By Thomas Backal, Lazarus Financial Group, Dallas, TX

As a busy property manager, one of the trickiest and yet most crucial parts of your job is getting tenants to pay their rent on time, and in full. In an effort to avoid slow payers and delinquencies, you probably send out friendly reminders when rent is coming due or even incentivize early payments. But perhaps the key to getting people to promptly pay their bills, a study finds, is providing them with multiple (technologically advanced) payment options.

A recent survey conducted by The Marketing Workshop provided some valuable insight into how Americans prefer to pay their bills. What the study found was that people not only like having a bevy of payment methods available to them, but are also growing more and more fond of online and mobile payment channels. Some of the key findings from the study are listed below:

In 2012…

• 20% of Americans changed how they paid their bills from month to month.

• 75% of Americans…

• Used at least two bill payment methods each month.
• Said having multiple billing and payment options was “important/very important” to them.
• Who received electronic bills said it helps them manage their finances.

• 8 million online consumers (people who used the Internet at least once a week) paid a bill on a mobile phone – an increase of 41% from 2011.

• 73% of Americans who access the Internet at least once a week paid at least one bill online each month.

What Your Tenants Think About Rent Payment Options

The study revealed a growing shift in how people are choosing to pay their bills and a transformation to a more digital bill payment world. It is important as a property manager to stay ahead of these changes because, according to the study, those who pay bills online fall behind less often and incur fewer late fees than those who pay offline or by mail. Not only should you be offering digital payment methods to your tenants, you should be encouraging the use of them as well. Here’s why:

• 25% of infrequent and non-Internet users said they had at least one issue paying a bill because they had trouble keeping track of it.
• Infrequent and non-internet users were three times more likely to incur late fees because of bill tracking difficulties and were also three times as likely to report that they lost a bill that came in the mail (19% versus 6% of online payers).
• Only 7% of online bill payers said that trouble keeping track of a bill caused a late payment.

Why People Prefer Paying Bills Online or On a Mobile Device

Of people who paid bills on a mobile phone or tablet, 50% of them said they did so to save time, 44% said they did so because it offers anytime access, and 43% said they did so because it was most convenient when on the go. Also 69% of Americans who used electronic billing services said they preferred electronic billing because of the convenience, and 31% said they liked electronic bills because they received an email reminder each time a new bill was due.

So property managers take note! Your tenants most likely want to pay their rent online, and you should want them to as well. Not only can it lead to fewer late payments and costly delinquencies, but also can go a long way in improving your tenant relationships. In fact, according to the survey, 37% of Americans who received electronic bills in 2012 said it improved their relationship with the company from which they received the bill.

Don’t let yourself fall behind on technology. Your tenants will appreciate it — and better yet, so will your bottom line.

By Matt Donnelly, Buildium, Boston, MA

The good old days of property management are over. But the good new days are here. Let me explain.

In the good old days, with rents and home prices rising into the stratosphere, property managers didn’t have to worry much about cutting costs and running a lean operation. Then the recession hit. Now, in the good new days, property managers are a lot more interested in cutting costs. And in many ways they don’t have much choice. Cutting costs, for property managers, is really the cost of doing business — and staying in business.

A recent article in Nevada Business magazine bears this out. In it we get a picture of the state of property management today in the wake of the economic recession:

• Struggling to get even close to full building occupancy, despite lowered rental rates
• Working closer with worried property owners to trim all unnecessary expenses and reduce tenant churn
• Financially pinched tenants asking for more flexibility in paying their rent, even while demanding more services
• Dealing with reduced management fees as a result of lower occupancy rates and reduced rental rates

So, given all of this, why are these the good new days? There’s a clue at the end of the article, where the author notes that property management software has become “the norm” in the industry. Using property management software allows property managers to work smarter and not harder by managing maintenance requests online, collecting rent and paying vendors electronically, and generally freeing up time to focus on marketing and business development.

And it’s precisely better marketing and a solid business development strategy that will separate the winners from the losers in what one property manager quoted in the article called an “extremely challenging” economic environment. As one property manager told me, new economic realities present new opportunities for growth — but you need to be creative.

How has your property management business changed in the wake of the recent economic recession? What steps have you taken not just to survive, but to grow?

By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

It’s pretty much a given that some of the best facts concerning accidents in cases involve tractors.  Someone is always getting his hand cut off, his fingers severed, or run over by one in these cases. These fact patterns breathe life into otherwise dreary reading, overly technical, and Latin-laced decisions with obscure rules. Some of my favorite fact patterns, as a history major, are those involving when cars were first introduced.  People were just reckless with them, and it showed up in the case law. And more often than not, a tractor is involved.

