23. PROPERTY MANAGEMENT

Transcription

1 23. PROPERTY MANAGEMENT I. Property Management Profession A. Definition: Property management is the process of achieving the goals of the owner of investment properties, especially in the areas of maximizing net income, caring for the property, keeping the property leased, and maintaining good relationships with tenants, employees, and outside providers of goods and services. B. Duties of the Property Manager: The property manager s job can be very complex and require a high degree of professional expertise. The property manager, depending on the type of property, can be required to be a leasing agent, maintenance engineer, accountant, advertising executive, market analyst, diplomat, and all sorts of other roles. It is a fast-growing profession that is requiring ever increasing expertise, especially with the exploding increase in applicable technology. C. Classification of Property: 1. Residential: a. Single family b. Multi-family c. Cooperative, condominium, and subsidized property 2. Commercial: a. Office b. Retail c. Industrial II. Managing the Relationship with the Owner A. Identify owner s objectives. 1. To extract every possible dollar from the property. a. Wants frequent payment b. Reluctant to make repairs c. Pays bills and taxes at the last possible moment d. Not a good objective for long-term income 2. To maximize income in both short and long term. a. Obtain good tenants b. Collect rents c. Maintain the property (1) Make repairs (2) Hiring and paying repair people B. The managementcontract. 1. The parties to the contract 2. Beginning date 3. Hours and schedule: days, hours, holidays Stringham Real Estate School Page 23-1

2 4. Payment of manager: Property managers are normally paid on the basis of percentage of gross income or gross rents. Other terms could be: a. Hourly b. Monthly c. Commission d. Time of payment 5. Additional agreements, terms, or amendments. 6. Responsibilities. a. Rent collection policy b. Repair policy c. Maintenance policy d. Reporting policy 7. Conduct market surveys. 8. Termination of contract. C. Ongoing owner/manager relations 1. The agency arrangement specific or general a. Agent is very limited in scope - specific b. Agent is given broader responsibility and authority general 2. Communication: a. Formal and scheduled b. Informal III. Preparation of the Business Plan A. Basic strategy: 1. Be competitive 2. Have satisfied tenants 3. Build reputation 4. Create an effective team 5. Generate profits without sacrificing quality of operation B. Prepare an operating budget: 1. Sources of income: a. Rent b. Parking c. Laundry d. Vending machines e. Cleaning services f. Pet Services g. Fax/copying/mailing services 2. Operating expenses: a. Payroll b. Utilities c. Maintenance d. Insurance e. Taxes and licenses f. Advertising g. Management Page 23-2 Stringham Real Estate School

3 h. Miscellaneous, i.e., office supplies, professional fees, service contracts, etc. 3. Computation of the budget: a. Gross scheduled income (GSI) b. Cost of vacancies, lost rents, etc. c. Gross operating (effective) income (GEI or GOI) (a) minus (b) d. Other income (such as washer/dryer quarters) e. Adjusted gross income (c) plus (d) f. Operating expenses g. Net operating income (e) minus (f) h. Capital expenses i. Debt service j. Cash flow (g) minus (h) and (I) k. Monthly income to owners (k) divided by (12) 4. Adjust to reflect anticipated market trends 5. Calculate yearly operating costs 6. Establish necessary reserve funds 7. Predict anticipated revenue 8. Review the cash flow in light of the owner s objectives 9. Prepare a five-year forecast Stringham Real Estate School Page 23-3

4 IV. Lease Negotiations A. Qualifying the tenant 1. Do not violate federal discrimination rules. The categories of race, color, natural origin, gender, familial status, handicapped, and religion are protected. 2. Have a clear and consistent policy of screening potential tenants. Treat all applicants the same a. Only one application for a given type of property b. Credit check for one? Then credit check for all. c. Reasons for rejecting a potential tenant the same for everyone. d. If you check references for one, you check them for all. e. Be careful of subjective reasons for rejecting a potential tenant such as appearance, gut feeling, etc. 3. Important qualifying considerations a. When will you be ready to move in? b. Financial capability c. Number of people that will be living in the unit d. Pet and water bed policy. B. The lease contract: Remember, it is absolutely necessary that a standard contract form or one prepared by an attorney be used. Do not become guilty of practicing law without a license. Consider each of the following when filling in a contract. 1. Identify the landlord and the tenant 2. Give a full description of the property 3. State the term of the tenancy and whether it is month-to-month or a fixed term. 4. State limits or conditions on use and occupancy 5. Payment of rent a. Amount b. Day of payment c. Form of payment d. Late charges e. Penalties for returned check 6. Deposits, i.e., security, cleaning, pets, etc. 7. Utilities who pays 8. Assignment or subletting the property 9. Tenant s responsibility for maintenance 10. Repairs or alterations by the tenant 11. Violation of laws 12. Causing disturbance 13. Pets 14. Right of the landlord to enter the premises 15. Extended absences by the tenant and the obligation of the tenant to inform the manager of such absences 16. Possession of the property. Tenant fails to take possession soon after signing or landlord fails to give possession. 17. Tenant rules and regulations 18. Disclosures about such things as environmental hazards Page 23-4 Stringham Real Estate School

