By Linda Day Harrison, theBrokerList, Chicago, IL

I came to the conclusion very early in discussions with potential new property management clients that an initial drive-by, preliminary meeting with the owner, if possible, and compiling facts about the property on my own internal “Real Property Inventory Profile” was the best approach for me to take in determining the information necessary. Keep in mind, this approach is only necessary with local owners who were typically comprised of a partnership of local individuals or related persons who pool funds to invest in real estate.

If the potential prospect is an institutional-grade client, the approach is completely different as that type of prospect knows exactly what is involved and generally the real estate has been managed professionally. In that case, a discussion with the existing property manager would be ideal, or you can provide your request for key information included in the “Real Property Inventory Profile” initially. The key fact is whether or not the property has been managed by professionals or self-managed, or is being built or acquired.

Why are all of these differences relevant? Well the basic reason is that a professionally run property has systems and procedures and good habits in place, and generally a self-managed or new property requires much more upfront labor to establish all of the systems and procedures that all reputable owners will concur are necessary.

In my professional opinion, all of these key factors would need to be considered before ever providing a fixed quote to any client. A range would be safe, but never a fixed quote of any kind.

In addition, you need to determine the serious level of interest in this client actually wanting to go down the path of hiring a new management company. That is why I created my own “Real Property Inventory Profile”  as my own cheat sheet of questions and information to gather so I could learn more. In some cases, I can just send this questionnaire to the owner and ask them to respond. The profile helps you to qualify the potential property owner and their level of interest up front. Why? Because providing a proposal to manage a new property is an investment in time and resources. Property visits, analysis, team discussions, research, and preparation of a professional proposal that speaks to that owner personally about their property takes significant time, effort, and in essence, if you do a good job, actually provides the building owner with insight into their own property.

The “Real Property Inventory Profile” is vital because it immediately tells me how much upfront work we would have to perform to actually start managing the property. In other words, were we going to manage something that was mismanaged and needed work from the ground up, or was this a well-managed property that was not going to require a “swat team” (see New Property or Facility Takeover: Where Do I Start?) to take it over and set up all of the processes and systems and procedures from scratch? That is a major point of contention with any new business assignment — how much labor will be required. Labor relates to cost and overhead, so when pricing an assignment, the upfront investment of labor is an important consideration.

It can also demonstrate to the client you are serious and want to know more about what type of owner they are. Are they hands-on? Are they an absentee owner or a rookie owner? Again, all of this information will enable the most accurate quote of labor, which is what business services is all about. Remember, in property management and leasing, time is our industry commodity, therefore we need to understand how much time all of the steps and tasks will take us to execute. There are many people who would take on any new business assignment, and that is fine, but it is fraught with risk and you must go into the assignment with your eyes wide open, as well as be prepared for price objections when a client states that something costs more than they are willing to pay. By doing your homework, you will be more prepared to handle the feedback.

By Linda Day Harrison, theBrokerList, Chicago, IL

When I was on the front line, running a full-service real estate firm, I would be the point person on all new business calls. The first question from a potential client would almost always be “How much will you charge to manage my property?” Or “What percent will you charge to manage my property?”

It was a frustrating position to be in, but one that was easily answered: “There’s no fixed quote to manage your property.” Of course, the argument would be that they called several other management companies and were quoted X or Y. But no matter what, I learned that providing a quote to anyone on the phone is a slippery slope, and a very dangerous approach to gaining new business.

Two things are certain:

1. No two properties are alike.
2. No two property owners are alike.

Based on years of experience and knowing these basic fundamentals, I would always learn about the property and client before offering any opinion on what the cost would be to manage their property. Why? Since I could not possibly know the scope of service required for a property without a site visit and further investigation into so many pieces of information, quoting a fee over the phone would do the client and my firm a disservice. However, it was a balancing act on so many different levels — I would have to keep the client interested enough in my answer and approach as to why just quoting a figure may not be in the best interest of the management company and hence the client.

To calculate a management assignment quote and determine what should be included, you must have a good handle on what your overhead costs are as well. If you have unit costs on your overhead, it’s much easier to simply create a matrix of unit items and then calculate the labor hours that relate to those functions.