Here’s a fact pattern involving a tractor based on a real case in California. I changed the tractor to a ride-along lawnmower, but it’s more or less the same thing.

You are a tenant in a large apartment complex that’s managed by a large corporation with retained employees.  These employees mow the grass around the California complex, with its lush greenery and swimming pool.  You befriend one of these employees, well, because you want to ride on one of those sit-down lawn mowers that you’ve seen on TV but have never ridden on.  You gain the employee’s trust and then spring it on him. “Hey, can I drive your lawnmower? Can you teach me to drive it?”

Ever the devoted employee, he demurs. “No, I couldn’t.” There is a rule against riding along, he tells you.

“Aw come on,” you say, “it’s just one drive, and I’ve always wanted to learn.”

“No,” he says. “But maybe I could let you ride along with me?  I’d be on the lawn mower, after all. There’s no rule about having someone ride along with me. Yeah, I’ll teach you as I drive and you ride. That’s what we’ll do.”

There’s only one seat, but you decide to sit on the attached tool box. And so, you ride.

You ride free. Free as you’ve ever been on a lawnmower. Wind in your hair. Sky at your horizon, grass undercut at your feet. And then . . . you fall. Right into the path of the lawnmower. And you are severely injured. And you sue.

You sue your dear friend the lawnmower driver, and you sue his employer. His employer denies liability. What the employee did here was unauthorized and not within his scope of employment, he says. It is not within Mr. Employee’s job to teach tenants how to drive lawnmowers.

Will the judge agree with employer? Will the employer escape liability?

Not in the case of Perez v. Van Groningen in California. ”Under the doctrine of [vicarious liability], an employer is vicariously liable for his employee’s torts committed within the scope of the employment.”* The court used this rule to find that the employee’s actions, “in the context of the particular enterprise,” were “not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer’s business.”* So this court decided that teaching tractor lessons on company time was not that unusual. And liability attached.

*Perez v. Van Groningen & Sons, 41 Cal. 3d 962, 967 (Cal. 1986)

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submission do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

I recently read an article that stated a property management business is not profitable until it has around 500 properties (or units) under management. This is simply wrong.

The number of properties under management is not the only measure of a property management business’ growth and level of success. What’s more, until you stop focusing on this one number, your business will continue to suffer the loss of properties/units under management, higher-than-needed productivity levels, and low profit margins along your (very bumpy) path to growth.

This is because growing your business is not about this one number. It’s about what I call the critical measures.

Focusing only on the number of properties/units under management leads to:

• Business growth at all costs — this is a huge cost financially, emotionally, and physically because it drains both principals and the team
• Willingly discounting fees and managing properties regardless of their standard or location
• Lower-than-average weekly rent with a diverse range of properties/units under management
• Greatly diminished profits and asset value
• Possible business breakdown, loss of team and properties/units under management, and damage to your brand and reputation

If you are only focusing on the number of properties/units under management, believing that once you reach (say) 100 properties/units you will be covering costs, chances are you are suffering losses along the way. Chances are also high that at 100 properties/units under management, you will still not be achieving the income levels you expected. And so, once you reach your target, you will have to delay engaging further resources (for example, an extra team member) because you’re still not generating enough income. And so the vicious cycle of gain and loss continues.

A better path to property management success

So what should you be focusing on instead of just growing the number of properties/units under management? You focus on critical measures.

Critical measures determine the current flexibility or volatility of your property management business. By cross-checking your trust accounting software reports, you can identify your business’ average management fee, average distance-to-property ratio, average weekly rent, management splits, number of owners against properties under management, percentage of fixed-term leases, monthly disbursement methods and timing, and arrears management factors.

Evaluating these measures lets you know if your current operations are working to achieve your business goals and targets towards growth. Put simply, the strategic pathway to a successful, profitable, and highly reputable property management business is to know your own market and build your business in accordance with these critical measures.

The most critical measures are, in order, average management fee, average weekly rent, and then the number properties/units under management. In this instance, the reason to know number of properties/units under management is so you can strategically manage growth, retention, productivity, and profitability.

Most property management businesses target a number of new managements per month target and achieve it by discounting management fees. This is because the growth manager focuses on winning business at all costs. This means the properties/units under management are low value in comparison to the market average weekly rent. Moreover, the properties/units are likely to be scattered far and wide from your market area, which places increased strain on resources.