5 19. Grounds for termination of the lease 20. Rules of notice C. Negotiating the terms: 1. The goal: negotiating a lease that is beneficial to both the owner and the tenant. 2. Avoid personality conflicts. They prolong and even terminate a transaction. 3. Secure agreement on basic terms and conditions such as rent, term, and policies 4. Concessions and/or inducements a. Factors that influence willingness to offer concessions or inducements i. Owner s financial and strategic position ii. Competition iii. Urgency of prospect to find suitable space b. Concessions should always be offered reluctantly. Remember, a concession granted to one tenant has the potential to extend to all tenants, including existing tenants. c. Rent concessions i. Have a basic rent schedule which includes increases or decreases for elevation (higher floors), corner space (increased views), inside space (no windows), etc. ii. Know which concessions are possible and which aren t. a. Deposits First or second month, cleaning, security, pets, waterbeds, etc. b. Term and the effect on rent of shorter or longer terms c. Tenant alterations iii. The escalation clause typically related to long term leases D. Signing the agreement: 1. Closing the deal a. Question close b. Summary close 2. Money to be paid at closing 3. Authorized signatories V. Maintenance A. Basic maintenance procedures B. On-site/resident manager C. Contract services D. Preventative maintenance E. Replacement reserve analysis F. Life cycle costing G. Inspections Stringham Real Estate School Page 23-5

6 VI. VII. Reporting Once frequency has been established, a report might contain the following: A. Conclusions and recommendations. Start at the end and then give the data to back it up. Or a report might take the opposite approach. 1. Observations about the market 2. Summary about the property or project 3. Recommendations and suggestions B. Market data: 1. Photo and map of the area 2. Competitive property survey and information 3. New laws, trends, changing economic and/or political conditions C. Property or project update: 1. Changing or continuing tenant profiles 2. Existing or proposed marketing strategy and programs 3. Synopsis of rental activity 4. Review of repairs made 5. Current status of capital needs D. Financial report (discussed elsewhere) Risk Management A. Emergency and life safety issues: 1. Fire extinguishers 2. Smoke detectors 3. Locks, selection, and changing 4. Peep scopes 5. Outside lighting B. Environmental issues: 1. Asbestos disclosure 2. Radon 3. Lead based paint disclosure, units built before 1978 C. Hazard control protect yourself: 1. Failure to meet building codes 2. Negligence or unreasonable careless conduct a. Lighting b. Snow removal c. Hazardous objects 3. Failure to make repairs 4. Failure to keep premises habitable D. Insurance: 1. Fire Review the value of the policy each time the premium comes due 2. Liability Acquire full and high coverage. $1,000,000 will probably cost little more than $100, Renters insurance Encourage tenants to obtain this type of insurance to cover their personal belongings. Page 23-6 Stringham Real Estate School