The functions can be general categories like:

• - Account Management/Executive
• - Supervisor
• - Property Manager
• - Administration
• - Accounting
• - Capital Project Management
• - Leasing
• - Legal
• - Insurance
• - Technology

This is a sample list of functions; some of the functions may or may not apply to the scope. For instance, the owner of the building may pay and secure property insurance or use their own real estate tax attorney. Although that may be a red flag for smaller property owners, for large clients, it may be that they put their insurance out to bid as they have a risk management department to handle that work. Or they have an in-house legal department. These are important areas to consider, and understand that these tasks take time. And remember, time is money!

I think you get the drift here, but the main points are that no two properties are alike and no two property owners are alike. If you keep that in mind, you will be able to identify clients that understand your value and your concern to do the job right, rather than just provide a proposal blindly, without knowing how it will impact their company and the overall health of the assignment.

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

So in American Horror Story, after some certain traumatic events occur and the building’s history is uncovered, the protagonists STILL don’t move out of the house. The writers are nuanced enough to know that the audience will ask the question “Why do they not move out now?” So they actually attack this head on. Money problems prevent both an immediate move-out and obstruct a potential sale. So because I like to think I am still more nuanced than the newly nuanced writers, I counter with: “Why don’t you just rent the place out?”

Somebody could move in and you could get paid for it. Not only will you get paid rent, you will also be removed from liability for injuries to third parties entering on the premises, the thinking goes. Well, the first part would be true. The second part — non-liability of an owner not in possession — is not as clear.

We know from our previous entries that possession and control are big factors in imposing liability. An absent landlord is not necessarily in possession, and may or may not have control. The law we know trends to basic duty of care obligations. The out-of-possession owner must act as a reasonably prudent person in similar circumstances.

They have to do those things that they can do to prevent injury, such as inspect the premises as permitted by the lease or between renters. You may be relieved while out of possession if there was no opportunity to inspect for new dangers. If the danger was added or formed after you left and you did not know or have the opportunity to inspect, there is a strong argument for relief. The defense is probably stronger in a commercial setting owing to the sophisticated nature of the tenant, the stronger lease language regarding duties, and an inability or obligation to inspect when a sophisticated commercial tenant is installed and alters the property.

In residential or commercial leases, the California courts have set forth their factors for determining the existence of a duty. These harken back to our very first discussions and the “Rowland” factors, for any of you paying attention. The factors are “likelihood of injury, the probable seriousness of such injury, the burden of reducing or avoiding the risk, and his degree of control over the risk-creating defect.”* All of this assumes the out-of-possession lessor knew or could have known about such risk-creating defects. If he did, the essence is, was there potential for serious injury and if so, could the out-of-possession owner get in there and fix the situation?

Perhaps because this area was not so clear, the ever-so-clever American Horror Story writers avoided the rental idea. Maybe they knew all about this.

*Brennan v. Cockrell Invest., Inc., 35 Cal. App. 3d 796, 801 (1973)

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

So let’s talk American Horror Story and the liability of prior owners for dangerous conditions. Our favorite fun subjects, right? Before things got too silly, there’s an episode where [spoiler alert] somebody dies and gets buried under the gazebo. This being a horror show, the victim is not content stay under the gazebo. Said victim gets out and causes all sorts of mayhem, including injuries and some pretty serious property damage. Would you stop throwing stuff around? If you, dear reader, saw a great investment opportunity in this property and bought it nonetheless, would you be liable for this victim’s subsequent mayhem on your tenants?

OK, well, let’s put it in slightly more realistic terms. Let’s say you build a nice fish pond in your back yard, because you like Japanese carp. You get that promotion and transfer across the country and away you go.  You sell the property to Mrs. Investor, who is most definitely going to rent it out. She does, and the new family moves in and their toddler drowns in the pond. Are you, dear reader — seller — liable for that wrongful death claim? Come on — you know the answer. What were we discussing all last year?

