Property Management

1
Property Management

• Chapter 17

2
Property Management Profession

• Property management as a specialized field
  involves the leasing, management, marketing, and
  overall maintenance of real estate owned by
  others, usually Rental Property.

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Property Manager
The role of the property manager is complex,
requiring the manager to wear many hats all at
the same time.
It isnt uncommon for a property manager to be a
market analyst, salesperson, accountant,
advertising specialist, and maintenance person
all in the same day.
Three Principal Responsibilities of the property
manager are to

• Achieve the objective of the property owner,
• Generate income for the owners, and
• Preserve and/or increase the value of the
  investment property

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Property Manager

• Some property managers work for a property
  management company.
• These firms manage properties for a number of
  owners under management agreements.
• The property manager has an agency relationship
  with the owner, a relationship that involves
  greater authority and discretion over management
  decisions than an employee would have.
• A property manager or an owner may employ
  building managers to supervise the daily
  operations of a building. In some cases, these
  individuals may be residents of the building

5
Securing Management Business
Possible sources of property management business
include

• Corporate owners,
• Apartment buildings,
• Owners of small rental residential properties,
• Homeowners associates,
• Trusts, and
• Owners of office buildings

6
Before Contracting to manage any property, the
professional property managers should be certain
that,

• The building owner has realistic income
  expectations
• Aware that necessary maintenance, unexpected
  repairs, and effective marketing all take time
  and money.
• Aware of the landlord-tenant code that is in
  effect in most states, this code requires the
  landlord-owner to keep the property repaired and
  make sure it complies with building codes.

Through the agency relationship with the owner,
the property manager becomes responsible for
repairs and the building condition.
7
New Opportunities

• Cooperate property managers manage properties for
  corporations that invest in real estate.
• These corporations do not usually deal in real
  estate, they are not necessarily knowledgeable
  about property management.
• Hiring a corporate property manager allows a
  corporation to invest in real estate and increase
  its capital without needing the specialized
  knowledge of property management
• Typically, corporate property managers are
  employees of the corporation and not independent
  contractors

8
IREM

• The Institute of Real Estate Management. Is one
  of the affiliates of the National Association of
  REALTORS.
• It awards the Certified Property Manager
  designation (CPM)

9
The Management Plan and Agreement
The Management Plan

• The property manager prepares This management
  plan to include the owners objectives of the
  property.
• Plan is highly detailed and discusses what the
  manager hopes to accomplish, how and when.
• In preparing the plan the property manager
  analyzes three factors
• While the management plan is a document for the
  present, it is forward-looking in determining the
  feasibility of a property owners goals with a
  specific property.

• The owners objective
• The regional and neighborhood market
• The specific property

10
The Management Plan and Agreement
The Management Agreement

• The first step in taking over the management of
  any property is to enter into a management
  agreement (or manager contract).
• This agreement is signed by the manager and the
  owner, and it defines the relationship between
  the parties.
• This agreement creates an agency relationship
  between the owner and the property manager
• Property manager is usually considered to be a
  general agent.
• As an agent, the property manager is charged with
  the fiduciary responsibilities ___________
• After entering into an agreement with a property
  owner, a manager handles the property the same
  way the owner would.
• IN ALL ACTIVITIES, the managers first
  responsibility is to realize the highest return
  on the property in a manner consistent with the
  owner's instructions.

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The management agreement should be in writing,
and it should include the following points.

• Description
• Time Period
• Definition of the managements responsibilities
• Statement of the owners purpose and
  responsibilities
• Extent of the managers authority
• Reporting
• Compensation
• Allocation of costs
• Antitrust provisions
• Equal opportunity statement

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Managers Responsibilities

• Financial Reports
• Renting the Property
• Marketing
• Selecting Tenants
• Collecting Rents
• Maintaining good tenant relations

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The Property Managers Responsibilities
Financial Reports
One of the primary responsibilities of a
property manager is maintaining financial
reports, including

• Operating Budget
• Cash flow report
• Income
• Expenses
• Profit and loss statement
• Budget comparison statement

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The Property Managers Responsibilities
Renting the Property

• Setting rental rates.
• Rental rates are influenced primarily by supply
  and demand
• In establishing rental rates, the property
  manager has the following four long term
  considerations

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The Property Managers Responsibilities
Renting the Property
In establishing rental rates, the property
manager has the following four long term
considerations

• The rental income must be sufficient to cover the
  propertys fixed charges and operating expenses
• The rental income must provide a fair return on
  the owners investment.
• The rental rate should be in line with prevailing
  rates in comparable buildings.
• The current vacancy rate in the property is a
  good indicator of how much of a rent increase is
  advisable.

