By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

Property management is all the buzz these days, as it is becoming the saving grace of the real estate industry. Across the country, real estate agents and realtors who are unable to maintain consistent listings and sales have turned to property management as a steady income stream until the market “picks up” again. This increase in competition for property management accounts by quasi real estate agents/managers has lead many who want to build their property management portfolio to take on any and all assets.

Many new to the industry agree to manage dilapidated properties from slumlords at management rates sometimes as low as three or four percent, and welcome the unrealistic rental rate demands from new investors trying to cash flow on properties that never will. However, by far the most common mistake made by these new entries into the business is taking on accounts that are located just too far away from their own area of operation or expertise.

We have all seen the marketing signs before – “Countywide,” “Citywide,” or “We service all areas.” Now, please understand that many well-structured property management companies large and small can accurately market this way, as they have the means, systems, and staff available to handle distant accounts across larger serviceable areas, and do so in a professional manner. That’s not always the case for single parties handling a few accounts here and there. Saying “no” to a potential account, or offering to refer that client to a reciprocating property management company for a referral fee, seems to be a hard thing to do in a struggling real estate market.

In my experience, the successful property managers know their limits, and would rather deliver exceptional service than risk blemishing their reputation on a property they should have referred. Nothing will destroy the will of a new property manager faster than having to drive clear across town numerous times a week to show a property that maybe difficult to rent. The more trips the manager makes across town to the property, the more evident the profitability of the account comes into question, and things like drive time to-and-from, gas expenses, and vehicle wear-and-tear start to take a toll. In the end, the owner is usually unsatisfied with the results and the property manager is just glad to see the property go. Unfortunately, real estate property management is based on relationships, and saying “no” maybe the best way to go when dealing with a property outside your area of operation or expertise. Besides, there’s nothing wrong with getting a referral check and keeping your clients.

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL

One of the most important and difficult things to do as a professional property manager is to honestly assess your strengths and weaknesses and build your business around the part of the business that you do best. For those outside of the industry, a property manager is a property manager, and few people can or care to make any distinction between an HOA, multi-family, or single family manager. There are also few who make any distinction between competent professionals and slum lords.

It is not surprising that the general public can’t grasp these differences. What is surprising is that many of us as property managers and landlords can’t even make this distinction within our own companies and portfolios. I’m not pointing fingers here, as my company was as guilty as any other only a couple of years ago. Our management portfolio consisted of hundreds of single family units, multi-family buildings ranging from the worst of areas to the best, multiple commercial properties, as well as some associations. We had spent years building up our volume of managed properties without any regard for the type, quality, or location of the properties that we were taking on. We were happy that our unit count was growing steadily, but no matter how many units we added, it seemed that we were not making any additional profits month over month. It was frustrating, to say the least, so we made an effort to find out what the issue was.

After taking a long, objective look at every single property we had under management, it turned out that 40% of the units we managed actually lost us money. This was due to the additional overhead necessary to deal with those properties on an ongoing basis. As our management agreements expired for these properties, we made a conscious decision to terminate or not renew service for them. We also have narrowed the profile for the properties that we are interested in managing, and we continue to become a more profitable company overall. We have no interest in volume for the sake of volume. As I continue to communicate and network with other successful managers throughout the region, it is becoming clear that many of the successful companies have figured this out as well.

A few of the factors that successful property managers consider before taking on any new property are as follows:

Property Location

This seems simple enough, but it is very tempting to stray outside of your normal service area when you know that a new deal can easily close. However, once the property is on your plate, you need to lease, manage, and maintain that property, which could require some excessive window time in the car. It can also mean that your current vendor network may not be willing to travel to service that location. If this turns out to be a difficult property, it can easily become a losing proposition as the miles and time needed to track down outside vendors stack up.

Property Owner

This is many times the most overlooked and underestimated factor when taking on a new property. Every time that a new account is taken on, we need to consider how interactions with the property owner will go. While there is no way to predict the future, you can get a pretty good idea of a property owner’s personality and attachment to their property within a couple of conversations. If the property owner’s needs and expectations don’t fit with what you offer, then it is best to let him or her know that and pass on the business. A high-maintenance and overbearing property owner can drain the profit out of a management deal faster than any other factor.