Control. Once you sell the property, do you have the ability to go back in and warn the new tenant about the pond? Can you remove it? You think the new owner would like you going on the property with some bulldozers on the grounds that you want to make it safe for her new tenants? I didn’t think so. Congrats — you readers and California law are in accord!  The California Supreme Court in Preston v. Goldman said there was no liability. The main issue was, as usual, control. The seller, even though he installed the pond, had no right to control the danger related to it once he sold it. He could not remove the pond, fence it off, warn about it, or control who came onto the property.

The situation might be different if this were some kind of special, hidden carp pond that you, dear reader, forgot to disclose to the purchaser. Or if you installed a garden cover that was camouflaged and did not tell the owner how to access it, or some other hidden danger that led to the death. Then you might be liable if the buyer would not discover it under most circumstances, i.e., if the seller could discover the hidden carp pond with a reasonable inspection, you would be off the hook.

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submissions 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 Colin McCarthy, J.D., Robinson & Wood, San Jose, CA

One of my favorite movies of all time (I have a lot of them), Die Hard, has many great lines which I like to quote. Frequently it’s the “yippee-ki-yay” line, usually right as I am about to win a case. Sometimes it’s “What were you doing with the detonators, Hans?” for no real reason. I also like “You asked for miracles? I give you the F. (pause) B. (pause) I.” But one of my favorite lines and the one that gets the ball rolling on all of the above is in the opening scene, when our hero arrives at the airport in L.A., and sees a California girl act silly and leap into the arms of her man. Bruce simply says with a shake of the head: “California.”

He is so right. California is a great place, but sometimes it does merit the odd shake of the head. Here is an example: Did you know that for purposes of strict products liability, a residential dwelling that injures is considered a “product,” provided it meets certain requirements? Strict products liability makes it even easier to find liability against defendants for injuries by eliminating certain proof requirements. So it’s easier to sue a “product” manufacturer for injuries than under other circumstances.

In some cases, it will be easier in California to sue a home builder for injuries brought about by things in the home on this strict products liability theory. Fortunately for the smaller-end builder, it usually does not apply. It applies to the large-scale residential home developer. It typically will not apply to the builder who does an occasional home build and sells. The idea is that the large-scale developer is presenting itself as a leader in building homes and has expertise and skill on which the home buyer is relying. That is not the case with the person who builds homes on a more isolated basis. It is also not the case with the subcontractors working for the large-scale home developers.

The subcontractors also do not make a “product” per se but provide a service, whereas the developer of large-scale residential developments is placing “products” of individual residential units into the stream of commerce. If they injure, say by a bad design, the entity that places that “product” into the stream of commerce will be liable.

Which begs the totally unrelated question: Do you think Bruce Willis’ character totally got sued for all the property damage he caused at Nakatomi Tower? Maybe not, but if I were him I would have sued that TV reporter for invasion of privacy …

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. The statements in this blog submissions 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 Linda Day Harrison, theBrokerList, Chicago, IL

If you are in the industry of caring for properties, leasing properties, or even selling properties, there is one tool you should never be caught without — the Emergency Calling List! It’s the one tool that does many things for anyone charged with caring for a property.

When you think about the word “emergency” it connotes visions of fires, floods, crime, etc. However, when you think of the words “crisis” or “disaster,” it sounds much more evil and sinister. The difference to me is that you can have an emergency, but if you are not prepared, it can quickly become a crisis or a disaster. There is a huge difference.

Being prepared, like Boy Scouts are always known to be good at, is an incredible skill. It takes thought, the ability to anticipate, and planning. On top of that, it does requiring testing from time to time and many “what if?” scenario considerations.

The first step to being prepared for any emergency, at the most basic level, is to start an emergency calling list. The list needs to be from the top down, and include all things you would need to know or people you can count on at 2 a.m. on Christmas Eve. Yes, can you reach these people at the worst possible time you can think of? How about 5:30 p.m. on a Monday night? Everyone is in rush hour driving home and all of the businesses you rely on are closed! That is what an emergency calling list can and should do for you.

Creating the emergency calling list is the first thing I do when I take on a new property. I create my emergency calling list before anything else is even considered. Why? Because I have been there and done that in my career, and extreme emergencies can hit when you least expect them.