However, if you know your average weekly rent and average management fee figures, then the monthly income target can be strategically set.

Say your target is an additional income of $15,600 per month. You can reach that target if your average weekly rent is $300, your management fee is 10%, and you add 10 new properties/units under management per month:

$300 rent per week x 10 new properties/units x 10% x 52 weeks = $15,600 per month added to your annual income

However, this same monthly target could be achieved by adding just 6 properties/units per month:

$500 rent per week x 4 new properties/units x 10% x 52 weeks = $10,400 +

$600 rent per week x 2 properties/units x 10% x 52 weeks = $6,240 = $16,640 per month added to your annual income

In this scenario, the growth manager has achieved more than his or her monthly income target with only 6 properties/units, and he or she is also reducing the level of effort needed to manage those properties.

The bottom line to growing your property management business

The bottom line is this: When it comes to growing your property management business and planning for this growth, stop focusing only on the number of properties under management, and start focusing on strategically managing all of your business’ critical measures.

By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

These days the stock market seems to live or die, grow or deflate, depending on the “employment” report.  How many jobs were created, how many folks are seeking jobless benefits? How many folks are no longer seeking “employment” because they have been out of work so long?

Whenever these reports are given, I have always wondered (because one naturally wonders this): Does that include “independent contractors”? Would the economy tank if, all of sudden, people were not employees but because “independent contractors” because their employers (I mean the people asking for work to be done) no longer called them employees, but decided to call them “independent contractors” instead?

Why ever would they do such a thing? Well, they could not really, and get away with it. The IRS and your local state government would not really like it, because it might mean less payroll tax and less government services as a result. But one consequence of retaining an independent contractor, rather than an employee, is that if the independent contractor injures a third party by his negligence, the person who hired him is not liable for injuries to third parties.

How we determine who is an employee and who is an independent is frequently a fact determinative question requiring jury analysis and a lot of preparation work. Work that keeps lawyers employed. Kidding aside, it depends on a number of factors but there are two key ones that are usually determinative. They are the hirer’s control over the hired, and whether the hired works only for the hirer or has other gigs.

Let’s use a real-life example. Remember my New Year’s Day spigot fiasco?  Well, the one we fixed in the back yard, with the help of my neighbor handyman, sprang a leak. Rather than do it myself (remember there is probably a rule somewhere against lawyers wielding power tools), I asked my neighbor to do it for me. He had just finished a big job for another homeowner. I invited him to inspect it, and he gave me an estimate: $100 plus parts. He said he would go about it a particular way, go to Home Depot, and get some things he needed.  And he brought his son over to help. A couple of hours later, it was fixed and moved to a better location closer to the garage.

Was this neighbor my employee? Did I exercise any control over the handyman? No.  He told me how he was going to go about doing the work. I didn’t understand half of it but understood that he’d fix it.  Did I tell him how to do the work? Other than that I wanted the leak stopped, I did not really tell him anything, much less how to do it.  Does he do work exclusively for me? It may seem that way given the number of times I require his services, but he doesn’t! He works for others.  These facts, and others, mean he is not an employee — unlike, say, a live-in nanny that would (in my dreams) work exclusively for me, and do what we say with regard to the children.  Next time we’ll talk some cases . . .

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submission do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

By Matt Donnelly, Buildium, Boston, MA

The stars seem to be aligning for a surge in the number of roommates, with implications for property managers.  According to the Insurance Information Institute,

One out of every eight homes in the U.S. is now inhabited by two or more people who are not related to each other—an increase of over 5 percent from 2000 to 2010, according to the U.S. Census Bureau. In other words, there has been a significant increase in the number of housemates/roommates, roomers or boarders, and unmarried partners living together.

Why is this happening? Look at the trends. First, there are a lot more home buyers than there are properties to buy (low inventory). This has had the effect in some markets of creating bidding wars, driving up home prices beyond what many can afford. The result is that more people are being forced to rent vs. buy.

This increase in the number of renters, combined with a shortage of rental space, is in turn driving up average rental prices (see what’s happening in a place like Manhattan, for example). Single people are thus less likely to be able to afford to pay the rent on their own, and that brings us to the solution of renting with a roommate. Or two. Or three. A 3-bedroom apartment that rents for $3,000 per month is certainly more affordable in today’s economic climate when split three ways.

As a property manager in the roommate rental business, it’s a good idea to use a roommate lease agreement (here’s an example). Having roommates as tenants can be a positive experience for all involved as long as some basic precautions are in place.

