Financial models don’t rent apartments
Multifamily real estate investment isn’t about the sticks and the bricks, or the financing. Computing or understanding cash flow models, net present value, or internal rate of return doesn’t make for profitable investments. Financial statements don’t predict the future – only tell the story of the past.
Multifamily real estate investment is about people. Tenants are people, management and maintenance staff are people. Owners are people. Each has their own needs, concerns, desires and emotions. None of which are a numerical entry in a financial model.
The most important people are the ones who pay the bills. Without tenants real estate is worthless. Unless someone is willing to occupy the space and pay the rent all the rest is meaningless. They are our customer and we need to remember that we are here for them, not the other way around. All of our policies and procedures must be designed around the concept “the customer is king” . While we fulfill one of the most basic needs of Shelter, we have evolved much farther than that. Beyond safety and security comes tastes and desires, amenities, and service. It’s not just someplace to live, but the entire experience of living. A 15 minute chat in the clubhouse will tell you more about the economy, rental market, competition, staff and attitudes than any model, chart or market report. Google has become the champion of listening to their customer. Detroit and the car industry has crashed because they don’t.
Our front line staff is the next on the list. We expect everything to run perfectly. Seven days a week , twenty four hours a day and 365 days a year. And if people were perfect it would. Typically front line staff is not well paid, younger and barely trained. Yet we expect them to run multi-million dollar assets to perfection. These people need our support and appreciation. They get hit with the problems first hand. They are screamed at by the irate tenant, deal with rude and obnoxious people, Deal with endless details and problems. And often, barely asked their opinion, no less thanked. Unless we properly support and care for our front line staff, the apartments won’t get rented. The work orders won’t get written or fixed. The accounting won’t get done. The financial models won’t compute.
Last is the Ownership. Which is often the toughest pill to swallow. Investors want their returns. Auditors want their reports. Lenders want their payments. Everybody wants something. When you’re the guy putting up millions of dollars and taking the risk it’s easy to feel you should come first. But ultimately this has lead to our undoing. Wall streets collapse, huge foreclosure numbers 401ks that are now 201ks. The customer has spoken – they won’t pay the bill.
Capitalism works fine – we have just stopped focusing on what’s good for our customers and those who do will be rewarded in these tough times with stability and affluence. Those who don’t will perish.
