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How can you identify financial risks when managing a property?

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Managing a property can be a rewarding and profitable venture, but it also comes with various financial risks that can affect your cash flow, profitability, and reputation. These risks can arise from market fluctuations, tenant issues, legal disputes, maintenance costs, and other factors. To protect your investment and minimize your exposure, you need to identify and assess the potential financial risks that can impact your property and take proactive measures to mitigate them. Here are some tips on how to do that.

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Amanda Inderbitzin

Vice President of Asset Management

1 Know your market

One of the most important aspects of managing a property is understanding the market conditions and trends that affect your property value, rental income, vacancy rate, and demand. You need to research the supply and demand of similar properties in your area, the average rent and occupancy rate, the economic and demographic factors that influence your target market, and the competitive advantages and disadvantages of your property. This will help you set realistic and competitive prices, adjust your marketing strategies, and plan for future opportunities and challenges.

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2 Screen your tenants

Another key factor that can affect your financial performance is the quality and reliability of your tenants. You want to attract and retain tenants who pay their rent on time, take good care of the property, and follow the lease terms. To do that, you need to have a thorough and consistent screening process that checks the credit history, income, references, and background of every applicant. You also need to have a clear and detailed lease agreement that outlines the rights and responsibilities of both parties, the rent and deposit amount, the late fees and penalties, the maintenance and repair obligations, and the termination and renewal clauses.

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Jodie Schickerling ???

Director | Estate Agent ? Property Manager ◆ Commercial Property Consultant
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Here in Australia we are fortunate to be able to do financial and criminal pre-screening checks on tenants. The fees are tiny compared to the cost of taking on a tenant that defaults - and these fees we do not on-charge to our landlords - they are covered by our management fees. We see these as an investment because it saves us time, stress and money by ensuring we secure reliable and trustworthy tenants. Don't think that because a tenant has strong financials that they are going to be a good tenant. They could be involved in criminal activity and be arrested/jailed during a lease that causes them to default. It happens. To be safe, always expect the unexpected!

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3 Manage your expenses

As a property manager, you have to deal with various expenses that can eat into your profit margin, such as taxes, insurance, utilities, repairs, maintenance, marketing, and management fees. You need to have a realistic and accurate budget that tracks your income and expenses, and identifies areas where you can save or optimize your spending. You also need to have a contingency fund that covers unexpected costs or emergencies, such as major repairs, legal fees, or vacancies. Additionally, you need to have a preventive maintenance plan that ensures the safety and functionality of your property, and reduces the risk of costly breakdowns or damages.

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Amanda Inderbitzin

Vice President of Asset Management
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I also recommend that you do your preventative maintenance a little each week, throughout the quarter. This helps to catch problems early, and to spread the time and expense evenly throughout the budget year. Waiting to do PM’s quarterly can seriously set your site back in long run. By taking your rent roll and dividing it by twelve, you’ll come up with the number of units you need to visit each week. I always picked Wednesday mornings. One tech and one office member walk together. You’re checking smoke detectors, changing furnace filters, checking for blocked egress, pets, housekeeping and pest control issues. *pro-tip, take the following weeks unit notices with you to deliver while you’re out.

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4 Comply with the law

Managing a property also involves complying with various laws and regulations that govern the landlord-tenant relationship, such as fair housing, security deposit, eviction, health and safety, and environmental standards. You need to be aware of the federal, state, and local laws that apply to your property, and follow them accordingly. You also need to keep accurate and updated records of your transactions, contracts, inspections, and communications with your tenants. This will help you avoid legal disputes, fines, penalties, or lawsuits that can harm your reputation and finances.

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Jodie Schickerling ???

Director | Estate Agent ? Property Manager ◆ Commercial Property Consultant
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ALWAYS be compliant. Ensure staff are educated and receive continual education, particular;y when it comes to compliance and rules and regulations. Laws change frequently - staff need continuous professional development to stay up to date. To not invest in continuous education for staff is a financial risk to your business, and also a financial risk to your clients whose best interests are not being taken care of.

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5 Review your performance

Finally, you need to regularly review your financial performance and evaluate your strengths and weaknesses. You need to monitor your cash flow, profitability, return on investment, and occupancy rate, and compare them with your goals and expectations. You also need to solicit feedback from your tenants, contractors, and partners, and identify areas where you can improve your service, quality, and efficiency. By doing this, you can identify and address any financial risks that may arise, and adjust your strategies and actions accordingly.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Amanda Inderbitzin

Vice President of Asset Management
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Market to your existing residents. Happy residents pay their rent on time, treat the asset well, report issues timely, renew their lease and tell their friends. Budget for higher resident referral fees - like attracts like. Send birthday cards for all household members, including pets - it’s the soft touches that have the hardest impacts and this is a form of marketing; you’re reminding them how great you and your community are!

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How can you identify financial risks when managing a property?

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3

4

5

6

1 Know your market

2 Screen your tenants

3 Manage your expenses

4 Comply with the law

5 Review your performance

6 Here’s what else to consider

Property Management

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How can you identify financial risks when managing a property?

1

2

3

4

5

6

1 Know your market

2 Screen your tenants

3 Manage your expenses

4 Comply with the law

5 Review your performance

6 Here’s what else to consider

Property Management

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