Chapter One
What Is Property Management?
Property management is the care and maintenance of leased or rental property by or on behalf of the property owner. Property management requires a number of skills, including finance, insurance, research, marketing, communication, problem solving, people skills, and, of course, management. A property manager takes on a number of responsibilities, with the overall goal of maintaining rental property sufficient to collect rental payments as prescribed by a lease or rental agreement. A property manager may maintain residential, commercial, or industrial properties. In all properties, the property manager must meet the needs of the tenant as well as of the property owner. Management activities usually require the skills or services of more than one individual for maintenance, repairs, and other necessary assistance. A property manager must delegate and coordinate these types of services.
The Owner as Property Manager
The property owner may serve as the property manager for his or her own property. Owners are quite successful in managing their own properties when they have the skill set necessary to accomplish the job. Owner-managers usually have a small number of properties to manage and are located within close proximity to their properties. Also, owners that extend their budgets to rehabilitate or modify rental property may fall short of funds and take on the responsibility of managing their own property as a cost-savings measure.
Owner-management offers cost effectiveness, saving both monthly management fees and maintenance costs. If, however, the cost savings are swallowed up by poor workmanship, poor time management, or poor management skills, it may be more advantageous for the owner to take on the additional expense of professional management services. The owner-manager who performs a poor plumbing repair and has to take time from his or her normal job to repair the plumbing a second time around, and also replace and repair furniture and structures damaged by the water, loses profits that could have been more effectively invested in professional management services. Should such damage be so severe that it causes tenants to be displaced, additional losses and expenses are incurred. Cash flow may be disrupted for many months to come.
Hiring a Professional Property Manager
Owners who lack the necessary skills and required time or those who have a large number of properties should make use of professional property managers. The chosen professional assumes responsibility for the management of property for a fee, usually collected on a monthly basis. The monthly management fee entitles the owner to a commitment to manage the needs of the property. The costs to actually perform services such as repairs and legal filings are incurred by the owner. Though the property manager assumes responsibility for maintaining the property, the owner has the final say about the treatment of his or her property. The owner should be clear on the expectations of the management company and select a company that allows owners to choose their level of participation in the management process. Generally, professional property managers are expected to:
Screen prospective tenants. Collect lease payments (rent) from the tenants. Make or coordinate repairs to the property. Enforce rules as specified in the rent agreement and established by law. Satisfy tenant complaints and provide problem resolution. Inspect the property on a regular basis. Provide monthly or agreed-upon schedules of accounting for the property. Advertise and show vacant properties to prospective tenants.
The owner should have the option of taking control over any of these functions if it is found to be more cost effective than having the management company perform the same function. If, for example, the owner lives in close proximity to the property and is able to mow the lawn of the property, there is no need to pay the management company's fee for this service. Likewise, if the owner is associated with a gardener that he or she feels comfortable with and charges a lower cost than the management firm for the same work, the owner may intervene in the professional management process and insist that his or her chosen gardener be used to perform the work instead.
Property-management companies may have more than one property manager. Property owners should interview the individual who will be responsible and accountable for the management of their particular property. An appropriate manager will be able to provide references, such as previous clients, to contact with regard to the quality of service. It is important to understand the difference between an exclusive property-management firm and a real estate broker that offers property-management services. Real estate brokers and their salespersons have a direct responsibility to assist their clients in the sale of properties. They offer property-management services, in most cases, at reasonable fees in hopes that the owner will eventually sell the property. The real estate agent's expertise and experience in the sale of property is not necessarily the expertise necessary to properly manage property.
The Role of the Professional Property Manager
The professional property manager offers expertise in the laws and regulations applicable to the particular property. Most states require that property managers be licensed in either real estate or property management. The Institute of Real Estate Management (IREM) is an organization of property managers that certifies and accredits property-management firms based on excellence and dedication. Its ratings, from the most to the least prestigious, are as follows:
AMO-Accredited Management Organization ARM-Accredited Residential Manager CPM-Certified Property Manager
A good management company will combine its experiences and expertise in maintaining property to seek better tenants, higher rents, and lower costs, as well as to generate a satisfactory cash flow. The professional-management company should:
Be insured for general, automobile, and professional liability as well as workers' compensation. Hold a fidelity bond to protect against the theft of money collected on behalf of the owner. Be able to handle the financial aspects of the business to include bookkeeping and rent collection. The responsibility for taxes associated with the particular property belongs to the owner. Offer the necessary people skills to assess and resolve tenant issues. Provide for the screening of applicants. Establish an effective method of two-way communication with the tenant. Establish relationships with maintenance and repair workers, who may offer more timely services at preferential pricing.
There are, however, those property managers who are unethical and will mismanage property. Their practices often result in careless tenants who cause damage. Typical circumstances of mismanagement practices include the following:
Employing maintenance personnel who inflate the cost of supplies and labor. Accounting for repairs that are unnecessary or of no value. Ignoring needed repairs until small problems increase to larger, more expensive repairs. Implementing complicated rent-collection schemes to create an abundance of late fees, particularly when the management company is contracted to keep such fees. Overcharging to fill vacancies or purposely delaying the filling of vacancies to increase fees.