Property Condition

This is a personal/business decision, as there is no right or wrong answer as to what properties are “best” to manage, but it does seem that many successful companies are only really good at managing a specific range of property conditions. The company that is great at managing dilapidated 6-flats in depressed areas is generally not the same company that should be managing a pristine million dollar single family property. The methods for marketing, maintenance, and tenant relations are completely different. The vendors that will service the properties are likely different. The owners that own the properties are probably very different as well. We see successful firms focusing on their niche within the business and becoming experts within that segment of the market. If you are not well equipped to handle a poorly maintained property, it can be an incredible drain on your time and should be accounted for when deciding whether or not to take on a property. On the other hand, if you are experienced and equipped to handle a true mess of a property, there is opportunity to take on that business, as there is no shortage of subpar property to try to turn around.

Property Type

I touched on this previously, but there are very few companies who can pull off successfully managing every type of property. That’s why an increasing number of firms are focusing solely on their strongest and most profitable sector. Many companies that now only serve HOAs once managed investment property and vice versa. Most management companies will still take on a huge range of property types, from a tiny low rent apartment to a high end home or apartment or building, but the industry seems to be becoming much more specialized, as successful companies are focusing on very specific markets and property types. As our client base is becoming more demanding regarding service, it is increasingly important to become experts within our respective markets and market segments.

No matter where our strengths lie, the most important question that we need to ask ourselves when we consider taking on a new account is, “Will we be better off twelve months from now by taking this property into our portfolio today?” If the answer is not clearly a yes, then it may be time to reassess our position and the profitability of that deal before committing to managing the property. Taking on volume for the sake of a higher unit count is not only costly, but can take a long time to remedy once you decide that you’ve moved in the wrong direction.

A guest post by Andrew Payne, Louisville Property Management, Louisville, KY

Whether you’re listing a property for the first time or the tenth, it’s important to confirm that your pricing is market competitive. Setting a proper rental rate ensures that you’ll attract plenty of customers to the listing, while also being able to maintain a high standard of tenant screening. In my property management company, we seek to set the rental rate in such a way that maximizes both interest and profitability. Here are some of the methods that we employ.

1. HUD Website – Fair Market Rents

The annual report released by the U.S. Department of Housing and Urban Development contains Fair Rent data that is available for City/State and property size. While the methodologies and calculations are VERY thorough, this rate is simply a good average and starting point for a property the same size as yours. Variables that will raise or lower your rental rate include the property location (both immediate and surrounding), amenities like common areas, pools, and decks, and any utilities covered in the rent payment. Including all (common) utilities in the rent payment is a tactic often used to entice renters as well.

2. Rental Property Comparables

Similar to the way most homes are appraised, looking at comparable properties is a fantastic way to determine the rent that your home/apartment/condo can produce. The most important thing to look for are properties that most closely resemble your own. Having a similar number of bedrooms, bathrooms, and amenities will ensure that you’re not comparing “apples to oranges”.

Start in your own neighborhood. Location being the biggest variable, you’ll get the best idea of rental rates in your area by checking out the homes or units nearby. They’ll either list their rental price on a sign, or you’ll have to contact the property manager for additional details.

Looking online is also an important step. Sites like Craigslist or Apartments.com are great at filtering the listings so that you only see those most closely resembling your own. Again, knowing what’s included, where it’s located, and even whether they allow pets is what you should be most interested in.

3. Use an Analysis Tool

One of my favorite automated tools is located on the Zillow.com website. Not only do they provide a property value estimate – they now give you a Rent Zestimate that takes into account square footage and available market data. While this info should also be used sparingly, it should help solidify that number that you’re now considering.

When a manager is confident about the rental range that their property can support, they often begin at the upper spectrum of this scale. If the property should stall or generate little interest, they can always adjust the rate down to “re-energize” the listing. Knowing that a vacant property carries a high opportunity cost, you may have to make a few adjustments to find that “sweet spot”. In the end, it simply comes down to maximizing profitability while minimizing risk.

A guest post by Michael Gonzalez, Melrose-Sovereign, Orlando, FL

When you live in a condo association, you are guaranteed certain property rights. With good property management, your rights are guaranteed in your governing documents, and one of the most important of these is the definition of “Common Elements.” These elements constitute all of the community that is not included within the units (hallways, lobbies, elevators, etc…). “Common Elements” also include easements through units for conduits, ducts, plumbing and wiring. These rights are common in most condo associations, and they are often not fully understood by their residents. We have recently come across a situation that represents this.

