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

For property management companies, the month of January signals a time to prepare and issue year end statements to their clients for tax preparation purposes. Consequently, each January the IRS requires that any taxpayers who have made payments in excess of $600 to workers that are not considered employees must prepare Form 1099 – Miscellaneous Income. Property management companies are also federally required to file Form 1099 for their clients regarding rental income received throughout the year. In addition, copies of this completed form must be provided to the IRS. The IRS compares the payments shown on the information returns with each recipient’s income tax return to determine whether the payments were reported as income and done so properly.

-The filing deadline for Form 1099 is January 31, 2012.

-The IRS also requires that you file a Form 1096 to identify all of the Form 1099s.

-The filing deadline for Form 1096 is February 28, 2012.

Failure to issue a Form 1099 and file Form 1096 results in penalties and potential disallowances of deductions for those amounts paid. Thus it is imperative to comply with these filing requirements. In years past, SDP Management would spend a lot of time and resources preparing large bulky paper laden year end packages to meet these requirements. The packages, which contained printed year end statements and other tax required documents, would detail the properties prior year performance and provide necessary documentation for the client’s CPA or tax preparer. All packages would be carefully prepared prior to the end of January and mailed via snail mail (USPS) at a considerable cost. Well, the industry has advanced and those days are long gone. The advent of cloud computing and advanced property management software, such as Buildium, have allowed property managers to formulate numerous detailed reports and provide them via email in PDF format to clientele at a fraction of the cost and time.

These reports also meet state and federal requirements. It has also allowed the tedious and many times misunderstood Form 1099 to be computer generated and scheduled for automated mailing. Not only is this convenient for property management companies, but it also allows clientele to continue forwarding the year end PDF report to their CPA or tax preparer regardless of where they are in the world.

Don’t let 1099s and year end reports get you down, use January to focus on the upcoming year and not the past.

By Steven Van Zile, Total Management, New York, NY

Within the past 24 hours, here are the maintenance issues I’ve experienced at the property where I reside: the maintenance person, loyal to this building for 33 years, responds to a
clogged toilet by advising us to pour bleach down the toilet. Concurrently, the intercom buzzer is stuck and won’t shut off. And, of course, the elevator renovation that started out as a one week project actually turned into a three week project, providing 6^th floor tenants the opportunity to save money by cancelling their gym memberships.

It’s always seemed simple to me; as residents, we pay rent, maintenance fees, or mortgage payments and the property management staff provide services for the resident. Building and trust owners hire those property managers based on their abilities to keep churn rates low, vacancy at zero, and tenants happy all at or below a budget designed to re-invest in the property. So what happens when we tenants aren’t happy? Well, in today’s age of instant knowledge and access, a lot of renters turn to rating sites like Yelp or apartmentratings.com to spitefully pen scathing reviews in an attempt warn others. These sites might be seen as a threat, but if you’re really good at your job, more transparency can only help you, and reviews will actually help your business grow.

Let’s get back to the problems at hand. In the three examples I highlighted earlier, the correct response would have been to snake the toilet, send the on-call maintenance tech to repair the intercom, and hire a vendor that can deliver what they promise. Hiring a sub-par vendor can hurt your reputation as a problem solver, and at the end of the day, most renters see their property managers as just that.

One of the best things a property manager can do to avoid many of these issues is to do some vendor research before the hire. The property manager’s goal should be to minimize risk and liability when it comes to contracting with vendors. While making these minimizations it is also the property manager’s responsibility to hire a vendor that is legitimate and legally allowed to perform the work. A few ways to ensure that these requirements are met is by signing up for vendor review, screening, and compliance websites (e.g. servicemagic.com, vendorcompliance.com, angieslist.com). It can take a little extra time to have all potential vendors verified through an extensive search process, but the benefits of providing quality service to the tenants greatly outweigh the negatives.

Still worried about those rating sites? Instead of fearing them, use them to your advantage. Track down some of your happy tenants and ask them to post a positive review. Do you have really happy tenants? Ask them to write a testimonial letter to the building owner and include it in your next monthly report. Anecdotally, the point that I’m making is that as a renter, the most important thing is customer service. If you can take care of that, everything else will follow.

