KPI or Key Performance Indicator(s) provide targets for people to aim for, they are a quantifiable measure of performance over a specific amount of time. An acronym people use when looking at KPIs to make sure they are strong metrics is SMART KPI(s) which are Specific, Measurable, Attainable, Realistic and Time-bound. Having metrics that you keep track of is extremely important and the goal is to decide on specific metrics or KPIs that are important to you and your business and to track these religiously.
This is particularly important in real estate because there are so many different things that can dictate your success. You could argue that this is especially true in a syndication since the owners or GPs are not the ones that are actually boots on the ground collecting rents and performing work orders. Since the need here is to manage the manager you need metrics to track in order to keep your property manager accountable. Every business is different, this is not an all encompassing list but these are some of the KPIs that we track.
Average Rents: Track your average rents month over month, in a good quality market and property your average rents should be increasing. Remember that expenses are always inflating and you need your rents to keep up and actually exceed your expense increases. Going into the purchase you should have a timeline of when you expect to hit certain rent thresholds, reverse engineering that number and following average rents is a great way to hit that threshold.
Lease Expirations: There are two things I like to look at with lease expirations. First you should keep your leases staggered, meaning you don't want too large of a percentage of units expiring during the same month. Second, the PM should be reaching out to tenants a few months prior to expiration to see if they plan to stay. During this outreach your PM should also be letting the tenant know of the rental increase that will be occurring along with any other changes at the property.
Vacancy: Obviously this is very important as vacancies are costly in the way of not collecting rents and that once vacant turn costs will be incurred. Track your vacancy month over month to see where normal vacancy lies, note that if you are always 100% occupied then you need to increase your rents. It is also very important to track the phases of a vacancy meaning the amount of time it takes to turn, once its rent ready and how many days it takes to rent after being rent ready.
Delinquencies: Learn which tenants are perpetual late payers. Find out if there is a reason for this and if so you and your PM might be able to work with them. If there is not a reason for this you may want to proceed with an eviction.
Utilities: Track the utilities that you, the owner pays. Note things like spikes in water usage and if this occurs find out what's going on like a leaky faucet or running toilet.
Work Orders: Learn what type of work is performed at your property most often. Follow the work orders, the number of work orders that are open and how long they stay open.
Tracking these KPIs will allow you to keep tabs on your property and know exactly what is going on. Depending on the type of property and issues going on you may very well need to track other metrics as well but we feel these are the minimum that you should track for a successful investment. Always remember that if you dont track it you cant measure it and if you cant measure it you don't know what is actually happening!