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Renting the Property

• A rental rate
• Residential Space is usually states as the
  monthly rate per unit.
• Commercial leases including office, retail, and
  industrial space rentals are usually stated
  according to either annual or monthly rages per
  square foot
• If vacancy level is high, the manager should
  attempt to determine why. An elevated level of
  vacancy does not necessarily indicate that rents
  are too high.
• The problem of elevated level of vacancy may be
  poor management or a defective or an undesirable
  property.
• The manager should attempt to identify and
  correct the problems first rather than
  immediately lower rents.
• A high occupancy rate may mean that rental rates
  are too low.
• Whenever the occupancy level of an apartment
  house or office building exceeds 95 percent,
  serious consideration should be given to raising
  rents.

17
Advertising

• In all advertising and promotional activities,
  the material must comply with nondiscriminatory
  federal, state, and local laws
• The content cannot market to one protected class,
  such as race, color, religion, sex, national
  origin, family status, or physical disabilities.

18
Selecting Tenants

• The management should be sure that the premises
  are suitable for a tenant in size, location, and
  amenities.
• Most important, the manager should be sure that
  the tenant is able to pay for the space.
• A commercial tenants business should be
  compatible with the building and the other
  tenants.
• BE SURE TO COMPLY WITH ALL FEDERAL, STATE AND
  LOCAL FAIR HOUSING LAWS IN SELECTING TENANTS.
• These fair housing laws do not comply with
  commercial properties, property managers need to
  be aware of federal, state and local
  antidiscrimination and equal opportunity laws
  that may govern industrial or retail properties

19
Collecting Rents

• The manager should investigate financial
  references, check with local credit bureaus, and,
  when possible, interview a prospective tenants
  former landlord.
• The terms of rental payment should be spelled out
  in the lease agreement including
• Time and place of payments
• Provisions and penalties for late payment and
  bounced checks, and
• Provisions for cancellation and damages in case
  of nonpayment
• The property manager should establish a firm and
  consistent collection plan
• Every attempt must be made to collect rent
  without resorting to legal action. This is costly
  and time consuming and does not contribute to
  good tenant relations
• A property manager must be prepared to initiate
  and follow through with the necessary legal
  steps, obviously, legal action must be taken in
  cooperation with the property owners or
  management firms legal counsel.

20
Maintaining Good Relations with Tenants

• The ultimate success of a property manager
  depends on the ability to maintain good relations
  with tenants.
• Dissatisfied tenants eventually vacate the
  property.
• A high tenant turnover rate results in greater
  expenses for advertising and redecorating. It
  also means less profit for the owner due to
  uncollected rents.
• A good manager is tactful and decisive and acts
  to the benefit of both owner and occupants
• PM must be able to handle residents who do not
  pay their rents on time or who violated building
  regulations.
• When one tenant fails to follow the rules, the
  other tenants often become frustrated and
  dissatisfied.
• Careful record keeping shows whether rent is
  remitted promptly and in the proper amount
• Records of all renewal dates should be kep so
  that the manager can anticipate expiration and
  retain good tenants who might otherwise move when
  their leases end.

21
Maintaining the Property

• One of the most important functions of a property
  manager is the supervision of property
  maintenance.

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A primary maintenance objective is to protect the
physical integrity of the property over the long
term

• Property in good condition involves the following
  four types of maintenance
• Preventive
• Repair or corrective
• Routing
• Construction

23
Federal Laws Affecting Property Management

• Americans with Disabilities Act (ADA)
• Has had a significant impact on the
  responsibilities of the property manager, both in
  building amenities and in employment issues.
• Title 1 of the ADA provides for the employment of
  qualified job applicants regardless of their
  disability.
• Any employer with 15 or more employees must adopt
  nondiscriminatory employment procedures
• In addition, employers must make reasonable
  accommodations to enable individuals with
  disabilities to perform essential job functions.