7 VIII. The Law A. Uniform Residential Landlord and Tenant Act: Some provisions of the act: 1. Unless otherwise stated, the lease will be month-to-month 2. If the landlord accepts a rent payment, the lease is considered binding even without the signature of the other party. 3. Leases cannot contain any provision wherein the tenant waives any rights or remedies that are protected under the Act. 4. The landlord must keep the property habitable. 5. Rents cannot be raised or services reduced because a tenant complains to a government agency or joins a tenant union. 6. Courts may refuse to enforce provisions in a lease that the court determines to be grossly unfair. 7. A tenant who abandons a unit remains liable for rent unless the unit is re-rented. The landlord must make a reasonable effort to rent the unit. B. Utah Landlord/Tenant Law: 1. Abandoned Property (U.C.A. 78B-6-816(1)): a. Owner may retake the premises and attempt to rent them at a fair rental value. b. The tenant owes the entire rent due for the remainder of the term (contract); or c. rent accrued during the period necessary to re-rent the premises at a fair rental value, plus d. the difference between the fair rental value and the rent agreed to in the prior rental agreement, plus e. the cost to restore the rental unit to its condition when rented by the tenant less normal wear and tear, plus f. a reasonable commission for re-renting the property 2. The statutory requirements for notice: a. The contract, unless involving something illegal, will supersede the statutory requirements. b. When not mentioned in the contract, the statutory requirements are: (1) Periodic tenancy 15 calendar days or more piror to the end of that month or period. U.C.A 78B-6-802(1)(b)(i). (2) Tenancy at will 5 calendar days notice. U.C.A. 78B-6-802(1)(b)(ii). (3) Notice to Pay or Quit 3 calendar days notice. U.C.A. 78B-6-802(1)(c). (i) The Notice to Pay or Quit is used for tenants who default on payments. All other notices are used to give notice that when the lease terminates, the landlord will not renew. 3. Deposits: a. The landlord must return all deposits upon termination of the tenancy or provide the tenant with written notice explaining why the deposit is being retained. U.C.A Stringham Real Estate School Page 23-7

8 b. The explanation must be sent within 30 days following termination. U.C.A c. If a deposit was agreed to be non-refundable it must have been in writing and explained to the tenant when the deposit was taken. U.C.A d. The penalty for improperly withholding a deposit is the full deposit, a $100 civil penalty, plus possible court costs. U.C.A (i) A renter will not be entitled to relief under if the renter fails to serve the landlord a notice demanding return of the deposit as required in U.C.A Eviction See Leases, p Subject Comparable 1 Units Square Feet Units Square Feet 1 Bed Bed Bed Bed Bed Comparable 2 Comparable 3 Units Square Feet Units Square Feet 1 Bed Bed Bed 112 1,070 2 Bed Bed 32 1,190 Comparable 4 Comparable 5 Units Square Feet Units Square Feet 1 Bed Bed Bed Bed Rent for 1 bedroom apartments: $ Rent for 2 bedroom apartments: $ Page 23-8 Stringham Real Estate School

9 PROPERTY MANAGEMENT TERMS TO KNOW [ ] Abandonment [ ] Business Plan [ ] Management Contract [ ] Operating Budget [ ] Property Management [ ] Property Manager [ ] Uniform Residential Landlord and Tenant Act Stringham Real Estate School Page 23-9

10 PROPERTY MANAGEMENT QUIZ 1. Which of the following would NOT be part of an operating budget? A. Operating expenses B. Property management trust account C. Rental income D. Other income 2. A management contract would NOT include which of the following? A. How the property manager is paid B. Reporting policy C. Rent collection policy D. Vacancy/lost rent percentage 3. Which of the following would reflect the true bottom line to the owner? A. Cash flow B. Net operating income C. Adjusted gross income D. Gross income 4. Which of the following is NOT a protected class so far as discrimination is concerned? A. race B. religion C. familial status D. motorcycle owners 5. Which of the following will the tenant, who has abandoned his lease before the expiration date, NOT have to pay? A. Commission to the manager for finding a replacement tenant B. Rent for the unused part of the lease C. Cost to restore the property to rentable condition D. The period prior to the expiration of the lease, but after the unit has been rerented 6. The statutory period of standard notice to terminate periodic tenancy is: A. 5 days B. 10 days C. 15 days D. 30 day 7. The law suit for evicting someone is called: A. Restitution action B. Unlawful detainer C. Partition action D. Eviction order 8. When the type of tenancy is not clearly identified in the lease, the lease will be considered to be: A. of no force B. fixed term C. month-to-month D. at will 9. When a deposit is not returned, the owner or property manager must: A. immediately transfer the money to the operating account. B. send notification and reasons to the Utah Real Estate Division. C. send notification and explanation to the tenant within 30 days. D. do nothing since the tenant already knows why they aren t getting it back. Page Stringham Real Estate School

11 10. Which of the following is illegal and unenforceable? A. The tenant joins a renters union B. The landlord inspects the property with proper notice and during reasonable hours C. A clause put in a lease requiring only 7 days notice for termination instead of the statutory 15. D. A clause in the lease says that all remedies against the landlord are forfeited when the tenant signs the lease Answers to this quiz are found in Chapter Quiz Answers. See Table of Contents Stringham Real Estate School Page 23-11