OPM

Building a property management business in these economic times isn’t easy. Actually, repair the building and finding the tenants isn’t so bad. The hard part is finding money to keep growing.

My partner & I have built a really good financial model. Our strategy is to find properties that are in need of repair, buy them at a good price, update them to meet market demand and then rent the buildings. Typically, we can find buildings in disrepair at about ½ the market rate. During remodeling we hire local tradesmen to do the work and focus on improvements to make the building more efficient and lower our expenses. This strategy lets us drive an operating margin at about 35%, So, for every dollar in rent, we get to keep thirty five cents. The only problem with what we are doing is that we don’t have enough of our own money to keep going. What wee need is a OPM – Other People’s Money.

Armed with a solid business plan, equity in the buildings we own, cash flow from rents and good credit scores, we began talking to lenders. Boy, were we in for a challenge. What we didn’t count on was how scarce money is after the implosion of the housing market. Banks are absolutely afraid to loan money. I don’t know if there are too many restrictions on debt holdings, too much government involvement or something else, but there is no money to be found. After a month of searching, the best financing we could find was a loan up to the amount of our collateral. Remember, we have clear title to 2 properties which are making money but the bankers won’t even consider it. They’ll take the pink slip to our cars but not the deeds to our buildings.

We did find one place that would make a loan for rehabbing buildings for rent – the Federal Government through Freddie Mac & Fannie Mae. To qualify you need to find an authorized lender and borrow over 1 million dollars. While our model is good there is no way we are ready to make that kind of commitment. So in the end our plan for growth is on hold until the financial market improves.

What concerns me is more than a loan. I wonder how will our economy will every turn around if you can’t borrow money? In every major downturn, the thing that turns the economy around are people who are willing to take a risk. They borrow money to leverage a new opportunity creating jobs in the process, stimulating markets with spending and thus beginning the slow process of recovery. Without access to loan dollars the process will never start. I’m no economist, but I just don’t know how we can turn things around without putting dollars into the market for small business loans.