Continuing Development
Property management requires continuing career development, advice, and counsel. There are a number of resources available to property managers that will keep them in touch with trends, advances, and changes in the real estate and property-management market. The Internet provides a wealth of available resources. Likewise, family, friends, and associates involved in real estate or real estate-related businesses are a source of valuable information. The real estate professional needs to have a network of professionals with whom to share ideas and information. They have the option of membership or participation in a number of community groups and professional associations.
Networks of real estate professionals usually require its members to pay a fee. As such, some groups entertain anyone willing to pay the associated fee regardless of their value to the group as a whole. The property manager must research potential networks and groups to be sure that the groups provide the needs of his or her business. Property managers are encouraged to attend group meetings and to talk to members before joining an organization. The property manager needs to assess whether the group or individuals in the group are able to enhance his or her development.
Colleges, universities, and trade schools offer courses and seminars that property managers may attend not only to increase their knowledge base, but also to meet and network with other individuals in the field. The local newspaper may also provide valuable information about current and future trends, market fluctuations, and other avenues of the real estate market in the local area. The newspaper may introduce property managers to names and businesses to watch for in the market. The Internet provides news for any particular market of interest, networking information, and online courses. Many online courses are provided for a nonrefundable fee; as such, property managers must do some research into the many online companies to determine those that are legitimate and offer accurate and substantiated information. The Internet also provides information about real estate brokers. Real estate brokers are familiar with the local community in which they are located and they are able to provide valuable and useful information.
The real estate industry has a wealth of professional organizations, and property managers should investigate and explore the possibility of becoming a member of such organizations. Some of the prominent real estate organizations include the following:
Counselors of Real Estate (CRE)
The CRE is an organization of real estate professionals that support leaders in the real estate industry. Membership in the CRE is by invitation only. The CRE promotes a strict code of ethics and standards to which members must adhere. Members are judged by established criteria, and membership equates to recognition for outstanding performance in the real estate industry. Members must have at least ten years of experience in real estate, at least three years of counseling, and other qualities that represent excellence, knowledge, integrity, and judgment in the practice of real estate.
Society of Industrial and Office Realtors (SIOR)
The SIOR is a membership of Realtors who specializes in industrial, office sales management, and advisory functions. Members number more than two thousand in 25 countries on six continents around the world. The prestigious SIOR designation signifies a high level of competence and achievement. The organization offers educational programs for members which include courses, seminars, and conventions as well as publications and a quarterly magazine. The SIOR Web site (www.sior.com) provides members with comparative statistics for more than 130 different markets. In addition to providing educational opportunities, the SIOR provides its members with assistance in public relations; mediation and arbitration services; networking opportunities; and the SIOR designation of high competence and achievement.
Realtors Land Institute (RLI)
The RLI is an affiliate organization of the National Association of Realtors that exists to network real estate professionals interested in raw land. Land interests include land development, management, planning, development appraisals, acquisitions, agribusiness, and other areas that pertain to land. Members may earn the RLI designation, Accredited Land Consultant (ALC), by meeting established requirements for consultation services. The RLI has five primary focus areas:
1. Undeveloped land 2. Farms and ranches 3. Transitional and development land 4. Site selection and land assemblages 5. Subdivisions and wholesale lots
The RLI provides continuing education to promote professional expertise. In addition, the organization performs the following functions with respect to raw land:
Identifies members as land specialists. Markets members' businesses. Makes recommendations on public policy affecting land use. Develops and maintains professional standards. Advocates the wise use of land. Advocates reasonable rights and privileges for private land ownership.
The National Association of Residential Property Managers (NARPM)
The NARPM exists to promote professional and ethical practices in the management of residential properties. Members of NARPM include residential property managers, property management companies, and their associated support staff. The NARPM is unique in that it focuses solely on the management of single-family rental homes and other small residential properties. In an effort to provide support to professionals in all aspects of residential property management, the NARPM offers three differing types of membership:
1. Professional Memberships are designed for individuals who act in the role of property manager and are licensed in states that require property managers to be licensed. Over 75 percent of NARPM Professional Members are either full or partial owners of the companies in which they are employed. 2. Support Specialist Memberships are designed for individuals who provide support services to property managers and property-management companies. Support Specialist Members perform property-management functions but do not operate in a capacity that requires licensing. 3. Affiliate Memberships are designed for individuals who act as vendors in the property management industry. Affiliate Members are required to comply with established professional ethics in providing products and services.
With member chapters in 24 states across the country, the NARPM provides professional training and accreditation for residential property management by top industry leaders. These leaders are not only poised to teach coursework, but also to share personal and professional experiences. In addition, NARPM members are provided the following resources and services to assist in their professional development:
The NARPM newsletter, Residential Resource Special publications that address legislative issues and product innovations that are only available to members A national annual convention and trade show Regional and state conferences Discounted rates for professional courses
The NARPM recognizes members who demonstrate knowledge, commitment, and dedication in residential property management by awarding such members with its nationally recognized designations:
RMP-Residential Management Professional MPM-Master Property Manager CSS-Certified Support Specialist CRMC-Certified Residential Management Company
These designations symbolize achievement in coursework, property management experiences, and volunteer activities. A member who holds the MPM designation must head a company designated as a CRMC. Likewise, a company must have either a designated RMP or MPM member in order for individuals on its support staff to obtain the CSS designation.
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Excerpted from The Rental Property Manager's Toolboxby Jamaine Burrell Copyright © 2006 by Atlantic Publishing Group, Inc.. Excerpted by permission.
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