The emergency calling list should start with the local and/or public authorities and work itself down through the chain of command, including vendors, neighbor properties, and key information you will most certainly need when you least expect it. The emergency list should contain phone numbers, email addresses, home phones, relative phones, cells, pagers, and whatever means necessary to reach individuals, as well as options if those fail. Just keep thinking, “What if this fails?” and “What if that fails?” If you keep thinking about “Plan B,” then “Plan C,” you are doing a great job in building your emergency calling list. Do not just accept a number for an office of a vendor either! Be sure you ask for the after-hours numbers! I have been there, done that. I know from years of practice that you must ask all vendors who are on your list what the procedure is for contacting their technicians on weekends and evenings.

Formatting an emergency calling list is something to consider as well. In my sample provided here, I have always kept my emergency calling list in alphabetical order by incident type, combined with sections for in-house personnel, public services, and neighbor properties. But this is just a sample! There are so many styles and layouts in how you create your form. The emergency calling list should be a daily event. Are there changes? Are people on vacation? Are there new vendors to add? New phone numbers? Et cetera. When you learn of a change, make it immediately! Do not procrastinate. Also, when you physically print the list, consider how many you need to print and distribute. How many do you need to hand out to your key personnel? Remember this is a tool and we must distribute physical lists, even with our high-tech world. One of the most severe emergencies you may experience may be loss of power. Without power there are no computers or Internet! Since we printed our emergency calling lists constantly, we simply added the number of copies next to each member of the team, and even that information was maintained on the emergency calling list. This would indicate next to each key contact name type how many to distribute physically. Yes, physically. Remember, if there is no power, all computers are down.

Once printed and distributed, think about where you want to maintain the physical lists. The emergency calling list needs to be maintained in several locations. Here are my locations:

1. Refrigerator
2. Car/trunk/glove compartment
3. Briefcase/laptop bag
4. Computer
5. Cell phone

In other words, I have physical, online versions and cell phone access to the data. If I am driving in traffic, I have one in my vehicle. For home use, I have a clipboard with a magnetic back that adheres to the side of my refrigerator. Believe it or not, it is the most often used list. Most emergencies happen after hours and in the late night hours. In other words, everywhere I go, I am prepared. It is such a relief when you receive an emergency call and you have your list at the ready. It can make the difference when you get your next emergency call and it helps to prevent any emergency from becoming a crisis or disaster. Why? Because you are prepared! Here is a blank sample form of what my most favorite type of emergency calling list looks like. Click here to check it out.

Do you and your team have the #1 most vital property tool ready? If not, stop now and get it done.

A guest post by Cathy Fontana, Class A Management, Dallas, TX

If you’re new to property investing or management, it’s important that you first and foremost understand the different property “classes.” These classes help set standards as well as acceptable rental rates.

So, let’s take a close look at what defines each and then we’ll talk about the best property class for your investment dollar.

Class A: These properties are the top of the line. They are well designed, and use the best quality materials and construction. They are well-maintained and well-managed, and for these reasons are the most desirable properties. They are typically new properties, but do not have to be if all other factors are met. In fact, a much older property can be Class A if the right materials were used and management has kept it in the best possible condition.

Class B: Properties in this category are most likely going to be somewhere between 10 and 50 years old. They are built with average materials and construction and have been maintained according to the status quo. They are useful spaces, but there isn’t really anything unique or special about them.

Class C: Those properties that would fall in this class, as you might imagine, are not the cream of the crop. They are much older buildings, in which the construction, materials, and management are below average, while the main systems, such as mechanical, electrical, and HVAC, are average-to-poor. These spaces are known to attract a lower income tenant whose primary concern is affordability and not amenities.

For Your Dollar

What would you guess is the best buy? Most investors are going to say a Class A property because it’s likely to attract the right tenants, and at a higher rate. But that’s actually not the case. What you want to try to do is go for the Class B property. It is going to be more affordable than a Class A property, but has all the foundations needed to turn it into a Class A property.

