choosing a property management company, there are three major points owners should remember - Integrity, Experience and Fees.
Integrity – An owner's relationship with its property management company should be as honest and straightforward as possible. A property management company will serve no value to owners and investors if team members are afraid to deliver bad news. For this reason, owners should seek property management companies with experience owning properties. Because these managers understand how to care for an asset from an owner's perspective, they will not be hesitant to proactively communicate news - either good or bad - in order to ensure the success of the property.
Experience - A property management company's experience speaks volumes about the results an owner can expect from the company when managing a property. This is especially important if an investor is new to a market, such as Las Vegas, or if the buyer is planning to renovate or upgrade a property For example, when an owner encounters a location-specific issue, the property management company's experience can often be the differentiating factor between a successful investment or a flop. A property management team that is experienced in a specific market is much more likely to have encountered similar, location-specific issues in the past, and therefore more likely to possess the knowledge to fix these issues immediately.
Fees - Management fees should be one of the most stable costs for an owner, along with taxes and insurance. Unfortunately, many owners are quoted a low fee cost, but later experience “pass through” expenses, which ultimately drive up their gross management fee.
Good property management companies work on a percentage based on the property's gross income. This means if the property is not doing well financially, neither is the property management company. This fee arrangement helps to keep management companies accountable and motivated to work harder.
Check back for part two of this Q&A, where Alicastro talked about ways property management companies can set themselves apart, among other things.
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