4 CRITICAL RESPONSIBILITIES TO KNOW ABOUT YOUR MULTIFAMILY OPERATOR

As a Passive Investor, Your Success Depends on Them Being Very Good at These

When you and I invest in multifamily properties as passive investors, our success depends almost exclusively on the expertise and integrity of the general partner (GP) or sponsor—commonly called the multifamily operator. Their expertise is massively important in our investment journey.

If you think of your investment as a building, the general partners are the cornerstone.

If the investment is a sapling growing into a tree, as in the picture, the operator is responsible for the planting, watering, fertilizing, trimming, and managing the growth of the tree. 

To understand why, let us clarify the role of the multifamily operator.

THE MULTIFAMILY OPERATOR IS MORE THAN JUST A PROPERTY MANAGER.

For those familiar with single-family rental properties, we might think of a multifamily operator as a property manager.  But their role is far more significant. While property management is one of their duties, their role encompasses much broader responsibilities that span the entire investment lifecycle.

The operator or team presenting the investment opportunity to you and then actually running the investment for you has a wide range of responsibilities. These range from finding and acquiring the property to overseeing its operation to ensuring the financial health of the investment throughout its life.

From acquiring properties and overseeing renovations to managing tenants and ensuring the financial health of the investment, the operator is the person or team working on your investment to produce the expected return.

In the agreement between the operator and the passive investors, the operator accepts the responsibility and the power to make critical decisions that can significantly impact the profitability of your investment. However, it’s important to note that these decisions also carry potential risks, such as market fluctuations or unexpected expenses, which the operator should be prepared to manage effectively.

As passive investors, we normally have very little, if any, say or power in the operations of the property.

Consider the story of Sarah, a seasoned investor who had successfully navigated the single-family home market but was new to multifamily investments. Eager to diversify, she became a passive partner with a multifamily operator with a promising track record.

She was wise enough to realize that her success hinged on both the property and the operator’s ability to execute a complex investment strategy. This operator was not just managing a building—they were navigating market trends, managing the property managers, negotiating with contractors, and crafting a long-term vision for the property.

They were the “captain” in charge of the ship. Sarah’s experience was a positive one.  Not every passive investor can say the same.

Sara did her homework before she invested because she realized her success was tied to the operator’s competence.  Fortunately for her, the operator steered the investment to a successful conclusion, providing her with a fine return on her investment.

FOUR OF THE OPERATOR’S KEY RESPONSIBILITIES

#1. PROPERTY ACQUISITION

The operator’s work begins with identifying and acquiring suitable properties in viable communities. These days, with a market amid a lot of change, this is challenging.

A skilled operator needs to have a deep understanding of market dynamics.  They seek to identify undervalued properties with high potential. They also must wisely negotiate the purchase terms, ensuring the deal aligns with the investment’s financial goals.

This last point is critical. The best of the best operators are not just in it for themselves; they are there to serve the goals of their passive investors as well.

Take, for instance, the story of a multifamily operator we know in the upper Midwest. He identified a 64-unit apartment complex in a growing part of the state. The property was underperforming, with low occupancy rates and deferred maintenance issues.

While other investors saw it as risky, this skilled investor saw an opportunity.

His team negotiated a favorable purchase price and developed a well-designed plan to renovate the units and improve management practices. Within two years, the property’s value had doubled.  This began with the operator’s ability to find and acquire a property with untapped potential.

The passive investors who partnered with his team benefited from an excellent acquisition that the operator skillfully managed.

#2. ASSET MANAGEMENT

Once the property is acquired, the operator’s focus shifts to asset management. The operator must oversee the property managers, any renovations, tenant relations, property maintenance, and more. A competent operator knows how to maximize occupancy rates, manage tenant turnover, and ensure that the property is maintained to attract and retain high-quality tenants.

Asset management is a comprehensive set of skills.

Another operator we know took over a poorly managed property with low resident satisfaction.  The reviews were horrible. By implementing a more responsive maintenance program and creating community events to build resident engagement, they reduced turnover and increased occupancy.

The result? A more stable and profitable property with a positive impact on the overall investment return. More than that, the property served the residents better, providing a safe, clean, affordable place to live.

#3. FINANCIAL OVERSIGHT.

The operator is also responsible for the financial health of the investment.

Financial oversight includes keeping good records, managing budgets, controlling costs, and ensuring the property generates sufficient cash flow to meet investor expectations. Operators analyze financial statements, monitor market trends, and adjust as needed to keep the investment on track.

On our recent 126-unit property, we found this to be a challenge.  There were so many issues, particularly during Covid and the moratorium on evictions in our state.

One of the keys here is having consistently good bookkeeping and meticulous records. In addition, the accountant the operator selects and the counsel the operator seeks can enhance the efficiency of the financial elements of the operation.

During the recent challenging economic downturn, we renegotiated vendor contracts, reduced non-essential expenses, and implemented a more aggressive leasing strategy. These initiative-taking steps helped maintain cash flow and protect the investment’s value.

#4. INVESTOR RELATIONS

Finally, a good operator understands the importance of clear, consistent communication with investors. They provide regular updates on the investment’s performance, address concerns, and are transparent about challenges and successes.

This transparency is critical to building trust and ensuring that investors are well informed about the status of their investments.

Consistent and transparent communications build trust and ensure that investors stay up-to-date on the status of their investments. Remember, it is normal for these multifamily investments to take four or five years to produce the returns expected by the investors.

We send monthly updates to our investors.  When an unexpected renovation project delay occurred, rather than downplaying the issue, we communicated openly with our investors, explaining the reasons for the delay and outlining the steps we had taken to address it. We hoped this transparency reassured investors and maintained their confidence in our ability to manage the project effectively.

THE OPERATOR IS CRUCIAL TO YOUR INVESTMENT

The success of your investment depends on the operator’s competence in these four areas. Their expertise, integrity, and commitment to transparency should reassure you and give you confidence in your investment.

By carefully selecting an operator who demonstrates expertise, integrity, and a commitment to transparency, you significantly increase your chances of achieving your financial goals.

In conclusion, when you invest in multifamily properties, you invest not just in real estate but in the people who manage it. The operator is the linchpin that holds the entire investment together, making their role crucial to your success as a passive investor.

By understanding and appreciating the breadth of their responsibilities, you can make more informed decisions and build stronger, more profitable partnerships in your real estate journey.

Note: At Attune Investments, we search out and get to know the best of the best operators in the country. We ask them many questions, get to know them personally, check their track record, and ensure they know what they are doing.

In addition, we only invest in deals in markets that meet our criteria and examine their underwriting and investment documents in detail.

This due diligence is critical in forecasting the potential for a sound investment decision and a positive experience as passive investors in the multifamily investment space.

Attune Investments provides a better return for our investors.  And we make a positive impact in people’s lives and in our world.

If you want to learn more about how others are investing with us then we invite you to join our club and request a conversation with us.  See below.

Through the power of a syndication partnership with other investors like you, working with managing partners who are experienced in managing apartment complexes, you can own multifamily assets.  

Or you can choose to loan money, get in with a clear return, and get out earlier.  

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