In terms of marketing to renters, there may be room for some innovation in advertising your prices. Rather than advertise a 2-bedroom unit for $2,000/month, why not consider offering it for $1,000 per person/month (assuming one roommate)? This pricing might appeal to cash-strapped renters who’d balk at carrying a a $2,000/month rent by themselves. Combine the roommate-friendly price with access on your website to online tools to find roommates, and you might be in a stronger position with a segment of the rental market that might not be in your sights at the moment.

As a property manager, do you prefer to rent to roommates as opposed to couples or single people? What advice would you give to other property managers considering renting to roommates?

By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

Relationships. Everybody’s got them, but not everyone is liable for the actions of those in their relationship. We’re talking about “vicarious liability,” where the landlord is liable to a third party for the wrongdoings of someone or somebody it hired. This is a legal doctrine wherein the courts hold a passive actor responsible for the acts of another if there’s a relationship there and if the circumstances warrant imposing liability.

Here’s the doctrine. A landlord is almost always going to be liable for her employee’s negligent acts. In California there’s cases on it and a statute or two. (For all us working stiffs out there, remember, too, that in California the employer has to defend and indemnify you for negligent acts committed doing your job). As long as the employee does not stray from his duties and commit acts outside the course and scope — intentional acts that have nothing to do with the job — the employer will be liable for the employee’s act. If the delivery driver employed by a package delivery company runs someone down in a cross walk while delivering packages, the employer is liable. (As a practical matter, both the driver and the company are named as a defendant, but the employer is liable to the third party and foots the bill pursuant to insurance.) A landlord will also be liable to a third party for the acts of an independent contractor if there are particular risks involved in the activity being done by the contractor.

As with most legal doctrines, there is a thought process behind it. “The principal justification for the application of the doctrine of [vicarious liability] in any case is the fact that the employer may spread the risk through insurance and carry the cost thereof as part of his costs of doing business.”* So the landlord who employs folks to do maintenance around the yard, in the common areas, will be liable to the third party injured by the deficient work-related acts of that employee. Like the janitor that left the chairs near the window in a post a few months back, the doctrine applies.

There is an issue of whether someone is an employee or an independent contractor. Some businesses attempt to avoid the consequences of liability and other payroll obligations by classifying folks who do work for them as independent contractors. There is a whole body of law on that and what constitutes an employee or independent contractor. So we’ll talk about that in the next post, and then move on to some examples of landlord employees gone wild . . .

*Johnston v. Long, 30 Cal. 2d 54, 64 (1947)

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submission do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

By Matt Donnelly, Buildium, Boston, MA

I spoke with a property manager the other week who was lamenting the tight profit margins he said he was forced to accept in order to get more business from property owners. He was interested in property management software as one way to cut costs and boost margins, which is a great solution. But are there other ways for property managers to cut costs in addition to increased automation.

One of them is forming or joining a property management cooperative. The idea is simple: Bring together a group of property managers in your area with common needs — trash pickup, maintenance, etc. — and pool their negotiating power to get lower costs for products and services.

That idea is the brainstorm of CCA Global Partners, which has found a niche implementing cooperatives in many different industries. Now they’re turning their attention to property management, creating INNOVIA.

“The purpose of INNOVIA is to bring together property management firms from across the U.S. so the aggregation of goods and services can be achieved at a much greater discount than by doing it on your own,” Justin Gargiolo, senior vice president and director of corporate operations for Great North Property Management in Boston, told the New England Real Estate Journal.

The savings can be substantial. Gargiolo elaborates:

As one of the 12 founding members of INNOVIA (and growing) we’ve already achieved 12% saving on our trash hauling costs and have seen the opportunity for 10-12% savings in energy procurement (gas/electric). We expect to see additional savings opportunities in office products, insurance, mortgages, pest control, and flooring, among many others.

He adds that there are already plans to let rental owners benefit from cooperative purchasing as well.

Do you have experience with property management cooperatives? How could you benefit from joining one? What are the risks? Please share your experiences in the comments section below.

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

I get asked this question a lot: “What’s the best way to build my rent roll?” I always reply, “What are your business’ goals for growth?”

There are two viable methods for building your rent roll – organic growth and acquisition. But, truth is, choosing a method requires you to consider which best aligns with your business’ growth strategy and can successfully achieve your goals. There’s a catch – whatever method you choose must be strategically planned, implemented, and managed in order for it to effectively build your rent roll and achieve your goals.