A cable company violated a resident’s property rights by drilling and running a television cable through the closet on their balcony. The cable company said that they were given permission by the condo association board, however, the closet on the resident’s porch is not technically “common space.” The closet is considered part of the unit as defined by the association’s governing documents. The resident’s cable was violating the property rights of the unit below them and their property rights were being violated by the unit above them. When the resident questioned the cable installer about it, he simply said that the association board gave him permission to do this. This is a violation of the owner’s rights because the wiring that was being installed was obstructing the resident’s use of the closet, so they demanded that the cable be relocated. The previous television cable was run through the walls, which is a much more aesthetically pleasing solution and does not violate the resident’s property rights, as the walls are a part of the “Common Elements.” The owner was eventually able to get the cable relocated and the association board apologized.

This story shows the benefits of understanding your rights and how to exercise them. It is very important to have a full understanding of the governing documents of your association such as the CC&R’s and bylaws. These documents are the laws of your association and understanding them will allow you to recognize any inconsistencies should they arise. It can also be valuable to ask questions of your association’s contractors to see exactly what they are doing. They could be violating your rights and you may not even realize it. When living in community environments, like condos, the value of your condo relies heavily on the others in your building. If their property rights are violated, it can have a negative effect on you and your living situation. This is why it is important to make sure you have a well-informed community and that you exercise your rights. To learn more about HOA management and community associations, visit www.melrose-sovereign.com.

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

Are you in a position to create your own bonus and incentive plan that strategically builds your business, not just your property manager’s pocket? Successful bonus and incentive plans are all about understanding your team at an individual level, your agency’s business plan, and your market area. So, this week, let’s take a look at how understanding these critical factors converts to a bonus and incentive plan where all parties – the team member, property owner and you, the business owner- win now and win in the long-term.

What happens if, for instance, the average weekly rent in your market area is $300 and the property manager has a target of five new managements per month? The property manager could in fact reach the target of five new managements, but the five properties average only $200 per week. The problem – the property manager’s focus is on numbers and not quality.

What happens if the agency then increases its weekly rent on leased properties to $1000? On management fees of eight percent, this would equate to $80 per week extra income for the agency. If the incentive is a bonus equivalent to one week’s rent for each new management (which seems to be the norm bonus in most businesses), the business owner will pay $1000 as a bonus to the property manager or business development manager.

Rewarding the property manager for every management, regardless of the target, only encourages the property manager to secure whatever business they can secure, at whatever cost to the agency. Therefore, quality and the owner’s need for discount are overlooked. The result – the property manager, while having a target of five new managements, still receives a bonus equivalent to one week’s rent on every new management regardless of whether they achieve their target or not. What’s more, they also receive the bonus regardless of whether they sign up the new management with standard full fees and charges. Therefore, the business owner’s focus is solely on new business numbers and not income achieved from the new business. In other words, it’s quantity over quality, a formula not strong enough to sustain growth and profitability, as it fails to provide the property manager an incentive to build the business. So, words of advice – if the agency does prefer to incentivize the team in this way, the property manager should only be rewarded on properties achieved beyond what the target for the month is.

Quantity over quality also does not provide incentive for retention of managements or income on managements. It’s all about the numbers and hence a fundamental reason why we have so many problems and therefore a negative perception within the industry and from our clients.

The solution – shift the focus to income rather than numbers and the quality of managements will improve. For example, if the average weekly rent for the area is $300 and the achievable target is five new managements per month, then the month’s target is to increase the weekly rental income by $1500 (5 x $300 per week). The property manager’s focus is now shifted from management numbers to income, so the focus instinctively switches to weekly rental returns on potential new managements.

Quality over quantity means the property manager is incentivized to achieve the best possible rental for the property owner and work to achieve the target amount in the simplest way possible. To illustrate this point, if the property manager signs up and leases two new managements at $750 per week each, then the target total has been achieved and any new management signed and leased after the target total can now be paid as a bonus incentive to the property manager. However, the bonus is not paid as a rental fee, rather a percentage of the increased weekly rental they have attained. The focus is on quality of rental and income generated, not management numbers.