Here’s how:

1. The construction and materials are already good, but it will require a thorough look at how to improve where needed. How old is the roof? Are there drywall needs to be addressed? Is there a better “flow” to the individual units that would improve their appeal? How about the addition of a clubhouse or fitness center? You get the idea. Once it’s decided which projects will be completed, it’s necessary to do it with the best quality materials and construction.
2. Upgrades are the key to separation between the classes. Take a look at Class A properties and see which they have chosen to offer. Make a list and then get yourself access to a good wholesaler of discount, but high-quality, products. This might include bathroom fixtures, lighting, blinds, carpeting or hard woods, countertops, and a wide variety of kitchen upgrades.
3. Get a management company who knows what they’re doing and can not only help you get everything completed on points #1 and #2, but can also manage everything about it, from marketing to screening to the everyday.

Class A Management is a leading property management company for Texas owners and operators, offering a wide range of premier services. For more information, visit www.classamanagement.com or call 817-284-1411.

A guest post by All Property Management, Seattle, WA

This week, we’ve got a great infographic to share with you. To quote directly from it, “Being a landlord isn’t easy, especially for someone with a day job, but this is sometimes a hard lesson to learn. … As a DIY landlord, the to do list can be extreme. Is it wise to take that all on yourself?” Read on and find out!

Special thanks to AllPropertyManagement.com for sharing. Enjoy!

AllPropertyManagement.com

By Carla Toebe, New Century Realty, Kennewick, WA

One of your responsibilities as a property manager is to maintain a safe, secure, crime-free property. Unfortunately, there are a number of scenarios within property management that a criminal – or even just an opportunist – could exploit. The list below outlines some situations to avoid and some precautions to employ.

Never accept cash. Never, under any circumstances, accept cash as payment of rent. By never accepting cash, you will prevent possible thefts by employees or outside people who have marked you as a target, and you will also attract fewer criminals who want to deal only in cash so they can launder money or keep their money trail off the records to avoid being tracked.

Screen your applicants. Application screening is another very effective way of recognizing criminals, or people living beyond their means. Naturally a criminal record is a red flag and is generally considered a reason for denial. Another red flag is having a number of items in collections that are not being dealt with. This could mean the individual is living beyond their means. You have to consider the possibility that their wages might be garnished to take care of these bills. Would they be able to still pay the rent? Where is the rent money coming from in that case?

Be aware when showing units. Showing a rental unit could also be potentially dangerous if you do not take appropriate precautions. When you are showing a place privately to a stranger, you are giving them a perfect opportunity to commit a crime against you. It is always a good idea before you meet them to get their information and do all the pre-screening you can. If you feel they may be an OK fit but are still uneasy about them, be sure to show the unit during daylight hours. One very good tactic is to set appointments for multiple prospects at the same time. If you must meet the person alone, require an ID prior to entering and leave their license info with someone who can follow up with police in the event you don’t return with the “all OK” message.

Change the locks. Always make sure you change the locks between tenants. There should be adequate key control in place as well. Keys marked with the unit number and street number can lead someone right to the tenant’s door in the event that key becomes lost, is not returned, or is left lying around by someone using it. Keys should only have limited information on the tags or a cross reference sheet identifying what the codes on the tags mean. Always keep proof that the locks have been changed; it protects you from liability in the event of a break-in. If a tenant loses a key, they should be charged a replacement cost to re-key the locks.

Keep sensitive information secure. You’re holding personal information about each of your tenants. All of this information needs to remain in locked cabinets when not in use and not given out to anyone without the tenant’s written authorization, unless it is requested by law enforcement. If it is requested by law enforcement, you will need to cooperate, but make sure you are dealing with an official of the local police or FBI before giving out personal information.

Keep renters informed. If a crime does occur in one of the units you are managing and you have other tenants in the same vicinity, they should be notified of the crime so that they are aware and can protect themselves. Most crimes committed against people in rentals are crimes of opportunity, and renters can do simple things to make sure they do not become victims.

Think twice about signs. If your rental is in a higher crime neighborhood and prone to vandalism, you may want to do some creative advertising that your unit is available. You do not want to leave a sign on the street indicating you have a unit ready to move into. If you must put a sign out there, you can request that the current tenants not be disturbed so that any onlookers will think it is occupied.