Organic growth

Consider organic growth. This method builds your rent roll through inquiries generated from planned marketing activities. In order to strategically plan, implement, and manage this method, you must understand your market area. Understanding your market area means knowing its statistics, such as the potential number of properties that make up the market area. Knowing such statistics gives you the ability to plan the number of properties that can be gained, average weekly rent of these properties, and projected growth horizon. This method also requires a team that can effectively manage gained properties and retain business.

What are the advantages and disadvantages of organic growth? Does it align with your business’ growth strategy and goals?

Pros:

• More cost effective than acquisition
• You charge fees in accordance with your own fee schedule
• You accept managements and property owners that match your criteria
• You don’t end up with managements that another agency has poorly managed
• Property owners are nurtured and managed by your agency’s policies and processes
• Managed growth, therefore managed retention

Cons:

• Takes longer to build your rent roll
• Requires more patience, planning, and marketing investment
• Requires outlay for resources and team members prior to income converting to profits

Acquisition

Now consider acquisition. This method builds your rent roll as you purchase other agencies’ rent rolls. Many principals use this method if their rent roll is experiencing slow growth. But, just like organic growth, acquisition requires investment, being the agreed amount for the value of the business on offer. You build your rent roll through acquisition by dealing with a broker who lists rent rolls for sale.

Once again, you must consider whether acquisition aligns with your business’ growth strategy and goals by weighing up its pros and cons.

Pros:

• Builds cash flow quickly
• Potential to increase income and asset value by increasing properties’ rental rates
• Potential to increase income and asset value by increasing and/or introducing further fees
• Further builds brand awareness and agency profile in market area

Cons:

• Fees can be low and inconsistent
• Extra charges can be low, non-existent, or inconsistent
• Property owners can be loyal to the previous agency and/or property manager
• Properties could be poor quality, placing extra pressure on your team
• Managements could be properties you would otherwise never choose to manage
• A poor rent roll purchase could damage your agency’s brand and reputation
• It takes a long time to gain a return on the investment

Which method should you use?

As you can see, neither method — organic growth or acquisition — is perfect, but what’s also clear is that either method can effectively build your rent roll. The key is to consider which method best aligns with your current growth strategy and goals then strategically plan, implement, and manage your chosen method to successfully build your rent roll. Keep in mind, the solution may in fact be to use a combination of both methods. It just depends on your business’ current situation, what you want to achieve, and when you want to achieve it – that should lead you to the how.

How are you building your rent rolls? Please share your experiences in the comments below.

By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

Years ago we all saw that movie about Facebook and how it took off when the founder had the thought that you could advertise your relationship status on “The Facebook.” Are you single? Dating a couple folks? Or in a relationship? (Colin McCarthy is in a relationship, a married relationship, with another Facebook user). It’s all about the relationships, people!  It’s not what you know, it’s who you know.

It’s not that you did anything wrong, it’s that you hired someone who did something wrong. Wait, what? What did you just say? Did you just say I can be liable for what my girlfriend, I mean my wife, did? No, I said you can be liable even though you did not do anything wrong, because you are in a special relationship with someone.

And when I say you, I mean the landlord. And when I say special, I do not mean romantic.  Ordinarily the law in California will not impose a duty on the landlord (or anyone for that matter) for the wrongful acts or omissions of someone else, absent a “special relationship.” For example, once your little children reach the “age of majority” (18 years), what they do, legally, most of the time can’t be tagged to you. But if there is a special relationship with the adult child (a history of custody and ability to control said adult child due to violent tendencies), there might be a duty to certain third parties.

A special relationship really is just the judge’s way of attaching liability to a deep-pocketed defendant if there are circumstances that warrant it.  Such a special relationship will make more sense when a person (or entity) works at the behest of (or on behalf of) another to accomplish that other’s work. A big factor in this relationship liability attachment is, as discussed above, control. But it is not determinative. What is determinative is whether public policy reasons (from those Rowland factors discussed a long time ago) merit the attachment of liability. Is the plaintiff severely harmed? Is there some moral culpability to the defendant’s conduct? Is it foreseeable to be harmed in such circumstances? Is there insurance?

The courts mesh these factors together in relationship cases and apply “vicarious liability” in cases “where the interests of justice demand it.”*  This is a broad phrase and a discretionary brush with which the court interpreting it has many options. We’ll discuss some scenarios in the next few blog posts in which landlords have to deal with the demanding justice of vicarious liability.

*Roberts v. Craig, 124 Cal. App. 2d 202, 208 (1954)

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submission do not necessarily reflect the opinions of Robinson & Wood, Inc. or its clients. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.