Another vital component to successful bonus and incentive plans is to understand the individual. Some people are not motivated by money. So, incentivizing them with the potential to earn a certain income per year if they achieve their target is not really helping the business or individual. For example, say an individual sees money as the “root of all evil.” No matter how hard this individual may try, somehow they subconsciously (or consciously) sabotage their own efforts to achieve targets due to this deep-seated belief. A simple way to overcome this is to understand the individual and gain a clear indication of what motivates him or her so a personal incentive scheme can be designed.

The individual can have a list of goals as long as their arm, but if they have a negative image of money, they are unlikely to achieve their goals. However, what a lot of individuals don’t realize is that in order to achieve these goals they need money! So, take time to understand each individual’s goals for the year, both professional and personal. If, for instance, they are saving for a weekend away at the coast every three months, work out how much it costs for that weekend away. Then work out how much the income needs to be increased in their portfolio if, for instance, they are a property manager with a portfolio. This particular individual could then be incentivized to achieve an increase of the nominated amount of income to be rewarded with their desired weekend away once that income level is achieved. It’s a win-win-win for the individual, the business, and the clients, as this style of incentive-by-design motivates the individual to build while ensuring retention at the same time.

Successful bonus and incentive plans are all about understanding the individual, the agency’s business plan, and the market area. They must be designed around these three factors to ensure continual growth, retention, strong profit margins, market dominance and long-term team and client loyalty.

The keys to building your business are what I refer to as the “Four R’s”. Repeat. Referral. Recommendation. And the one that is usually forgotten – Retention. I look forward to blogging more about the Four R’s in future blogs, but for now my focus is on assisting you with creating successful, stimulating and results-driven bonus and incentive plans.

It’s time to put on the thinking caps and get creative in designing your bonus and incentive plans. Don’t forget to add some fun incentives in there too. After all, a happy team is a productive team! Does your bonus and incentive plan strike a happy accord?

A guest post by Dusty Henry, All Property Management, Seattle, WA

Renting out your property might sound like a great idea, and it is. Inviting tenants to live in your home, especially if you are not using it, can be a great way to make some extra money and let someone else pay your mortgage.

The idea of enlisting and paying a property manager may at first seem contradictory to your idea of making money. If you only have one property and minimal outside commitments, then you might not have a problem managing your own property. However, there are some things most new landlords don’t consider before taking the leap.

1. A fair amount of legal knowledge is required.

Unless you come from a real estate background, there is going to be a huge learning curve with respect to housing laws and regulations. There is much more to renting out a property than finding a tenant and collecting rent. From complying with Fair Housing Laws during the tenant selection process, to writing a lease agreement that adequately protects your rights, to handling potential evictions, there are many aspects of landlording where knowing the law comes into play. Not to mention, these laws and regulations are always evolving, so you will need to stay on top of any changes that take place.

2. You are on call for maintenance emergencies 24/7.

Part of the landlord title means being able to put on a tool belt and take care of household issues and damages to your property. It is hard to predict exactly when your tenants might need a handyman to fix a leaky faucet or anything that compromises the livability of the home. If the task is much larger than you can handle, you will be responsible for hiring an outside contractor to take care of it.

3. Screening tenants is not as straightforward as it appears.

Choosing someone to live on your property is one of the most critical decisions you will make as a landlord. A tenant who does not take care of your property, or is slow to pay rent, can become an unnecessary burden and liability. Aside from an applicant’s ability to pay rent, there are a number of things to consider before allowing a person to sign a lease. It is essential to perform background and credit checks on all applicants. While this may sound simple enough, interpreting the results that come back may not be as straightforward as you think. You will also have to deal with the fact that you may spend a large amount of time screening applicants who are not qualified, not to mention the real probability of not finding any leads at all. You will need to be effective and creative with promoting vacancies.

4. Managing an ongoing relationship with your tenants requires more than knowing how to cash rent checks.

Even after putting in the time to find a good tenant, issues may still surface. You have to be prepared to be direct with your tenant about fixing the problem, while also doing what it takes to maintain a good rapport with them. This can be considerably more awkward than it sounds. If you are not firm enough, the tenant might not take the initiative to fix the problem. If you are too firm, you might have trouble keeping any tenants at all. It’s a delicate balance that takes a long time to master.

5. You’ll need to plan on spending a minimum of 10-15 hours per month managing your property.

Chances are you probably have a full-time job and various other obligations. Adding landlord duties can become a burden on your to-do list and create much unneeded stress. Between your personal life and the aforementioned commitments of renting your property (these are just a few landlord duties, the list goes on…), this can often be too much for one person to handle.