If you list out the responsibilities of a property manager, and prioritize that list, ‘provide customer satisfaction through exceptional service’ should always be at the top. If you can ensure that quality of service, above all else, your services will always be in demand.

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

As we look forward to 2012 and say goodbye to last year, many new real estate investors will forgo using a property manager in lieu of becoming landlords themselves for the first time. It may even be one of their yearly goals to acquire an income producing rental property. The fast and lucrative lifestyle known as real estate investing, a dream which yields hoards of money overnight and comes with a fully loaded German-engineered luxury vehicle, is just a two bedroom rental condo away from reality.

To some that may be true and I’m not knocking the idea of a PM business starting small. I have personally witnessed the power of real estate investing, but with all kidding aside most new real estate investors who plunge into managing their own rentals find themselves at a disadvantage early and often when it comes to entering the game know as landlord versus tenant.

The rules of the game are fairly simple and most of the time both parties play by them. Overly simplified, the landlord’s duty is to supply a safe and temporary inhabitance for the tenant, who in turn pays an agreed upon rental rate for the right to occupy the dwelling for a contracted amount of time. The objective of the landlord is to bank or reinvest the cash flow (amount in excess of the mortgage payment and operating expenses) from the rental unit(s) each month and build wealth. The disadvantage begins when the new landlord places a tenant who doesn’t play by the rules of the game, throwing a monkey wrench in the whole building wealth formula.

The battle scarred and seasoned tenant alters the game to their advantage with rule changes that may go something like this; initially the rent is a couple of days late, then a week late, and then a request to change the rent due date because “They get paid later in the month”, then a phone call stating that their hours have been cut or that they will be a little short this month and can only pay a portion of the rent, then finally no return calls and nothing but silence.

News flash: if it gets to this point in the game you may have already lost. Though truthfully, you have been losing the whole time. At this point you are owed a couple months’ rent and need to start the eviction process while hoping that your property isn’t totally destroyed. There is no guarantee that having a professional property management in place would have stopped this from occurring but odds are an experienced property manager who is familiar with these trends would take fast action to limit the downside risk in these situations.

In property management it’s not if these issues will occur but how you deal with them when they do that makes you successful. Start the New Year off right and let one of your real estate resolutions be to add a professional property manager to your team.

A guest post by Ashley Halligan, Analyst, Property Management Software Guide

Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind.

First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. From a marketing perspective, this could include offering unique amenities like sporting equipment or movie libraries, all of which are additional expenses. On the flip side, the regular maintenance of these properties has been credited with helping to increase neighboring property values.

Legal issues are another important consideration given the ongoing public debate and subsequent restrictions arising in many cities. Some city officials and neighborhood associations oppose short-term rentals for many reasons including a fear of transient tenants potentially bringing chaos and crime to communities, noise and parking complaints and a failure to fall under the same standards required of local hotels. Because ordinances, zoning limitations and overall restrictions are popping up all over the country, it’s necessary to be aware of the possibility of your property being restricted by new laws. New York City, for instance, has recently banned all rentals under 30 days. Though San Francisco has a written law of the same nature, it’s instead levied a 15-16% transient occupancy tax that reaps millions of dollars in revenue for the city.

Aside from the considerations that should be kept in mind, there seems to be a well of favorable reasons to contemplate short-term rentals. Short-term property managers prefer these rental types for many reasons, and for reasons other than the revenue potential. Property owners who have a sentiment for a home they’re renting on a short-term basis claim it allows for a more feasible preservation of a home, allowing regular entry and ongoing maintenance and beautification that isn’t typical of long-term rentals. Other claims suggest that short-term rentals promote tourism in communities, particularly communities who may not have optimal hotel capacity during peak visiting periods. And lastly, there’s hefty tax breaks that are sometimes associated with the maintenance costs of operating a short-term rental. Advertising and maintenance costs as well as high-ticket improvements can also be tax deductions.

With all these things in mind, it’s important to calculate both the pros and cons associated with short-term rentals before diving into the deep water surrounding them. See the full guide here.