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ADA recommends reasonable achievable
accommodations

• Existing barriers must be removed when this can
  be accomplished in a readily achievable manner
  that is, with little difficulty and at low cost
• The following are typical examples of readily
  achievable modifications

Alternative methods can be used to provide
reasonable accommodations if extensive
restructuring is impractical or if retrofitting
is unduly expensive. For instance, installing a
cup dispenser at a water fountain, which is too
high for an individual in a wheelchair, may be
more practical than installing a lower water
fountain.
25
ADA recommends reasonable achievable
accommodations

• Existing barriers must be removed when this can
  be accomplished in a readily achievable manner
  that is, with little difficulty and at low cost
• The following are typical examples of readily
  achievable modifications

Alternative methods can be used to provide
reasonable accommodations if extensive
restructuring is impractical or if retrofitting
is unduly expensive. For instance, installing a
cup dispenser at a water fountain, which is too
high for an individual in a wheelchair, may be
more practical than installing a lower water
fountain.
26
ADA recommends reasonable achievable
accommodations

• Existing barriers must be removed when this can
  be accomplished in a readily achievable manner
  that is, with little difficulty and at low cost
• The following are typical examples of readily
  achievable modifications

Alternative methods can be used to provide
reasonable accommodations if extensive
restructuring is impractical or if retrofitting
is unduly expensive. For instance, installing a
cup dispenser at a water fountain, which is too
high for an individual in a wheelchair, may be
more practical than installing a lower water
fountain.
27
ADA recommends reasonable achievable
accommodations

• The following are typical examples of readily
  achievable modifications

Alternative methods can be used to provide
reasonable accommodations if extensive
restructuring is impractical or if retrofitting
is unduly expensive. For instance, installing a
cup dispenser at a water fountain, which is too
high for an individual in a wheelchair, may be
more practical than installing a lower water
fountain.
28
Federal Laws effecting Property Management

• ECOA
• Fair Housing Act
• The Americans with Disabilities Act pg. 319

29
Risk Management and Environmental Issues Related
to Property Management

• Enormous monetary losses can result from certain
  unexpected or catastrophic events. As a result,
  one of the most critical areas of responsibility
  for a property manager is _________________.

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Risk Management

• Security of Tenants
• Risk Management Techniques

• Property managers and owners to think about how
  to protect tenants and secure apartments from
  intruders
• Involves answering the question, What happens if
  something goes wrong?

31
Risk Management

• The property manager must decide whether it is
  better to
• Avoid it
• Control it
• Transfer it, or
• Retain it

Memory Tip "ACTOR"
32
Types of Insurance

• Tenants Insurance
• Commercial Insurance

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Common Types of Coverage's

• Fire and Hazard
• Flood (NFIP)
• Consequential loss, use, and occupancy (lost of
  rent or business interruption insurance)
• Contents and personal property
• Liability
• Casualty
• Surety bonds

Multiperial Policies for apartment and
commercial buildings. Such policies offer the
property manager an insurance package that
includes standard types of commercial coverage,
such as fire, hazard, public liability, and
casualty. Special coverage for terrorism,
earthquakes and floods is also available.
34
Claims

• Two possible methods can be used to determine the
  amount of a claim under an insurance policy.
• The depreciated or actual cash value of the
  damaged property, that is the property not
  insured for what it would cost to replace it, but
  rather for what it was originally worth, less the
  depreciation in value that results from use and
  the passage of time.
• Current replacement cost. In this policy, the
  building or property is insured for what it would
  cost to replace it today

35
Handling Environmental Concerns

• The property manager must be able to respond to a
  variety of environmental problems. He or she may
  manage structures containing asbestos or radon or
  be called on to arrange an environmental audit
  of a property.
• Residential property managers of buildings
  constructed before 1978 must provide lead-base
  paint disclosure forms to all new tenants.