Professional property managers have a team that specializes in taking on all of these issues with tired and true methods that are effective and efficient. If managing your property is your main project and focus, it is possible that you can handle it on your own. For most people, though, rental properties are a side investment, and spending 10-15 hours a month keeping a rental property running detracts considerably from the return on that investment. For a small percentage of your monthly rent, you can delegate all the hassles that come with owning a rental property to an expert, and turn a tedious part-time job into a passive stream of income.

About the Author
Dusty Henry is an Editor at All Property Management, a company that matches rental property owners with property management companies in their areas. Search their extensive database at www.allpropertymanagement.com, then get free quotes from property management companies near you.

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL

Over the past four to five years, I have been posed all of the questions asked of many business owners in the real estate industry. How has the downturn in the economy hurt your profits? Has the housing collapse crippled your business? What about the high unemployment rate? My answer to these questions has been consistent throughout all of these turbulent times. Business is great, and consistently so. I usually walk away from those conversations feeling fortunate to be a part of a strong niche within a deeply depressed industry, and I think many good property managers feel the same way. However, I don’t know that we give a lot of thought to how profound external factors affect our industry. The recent announcement by President Obama regarding expansion of the HARP (Home Affordable Refinance Program) got me thinking about the ramifications for the property management industry as well as how the housing collapse has shaped our industry overall.

One factor that seems to be absolutely clear is that the U.S. government’s incompetence and inability to stabilize the housing market continues to drive the residential property management industry forward. I was first exposed to the property management industry during the apex of the housing boom. It was a time when everyone had equity, mortgage approvals and refinances were easy to come by, and anyone with a few dollars in the bank was trying to rehab and flip property in their spare time. The portfolios of many property management companies were comprised primarily of real estate investors of one type or another who actually expected to turn a profit as a result of operating their investment properties. Sadly, many of these investors continued to buy property all the way into the height of the market, overextending and overexposing themselves, and blindly wagering their economic futures and retirement funds on a market preparing for collapse. As a result, we have seen many of these investors, including many of our own former clients, get crushed by adjusting mortgages, credit tightening, and the evaporation of millions of dollars in equity.

Those investors, who at one time filled our portfolio with property to manage, seemed to disappear as quickly as they previously appeared. Only the more savvy and stable investors have made it through the storm thus far and those less fortunate investors have been replaced by a flood of single property owners forced to rent a property due to the terrible sales market conditions. This flood of potential clients will continue to benefit our industry, so long as our government fails to find a permanent solution to solve our housing crisis. There are few factors that drive homeowners to make the decision to lease and have a property managed, and one of those primary factors may be swinging in our favor.

The newly announced upcoming changes to the government’s home affordability initiative (if they actually go into effect as planned) will allow many deeply underwater homeowners the ability to refinance into a reasonable interest rate and monthly payment. There is also a possibility that those who bought a house as their primary residence but now hold the property as an investment will be able to refinance through HARP at an additional cost. What does that mean for us as property managers? It means that there may be an additional pool of thousands of homeowners who will now have manageable monthly overhead related to their property, but since the new program does nothing to solve the overall problem of negative equity, these owners still have no chance to sell their properties. For those owners who would have otherwise never considered renting out a property due to the fact that they would be operating in the negative every month, they may be able to break even with reduced monthly mortgage payments, or dare I say, even make a few bucks by putting their property on the rental market.

This scenario makes a couple of assumptions. It assumes that the government can actually roll out the changed terms. It also assumes that the banks can figure it out and implement the program. There is no guarantee that all of these stars can align and this program will work as planned. Since the government and banks are involved, I’d almost be certain that it will fall apart at some point. Even so, if the program only helps a fraction of the 900,000 homeowners projected, an eventual influx of thousands of sustainable rental properties will hit the property management market over the next few years. These properties will carry less overhead, be less likely to default, and be sustainable as rental properties on a longer term basis. This means more available clients and profit for leasing agents and property managers throughout the country and built-in growth for our markets. It’s not often that a bad policy hastily implemented to grab a few presidential votes will help to build your business, but it looks like that is exactly what is going to happen here. I continue to feel fortunate to be in the right place at the right time.