The Property Management Solution
When you own investment real estate you are in the property management
business. When you are in the property management business you are in the tenant relation business. While it may seem obvious it bears stating: successful tenant relations are the key to a profitable real estate business.
Property managers who perform property management services for another must be licensed with the state. Bona fide employees of a property owner do not have to be licensed. The Property Manager of a 100 unit apartment complex who is employed by the complex does not have to be licensed. However, the property manager who is an independent contractor providing management services for the complex must be licensed as a real estate sales person or broker.
What is right for you?
Many real estate offices offer property management services as an extension of their core business of brokering real estate sales. Some offices specialize in property management and broker very few if any sales. Other offices offer no property management services at all. Depending on the expertise of the firm and the services required, a real estate investor may elect to keep everything under one roof, or look for sales and management services from different providers.
What got you into real estate investing in the first place?
Did you become a real estate investor by default? For instance, did you choose to move to a new home but decided to keep and rent your former home until the market turns around? Whether you consciously thought of yourself as a real estate investor or not, you are. More and more people everyday are finding themselves in this situation.
Are you an investor who sees real estate as a solid long term investment but prefer to keep a ‘hands off' approach as you have a full time job and other obligations? Or, are you the type of investor who has created a business from his or her investment activities and runs this business on a part of full time basis?
I am a firm believer that all of us should spend as much time as humanly possible doing the things we do best, or love to do the most. In terms of investing, what drew you to the business? Remember, this is about how you want to spend your time, not the obvious expectations of things like cash flow, appreciation, and accumulating greater and greater net worth.
Below is a quick list of activities a typical investor is involved in on a daily basis. On a scale of 1 to 5 with 5 being something you like to do best, and 1 being something you like to do least, rate each of these activities:
•· Finding and negotiating great deals.
•· Rehabbing, painting and renovating.
•· Performing preventative maintenance.
•· Marketing and advertising vacancies.
•· Screening potential tenants.
•· Writing leases and keeping track of files and paperwork.
•· Keeping the books.
•· Filing tax returns.
•· Answering emergency calls and tenant inquiries.
•· Answering ad calls generated from ads you place in the paper.
•· Mediating tenant disputes.
•· Collecting rent.
•· Posting notices, filing evictions and going to court.
Most investors I know, myself included, like one, two, or maybe three of the above, but not all of the above. The sad fact of life is that when we get bogged down in the things we don't enjoy or don't do well, the things we love to do, and are very good at, don't get done either. When this happens, tenant relations suffer and the rent does not get paid.
Do you need the services of a property manager?
If your passion as an investor is finding and negotiating great deals, then find yourself a Realtor® who specializes in working with investors and have at it. (Let's be realistic, for most of us, this is where we have the most fun.) Are you a craftsperson or contractor, or just really love working with your hands? Maybe it is the rehabbing and remodeling aspect of the business you enjoy the most. Quite frankly, the more work you can do yourself, or at least have experience doing yourself, the more money you will save and the more profitable you will be.
Do you consider yourself someone who enjoys and excels at tenant relations? Are you a natural at working the phones, solving problems, screening and managing tenants? Do you like collecting rent, posting three days notices, and filing evictions when necessary? If not, you may want to investigate the services of a property management firm.
What should you expect from your property manager?
First and foremost, a property manager or management team should offer a menu of services so that a business relationship can be formed that is specifically tailored to your individual needs and situation. A successful property management agreement must allow you, the property owner, to focus on the things you do best, and delegate the things you don't do well, or prefer not to do, to the property manager.
A successful property management firm will leverage the strength of their brand and reputation to attract qualified applicants for your properties.
Basic screening should include credit and criminal background checks, as well verification of employment and other information on the rental application consistently for each and every applicant.
Your success as a real estate investor depends on positive tenant relationships. This means setting proper expectations up front for when rent is due and the penalties for not paying rent on time. It also means proactively, and profitably, keeping a good tenant in the property through the lease term and hopefully into a new term.
Your property manager will have all lease paperwork, applications, tenant's rights brochures, lead base paint disclosures, and any other paperwork required in the area you do business.
Your property manager should have software that tracks income and expenses for your properties on a monthly basis with proceeds dispersed at your direction.
Look for an office with maintenance people available for routine and preventative work. After-hours emergency maintenance should be available as well. The easiest way to lose a good tenant is by not following up on maintenance issues in a timely fashion.
Fees vary but generally there is a charge for leasing or renewing a lease on a property and a set percentage of rent collected each month. Advertising, maintenance and miscellaneous expenses are usually billed separately.
Look for you property management team to be licensed in the state you do business, have a valid real estate errors and omissions insurance policy, have liability insurance specific to the business of property management, and maintenance people who are employees so that you can verify that all taxes and workers compensation premiums are being paid. Working with a property manager who actually owns property is going to be a plus.
What Property Managers typically do not do:
Because of the insurance and liability requirements outlined above, most property managers do not complete or manage the completion of rehabs or construction projects. Typically, it is less expensive for a property owner to hire a contractor on his or her own. Day to day maintenance on the other hand is something that can and should be routinely delegated to the property management company.
Property managers will have accounting software of some sort. Many use QuickBooks or other common brands of accounting software but there are property management specific products on the market. Most of these products will generate the reports you or your CPA will need to file your tax returns. Property managers are not accountants however and cannot answer tax or legal questions for you.
Real estate investors of all stripes can improve their tenant relations with professional property management tailored to their specific needs. Outstanding tenant relations means getting the most out of your real estate investment. Just as importantly, a property management relationship specifically tailored to your needs and expectations will leave you more time to focus on the things you really enjoy, or at least do really well.
Chris McAllister is the Business Development Director for Real Estate II and the leader of The McAllister Team. Chris can be reached at 937-390-3715 or Chris@RealEstate2.com