What is happening, BiggerPockets? It's Matt Faircloth. Today, we're going to talk about
something interesting and a lot of people think that they know what to do when they
close on a property, but we're going to talk about some things that you might not think
of and just general logistics that have to happen when you buy a property. Again, there
are already expectations and thoughts and you may be like, "Oh, it's totally obvious.
I know what to do," but we are about to close on a big apartment complex, a 336 unit in
North Carolina this week, where we're sitting right now in today's time.
This week, we're closing on a deal and so it's present in my space and it's something
that people take for granted on what to do once they buy it. I believe that too much
of the conversation is spent in real estate on finding funding and closing on deals, but
what they don't talk about is what happens once you close, then the real investing work
begins and that's really where you make money in real estate. It's not when you buy it.
Maybe you make some when you buy it, but the most of the money you make is once it's under
ownership and you manifest your business plan and bring things to fruition that you want
to do.
So I would be a mess if I had this conversation by myself. I need to have my business partner
and asset manager join me here. So let me do a little Hocus Pocus magic in bringing
them here with me. Okay guys, ready? One, two, three, poof. Hey, this is Justin Fraser.
For those of you guys that don't know, he's all over our YouTube channel and you guys
should be following Justin as well on some of his outlets, including True Multifamily,
talking about the real business of multifamily, which is what happens once you take ownership.
Absolutely.
Justin, how are you today?
Good. Good. Thanks for having me.
Good. You super pumped for our new deal in North Carolina, I'm sure, right?
I cannot wait. There's been so many moving pieces. We're so excited and as you said,
people don't talk enough about what happens after closing. We want to pop the champagne,
but an asset manager gets to work after we close on the property, so that's what we're
going to talk about today.
People pop champagne when they close and they should. You see a lot of Facebook posts-
Absolutely.
"We just bought an apartment building," and it's like, "That's awesome," or a piece of
real estate or a single family home, whatever it is, you just closed on the buy side, really,
but now that's where the work begins, right?
We have to get started.
Today, we're going to talk about the three things you must do when you close. But I also
want you guys to put in the comment section on other things you'd like for us to talk
about because I'll bring back Justin to talk about other things for you guys, including
perhaps how to build a business plan, how to manifest it, best way to increase rents,
best way to decrease expenses, best way to bring about profitability at a property once
you already own it, right?
Absolutely. Yeah.
So today, Justin, we want to talk about three things you must do right after closing, when
you buy a property. What do you think?
First one, no matter what size property you're buying, walk the property when you buy. It
could be a single family house, a multi-family 300 unit property, doesn't matter what size.
You or someone you trust, like your property manager, needs to walk the property. Why?
I just probably did a pre-walk-through, pre-closing inspection, a single family house. You might
have walked it that morning, close midday. Guess what? Drive back to the property. Go
back, check it out because you don't know if a leak sprung up in the basement, a tree
fell down in the backyard. You never know in real estate, right? So whether it's a single
family house or an apartment complex, as soon as you buy it, walk it. An apartment complex,
you're not going to walk every single unit, but what we are going to do is walk the common
areas. We're going to sweep the roofs. We're going to make sure that there's no big changes
from the last time we walked that property because we need to understand the condition
of the house.
It's also yours now. Once you close, it's your asset. When you walk at pre-closing,
you're really just walking in to make sure that what you're buying is what you thought
it was and make sure a tree didn't fall and take it out. It could be a day closing, whatever
it is. If you're buying remote for your property manager or if you're buying local enough for
you to walk it, I highly recommend it if it's a larger asset, like the stuff that we do,
or if it's a single family home even, that you personally walk it in the beginning so
you can get some hands on-experience and learning. If it's a larger property, you should be doing
it yourself as well. We're both going down to the property soon after closing as well
to do a site walk just to-
Always.
... just to get our head around what it is. It's a pre-closing walk, which is just different
than the post-closing walk because now it's yours.
Absolutely.
So now it's about figuring out what you're going to do, looking for hazards and looking
for things that could have changed recently, but also what do I need to deal with, right?
Absolutely.
So that's first thing, walk the property, take a few notes. This ties into one we have
in the future, so stay tuned on this one because these are all kind of interrelated.
Absolutely.
So what's the next one?
The next one is we have to communicate with our tenants. Again, it doesn't matter what
size, duplex, triplex, or large multi-family property, we have to communicate. I recommend
that before you close, you have a letter ready to go. Here we are a few days before closing,
we have all of our letters and communication going out to the tenants. We know exactly
what we're going to say. Number one, we're going to introduce ourselves like, "Hey, we're
the new owners. This is our group [crosstalk 00:04:58] our management group-
Or, "This is the new property manager." [crosstalk 00:04:58].
This is our new management company. Exactly. Actually, in our case, the letter comes from
the property manager, not from the owner. But if you are self-managing a smaller property,
it can come from you, no problem. You want to introduce yourself. You want to tell the
tenants where they can pay rent, right? That's very important. You need to make sure that
they know to pay you, not the previous owner and you, very importantly, need to tell them
how to submit work orders.
