Property Management
Good property management is active property management with a hands-on involvement in all phases of the rental operations for people, property, and policies. Active management can be the owner’s self-management of his property or as out-sourced services from a property management company.
Self-Management
At the most basic level of business ownership an owner must ask himself if he really wants to manage his own properties. Active property management is a demanding business. An owner should assess his willingness to handle multiple priorities and potentially stressful situations in a 24/7/365 environment. Appropriate and timely response to emergencies and other call-outs is critical for protection of tenants and property.
Time management is a high priority in active property management. An owner should consider the expense of time involved in daily operations and on-call readiness. Consideration should be given to the value of time and best use of time before an owner commits to acting as his own property manager. Property location, type, size, as well as the number of properties can easily increase a workload despite an owner’s real estate management experience or handyman capabilities. The number of hours in a day does not increase when more properties are added to the investment portfolio. Even with the best of properties, an increased workload or unexpected events involving tenants or properties can quickly drain owner resources.
While some owners prefer to invest in single-family housing to transfer some of the routine maintenance tasks to the tenant, the owner retains the responsibility and liability to keep the property in good and habitable condition. With multi-family housing and multi-unit properties, there is a corresponding increased workload to inspect, maintain, and repair buildings and keep the grounds in a satisfactory manner for compliance with various habitability, health and safety, and building code standards.
Before accepting the management challenge, an owner should conduct an honest self-evaluation of his skill sets, tolerance for risk, the value of his time, and the availability of resources to protect and maintain his business. If an owner does not have the time, willingness, energy, and abilities to be a full-time hands-on landlord, he may want to consider his options in utilizing a property management company.
There can be circumstances where the utilization of a property management company is the better business practice. As an example, the physical location of a rental property may be distant from the owner’s residence, making it difficult to devote adequate attention to property inspections, maintenance, repairs, rent collection, and other normal course of business activities. Utilizing a property management company in the local area of the rental property may be appropriate in this situation.
Property Management Companies
Property management companies can offer a variety of services depending upon the scope of engagement – i.e., full service management or an a la carte menu of management services.
An owner can choose the type of service that fits his business needs, as example, utilizing the management company for marketing and tenant screening services while retaining hands-on management for other property operations.
For several reasons, an owner should take special care before engaging the services of a property management company. The use of a property management company does not eliminate owner liabilities related to business ownership and operation. The property management company, as selected, becomes the owner’s legal agent who essentially controls the rental investment through their representation with tenants and governmental agencies, enforcement of rental policies, and handling of rents and deposits. The owner is liable for all acts performed by the owner’s agent in exercise of the authority given the agent by the owner.
Accordingly, an owner must have a good understanding of the many duties in property management and conduct all due diligence necessary to ensure the property management company is capable to manage the rental properties in a manner that legally compliant and in accordance with the owner’s rental policies. In his due diligence an owner should determine from the management company the:
- Authority, duties, and responsibilities of the management company;
- Duties and responsibilities of the property owner;
- Handling of tenant and owner funds;
- Handling of expense issues, including authorization for large non-routine expenditures;
- Types of reports provided to the owner;
- Schedule of disbursements;
- Insurance issues;
- Management compensation;
- Maintenance duties; and
- Renewal and termination of the management contract.
Property Management Duties
There are core property management duties that must be addressed through compliances, policies, and practices regardless of the form of management.
- Legal requirements – up-to-date knowledge of applicable federal, state, and local laws including landlord-tenant statutes and fair housing laws; compliant rental forms, policies, and practices.
- Market research – analysis of local rental market data, trends, and rents; comparison of property features, rents, and amenities to market competition; setting an optimal rent range for the property.
- Marketing – marketing the property in local rental markets to increase exposure and branding opportunities and tracking advertising results to determine the most effective methods to attract applicant pools.
- Filling vacancies – maintaining rent ready condition of vacant units; prompt response to prospective applicants’ inquiries; open house showings, accepting rent applications; collection of application deposits; screening of applicants including background checks on applicant credit history, rental history, public records, and criminal conviction history as allowed by state statutes; verifications of applicant identity, income, and employment status; analysis and evaluation of screened applicants; recommendation for tenancy; required legal disclosures to an applicant before the move-in date.
- Tenant move-in – new tenant orientation session; collection of security deposit and other fees; lease signing, unit inspection and move-in checklist, delivery of keys.
- Tenant move-out – unit inspection and move-out checklist documenting condition of unit, security deposit accounting and return, return of keys from tenant.
- Tenant customer service – prompt response to tenant inquiries, requests, complaints, problems and maintenance issues.
- Rents – rent roll, collection of rents, assessment of late fees, pay or quit notices as required.
- Property inspections – annual property inspection; periodic health and safety issues inspections for lease/ code violations or repairs.
- Repair and Maintenance – routine and preventative maintenance for units; maintenance of property buildings, grounds, and common areas.
- Evictions – tenant notification to cure or quit, filing of unlawful detainer action; follow through with court procedures for tenant removal from unit and return of possession of rental unit to owner.
- Business Reports – management and financial reports for business analysis and planning; accounting and bookkeeping reports; management reports for vacancy rates; cash flow statements with itemized income and expense data; tax reporting documents; tenant files; property files, and ownership records.
The decision to self-manage, out-source full management, or selectively engage property management services is a business decision based on data from multiple sources. Data for analysis could include costs of out-sourcing, owner time, property details, resources, owner experience, or owner preference. A cost-benefit analysis of each management option may be beneficial to determine the most cost-effective yet profitable method of rental property management.