Engage the community. Finally, there are neighborhood watches that you and tenants can become involved in, and many cities have crime prevention seminars that you can attend to learn more tricks of the trade in order to help keep you and all your tenants safe.

By Linda Day Harrison, theBrokerList, Chicago, IL

As a property manager, you hire landscapers or onsite staff to care for your grounds because proper greenery can really increase the property’s value. But how much do you know about plants and how much time do you spend learning how to incorporate plants into your property? Here is a list of things every property manager needs to know about plants, along with some inspiring thoughts to save money and create community spirit!

The Basics:

Annuals – Plants that grow for one single season.

Perennials – Plants that will return year after year.

Ground cover – A plant that is low growing and generally prolific (i.e., it spreads). Ground cover is great for the base of other plants as an accent. Also, depending on the area of the property, it can hide ugly areas or hard-to-grow spaces. Grass is one of the most successful ground covers, especially if you want a tall grass look. Grass comes in a ton of varieties, so do a little research on what you want before you lay the seed.

Zones – A zone refers to your climatic region; you need to know your zone when shopping for plants, shrubs, and trees. Each region has a number, and that number is vital to understanding what plants will work in your zone and what plants won’t. For example, if you live in an area with harsh winters and you want your plants to return the following year, you may want your plants to be covered for Zone 5a/5b. Check out your zone number here.

Water – Caring for your plants should be as low maintenance as possible, but obviously plants need water to become established and in times of drought. Don’t throw money away by installing a new plant and then forgetting about it. That is wasteful to your property owner! Water new plants diligently the first year. That way the plant will come back and require little to no water the following year (subject to your climate). If a drought occurs, do the best you can to remember the plants, even if some areas have water restrictions.

Exposure – If you’ve put a plant in a certain location on your property and it’s not doing well, more than likely it is due to poor placement. Time after time I find plants placed in areas with tons of shade, when in fact they should be in areas that receive a massive amount of sun. If you are not sure about the best location for a plant, look to the Internet for a quick answer. Every variety has a detailed description on what exposure is best. Follow what the plant description describes and simply relocate the plant. If the plant is struggling, consider moving it to a container and giving it some tender loving care for a while. Once it regains its strength, move it to the new location and water, water, water! The last thing anyone wants to see on a property is a dead or struggling plant!

Money Saving & Community Building Tips:

Grow Your Own – There are beautiful plants that spread so prolifically that you can literally place a single plant in a certain area of the property and use that spot as an incubator to grow more plants each year for future areas, thus saving your property money on future plant expenses. Examples include plants such as hostas, coneflowers, lamiums, daylilies, salvia varieties, wildflower varieties, tall grasses, and sedums. Not only do these plants save you money outside, around your property’s grounds, but these prolific plants can also save money on decorative plants used inside, in lobbies and other common areas.

Seeds – If your property has no money for plantings or landscapers on a grand scale, consider buying seeds. Creating a beautiful landscape when money is tight can be done with seeds. I always like to plant the seeds in small pots and watch the little sprouts very closely. If you live in an active community, it’s easy to get your residents involved. Find volunteers to help watch the sprouts and water them. Once grown, move them to larger pots until the little plants are established and strong enough to be put into the ground. You can also find custodians and other staff members to get involved to help nurture the plants. You will be surprised by how many folks who live or work on your properties have a green thumb. Before you know it, for a few dollars you will have large, full-grown plants!

Flower or Vegetable Gardens – If you have a property with land to spare, consider organizing a community garden. Give the residents the space and a community storage shed or closet to store tools and supplies. Let everyone get involved and create a garden for everyone to share. Grow plants or vegetables for the property or a nearby homeless shelter. This is a great way to grow more plants for the property, and it’s also a great resident activity.

Plants can really bring a property to life. Properly kept grounds can make your property very inviting to new and existing residents. It also shows owners that you take the extra initiative to make their properties look as attractive as possible, which only makes you look more marketable to other potential owners. Plants can be a property manager’s best friends!