Unit 23: Property Management

Property Management
Management of another’s property for compensation
Property Manager
Someone who manages real estate for another person for compensation. Duties include collecting rents, maintaining the property, and keeping up all accounting.
Management Plan
Outlines the details of the owner’s objectives with the property, as well as what the property manager expects to accomplish and how, including all financial objectives
Management Agreement
A contract creating a general agency relationship between the owner and the property manager
Elements of a Management Agreement
(1)Description (Property should be clearly defined)
(2)Time Period
(3)Definition of the management’s responsibility
(4)Statement of the owner’s purpose and responsibilities
(5)Extent of the manager’s authority (firing, hiring, etc)
(6)Reporting (Sending reports)
(7)Compensation
(8)Allocation of Costs (What will manager pay and what will owner pay for-office stuff, advertising, etc)
(9)Antitrust provisions
(10)Equal opportunity statement
Description
Property should be clearly defined
Property Manager Responsibilities
(1)Achieve the goals of the owner
(2)Generate income for the owner’s (and financial reports)
(3)Preserve and increase the value of the property
Property Manager Financial Reports
(1)Operating Budget
(2)Cash Flow Report
(3)Profit and loss statement
(4)Budget comparison statement
Operating Budget
Projection of income and expense for the operation of a property over a one-year period
Cash flow report
A monthly statement that details the financial status of the property.

Net operating income-debt service-reserves=cash flow

Income
Earnings from work or investment

Rental income + other income- losses incurred = total income

Income-operating expenses= net operating income before debt services

Profit and loss Statement
Financial picture of the revenues and expenses used to determine whether the business has made or lost money

Gross receipts-Operating expenses-Total mortgage payment+Mortgage loan principal = Net profit

Budget comparison statement
Compares actual results with the original budget, often giving either percentages or a numerical variance of actual versus projected income and expenses.
Four long term considerations when setting rental rates
(1)Rental income must be sufficient to cover the property’s fixed charges and operating expenses
(2)Rental income must provide a fair return on the owner’s investment
(3)Rental rates should be comparable with the prevailing rates in comparable buildings; it may be slightly higher or lower depending on the strengths of the property
(4)The current vacancy rate in the property is a good indicator of how much a rent increase might be advisable. Lower vacancy rates mean that it may be a good idea to raise rates
Collecting rents
Terms should be spelled out in detail in the lease agreement, including:
(1)Time and place of payment
(2)Provisions and penalties for late payment and returned checks
(3)Provisions for cancellation and damages in case of nonpayment
Americans with Disabilities Act
Passed by Congress in 1991, this act banned discrimination against the disabled in employment and mandated easy access to all public and commercial buildings. Must have full and equal access to facilities and services

(1)Doors with automatic opening mechanisms
(2)Intercom systems for buildings without elevators
(3)Grab-bars in public restrooms
(4)Shopper’s assistant to help disabled customers
(5)Menus and real estate listings in large-print or braille format
(6)Lower public telephones
(7)Permit guide dogs
(8)Ramps in addition to entry stairs

Existing barriers must be removed when it is readily achievable with little difficulty and low cost

Examples:
(1)Ramping and removing an obstacle from an otherwise accessible entrance
(2)Lowering wall-mounted telephones
(3)Adding raised letters and Braille markings on elevator buttons
(4)Auditory signals in elevators
(5)Reversing the direction in which doors open

Equal Credit Opportunity Act
Act stating that a business entity may not discriminate against a credit applicant on the basis of race, color, religion, national origin, age, sex, or marital status.
Fair Housing Act
The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, and national origin
Guiding Principle
What you do for one, do for all!
Property Maintenance
Protect the physical integrity of the property over the long term
Four Types of Property Maintenance
(1)Preventive Maintenance
(2)Repair or Corrective Maintenance
(3)Routing Maintenance
(4)Construction
Preventive Maintenance
Preserves the long-range value and physical integrity of the building
(Examples: Regularly scheduled painting, servicing of appliances and systems)
Repair or Corrective Maintenance
Involves the actual repairs that keep the building’s equipment, utilities, and amenities functioning
(Examples: Fixing a broken toilet or air conditioning unit)
Routine Maintenance
Maintenance activities that must be performed on a continual basis
(Examples: Cleaning common areas, regularly scheduled upkeep of heating and air-conditioning, and landscaping
Construction
The act or process of building, erecting, or constructing buildings, roads, or other structures.
Tenant Improvements (“Build-outs”)
Construction alterations to the interior of the building to meet a tenant’s particular space needs
(Examples: Recarpeting, erecting new walls)

(Note: Usually new building interiors are left incomplete to adapt to the needs of the tenant)

Risk Management
Involves answering the question “What will happen if something goes wrong?”
(1)Control the risk by installing preventative measures
(2)Avoid the risk by removing the source
(3)Retain the risk with a large insurance deductible
(4)Transfer the risk with an insurance policy

Be careful of intruders

Tenant’s Insurance
The owner can only insure what they own-tenants must purchase their own renters’ insurance
Multi peril Policies
Commercial insurance policies that offer standard protection from a rands of potential perils, such as those of a fire, hazard, public liability, and casualty