You need to let them know, give them a way to communicate with you the issues that they're
seeing with your asset. Is there a leak under the kitchen sink? Is there a problem that
they're seeing, crime, whatever it might be? You want to give them an outlet that they
can communicate that to you so that you can take on that information because you don't
know what they told the previous owner that may have gotten take care of, or maybe it's
just been lost. So you want to hear it directly from them. So you need to let them know how
to get in touch with you so you can hear their concerns.
And likely, if you're buying a property that the prior owner was tired or like the one
that we're buying now, the current owner really doesn't care too much about the property.
So they're really minimizing their expenses and they're not doing a very good job maintaining
the property. You're going to get a lot of, "Oh goodness, you're a new sheriff in town
now. Thank goodness. I'm going to send in a lot of work orders-
Absolutely.
... And I'm going to have you guys do work because I know somebody's here that can do
work. So I've been dealing with these broken items in my apartment. I've been dealing with
these safety concerns. I've been dealing with all these other things. So now I have someone
who can deal with this, so let me upload you with lots and lots of work to do." So be prepared
for tenants that see there's a new sheriff in town to upload you with a lot of work to
do to the property in the beginning and don't take that as a bad thing. I take that as gratitude.
They just say like, "Okay, great. There's someone here that can help me. They can give
me a better lifestyle and everything like that." Don't take it, say, "Oh no. I bought
this property and these pain in the butt tenants are already giving me work to do and maintenance
and stuff like that." If you establish yourself as a landlord that will take care of those
items for them, people will stay longer-
Absolutely.
And they will treat the property like a home and they will maybe be willing to pay rent
increases if you make some improvements to the property as well, which takes us to your
next point. What do you got?
Absolutely. The last point is that you cannot waste any time. You got all these pieces together,
your insurance, your lender, your money, you got the property on a contract-
Potential investors.
Right. There's a lot that goes into it and that's why we want to pop the champagne, but
let's get started on day one. Execute that business plan. So any plans you had on renovations,
if you're going to add amenities, you're going to get contractors in there. Don't hesitate.
Start the work because every day you wait, is a day left-
Dollars out of your pocket.
Absolutely. Have the teams in place, have your contractors ready to go. We've got bids.
We've got more bids on this property than I know what to do with. Every piece of that
property has been evaluated. We're ready to go. So I know as soon as I close, my vendor's
been selected, we can hit the ground running. You don't want to wait. Every day, that's
lost rent. If I'm going to renovate a unit and I've got to wait now for an extra week
for a contractor, well, that's going to be a week of lost [crosstalk 00:07:57] right?
So start on day one. Don't waste any time.
If your business plan includes upgrading utilities to reduce operating expenses, we learned that
the hard way. We were like, "Oh, we'll do that in year two." No. Do that immediately
after closing because that's all dollars you could be saving in improvements to the property
and increase rents or playgrounds, whatever you want to do to make the property look and
feel better. Those are things that you guys can do as well, but I agree that things like
reducing expenses, do that as soon as you can because it's all dollars in your pocket.
There's three steps there. The first thing that you want to take care of in your business
plan is safety issues. So if you're buying this thing and you've got potential liabilities,
that loose staircase or something that could cause problems, we always take care of safety
first.
We hope tenants notice that, that you're doing things to take care of them. But you also,
at the end of the day, that's also a liability issue that you want to get off your plate
and that sometimes lenders or insurance companies even notice those things and will give you
a list of things you've got to do right after you close anyway. So there's life safety issues.
Life safety. Number two is NOI boosters, so that's income increasers and expense decreasers,
as Matt was saying. Let's reduce our utility costs. Let's increase our revenue. So if we're
renovating units, saving on leaks, saving on utilities, whatever that might be, whatever
we can do to prop up the income and decrease the expenses. There you go. Lastly-
There you go.
Lastly, the third phase of the business plan is amenities. We want to give these tenants
a better place to live. So if you have-
Why? Why?
Why? Because number one, we want to give tenants a great place to live. We want tenants to
have a place that they feel like they can call home and they feel proud to bring their
friends [crosstalk 00:09:36]
Underscore that word guys, home.
Home. Absolutely. That's what we do for all of our properties, large or small, right?
That's a word that gets lost in landlording a lot. Yes, people are compensating you in
exchange for housing, but at the end of the day, there is a difference in tenants that
treat their place like a home versus tenants to treat your place like a place that they're
staying or a place that they have to live. You want to create an environment that your
tenants treat like home. You want your tenants doing gardens outside of their apartment.
You want your tenants getting to know their neighbors and having barbecues with the people
across the hall because they will never leave. If they do, they treat it like home. A home
is not something you leave anytime soon.
They will stay longer and they will respect the place and you'll both win, right? They'll
feel more comfortable and safe in a place they call home and drop anchor and live there
for a long time and you will enjoy the more stability of ownership and cash flow and boost
it in a [inaudible 00:10:30]. If you play this game the right way, if you do this and
NOI boosters, that is the real key to success of owning real estate. That's really it. Everything
else kind of contributes to those two things, right?
Right.
Now amenities that you and I do for larger apartment buildings, playgrounds. I love playgrounds
for kids. Maybe it's because I'm a dad, but I love playgrounds. There's other things that
we do in multifamily, like dog parks and things like that. All really cool things that tenants
like to use. Let's say someone's watching that has either a small multi with two, three,
four unit or even a single-family home.
Sure.
There's some amenities that [crosstalk 00:11:09] someone that-
I love that question, by the way, because you don't normally think of amenities on a
single or small multifamily, but think about what you're offering. What is that tenant
renting from you? They're renting, of course, the house, but maybe your house has a yard
and maybe there's some things that you can do to help spruce up the backyard, right?
Mm-hmm (affirmative).
You've got some overgrown bushes or something, right?
Mm-hmm (affirmative).
Clear that out. So they have a little more place for the dog or the kids or whatever,
right? Maybe there's a porch on the front that hasn't been painted in a long time that
you can clean up for them. Give them anything that's sort of an extra amenity-
Spruce it up.
... space for them to hang out, spruce it up, give them a little bit extra. That's what
we want. We want them to really feel like they're at home.
The big word there is to attack the deferred maintenance. Yeah. Painting a porch is like,
"Ah, I could just let it sit and maybe I'm only going to own it for five years and so
it will just continue to rot and peel paint and all that for the next five years and look
like crap. Then five years from now, the new owner will deal with that." Nah, maybe you
want to paint that porch because then the tenant that lives there will enjoy the amenity
of a nice painted porch and they'll have the pride of ownership that'll make them call
it home.
Exactly.
Because remember amenities create this, this NOI booster is what puts money in your pocket.
If tenants are calling a place home, they'll stay longer and out more NOI boosters in your
pocket and avoid the biggest thing that kills your NOI, which is vacancy. Single family
home stuff, find ways to make it home. Address deferred maintenance, fenced in yard's a great
idea. Apartment complex is amenities could be things like that are more community based
assets. If you want to dig out a pool and the one in North Carolina, we've got what's
pretty much a swamp, but what used to be a pool and we're going to turn it back into
a pool. Dog parks, we're going to take some of the cavities underneath the buildings and
maybe drop in a gym or self-storage or something like that and other cool stuff.
Even just an empty field area, we're going to level out, we're going to put some soccer
goals on each end and now you've got a soccer field there, right?
Yeah. This really goes back to places for family and kids to congregate and play, barbecue
areas too.
Sure.
Now you see a lot of that in apartment complexes, but don't think that, "Oh, my properties are
not 100 unit apartment buildings, so I don't have to do what Matt and Justin are talking
about." Get creative and find a way that in your smaller properties, your single family
homes, your duplexes, whatever. If you can find a way to create amenities that make it,
the property more what I call 'sticky,' the tenants want to stick to it. Then when a tenant
moves in, they're going to stay. Even grand countertops is another amenity that people
could build in a single family home you could drop in that people would appreciate. As long
as they respect it and treat it nicely and don't break them, that's an amenity that people
will likely maybe pay you a little bit more money for, but more importantly, stay longer
so they can enjoy them.
Sure.
So Justin, take us home, man. Sum it up here.
Listen, walk the property. Listen, let me back up, because when you close, it's hectic
and there's a million things that you're going to want to do. Just have your plan in place.
That's the absolutely key. First step on your plan, walk the property. Second step, communicate
with your tenants. Third step, go thru the rest of the plan, walk through it, safety
issues, NOI issues, amenities. Take care of all those things that you said you would take
care of. Why wait? Everyday lost is a day lost. You can't have that. Go forward.
These are all interrelated. They're all related to moving forward and taking momentum on property
as soon as you take ownership and creating the profitable business you're looking to
make out of this real estate deal. I want to hear two things from you guys, whatever
you guys want to talk about, of course. Now questions about this and Justin can help me
answer them for you guys on the BP forums and also on YouTube. So however you guys want
to put them out there, please do, but we want to talk to you guys more in through Q&A about
other things you think of we could do at closing that we left out today. Next thing that I
want you guys to put out there is other ideas and concepts that you'd like to hear from
us about how to implement business plans and how to create profitability really at a property
because Justin's the man on that kind of thing.
Now bottom thing I underscore, I've said this in the beginning, a lot of people put owning
the property and closing on the deal up on a pedestal and that's the only cause it's
really hard to do right now because of the crazy market that we're in. But you shouldn't
put that as so much up on a pedestal. What you should really be learning how to do as
much is to create these business plans on what to do once you get ownership, because
just finding a good deal and closing on it is only half of the battle. The other half
is implementing your plan to make it actually produce the dollars you want it to, right?
Absolutely. That's absolutely the key.
All right. Thank you guys for watching. Thank you for everything. Thank you, YouTube. Thank
you, BP. Have a great and profitable week. Hey, guys. Thanks for watching this video.
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