THE ABCs OF PROPERTY MANAGEMENT

While finding, buying, and selling real estate is a relatively shorter process, managing these properties is a long-term proposition. Most real estate investors are taken off guard by the blood, sweat, and tears that go into effectively managing a property. Although it takes a substantial amount of time and energy to manage a property effectively, great property management will bring immense value to your investments.

If your primary investments are in smaller rental properties like apartments, townhouses, or villas, you might be thinking, “Sure, the decision to hire a property manager is a no-brainer when it comes to managing building(s). But how does that apply to me? Do I really need a property manager for a villa or an apartment?

I’ve come across people who feel that professional property management is something that is only suited for people who own apartment buildings – for professional investors that have the money to hire a company. That couldn’t be further from the truth. The same people believe in managing their rental property by themselves.? Well, how difficult is it to collect rent?

Managing any property is time-consuming and demanding irrespective of its size. The same principles always apply to every new property you encounter. You have to find renters, collect rents, perform maintenance, complete capital projects, and take legal action – the list goes on and on. This is not to say that you can’t manage your own property and that you can’t do it successfully. Many people do. But more often than you might expect, people wander blindly into managing their own properties, and often with disastrous financial results. It’s not an outcome of their incompetence. Rather, it’s often a fundamental lack of understanding of the basic principles that lead to disaster. Usually, this doesn’t come in the form of a major catastrophe. Instead, one small error leads to another, and another, and another – and, well, you get the point. All these little mistakes add up to one major quandary. In the end, most amateur investors rationalize the situation and placate themselves by placing the blame on the real estate and terming it as “a bad investment.”

Real Estate Investments are not neat and clean like stocks or bonds. They are not paper that can be transferred from one account to another. They require you or someone you hire to roll up your sleeves and get your hands dirty. What do you think property management involves?

Here’s an interesting exercise. Take a moment before you continue reading and grab a paper and a pen. I want you to make a list of everything that you think is involved in managing a property, and the things that are required to ensure that the property runs smoothly and efficiently. Make it as detailed as possible. Then, add the time you think it will take to complete the things on the list and how frequently you think you will have to do them. For a majority of investors, there is a gross misconception of the time, effort, and work that is involved in managing a property.

A well-established property manager can save you a substantial amount of time and money and keep you stress-free from day-to-day operations.

Now, I will show you my list and try to explain every aspect in brief.

A. Residents

The biggest part of property management is interacting with residents. Everything else stems from that. Just some of the many things that you’ll have to do involving residents are:

• Show the property to potential tenants
• Find the right tenant
• Due diligence and background check
• Collect rent/ fees
• Address their maintenance issues
• Enforce policies and contracts

B. Maintenance

It is imperative that you have sound systems in place for maintaining your property. Maintenance is the single most time-consuming and expensive aspect of owning an investment property. It is often the reason that residents move out of your property as well. If they are not happy with the level of service provided by you, then they move on down the street. Taking care of your residents’ maintenance issues will draw you out of your home at all hours and take a significant portion of your time. Whether you like it or not, your residents look to you to be timely and accommodating to their schedules, not your schedule, when it comes to fixing their homes. Something else to consider is that established property management companies have relationships with maintenance vendors and can contract work at a much lower rate than the general public. Even more, they have the ability to be bumped to the top of the list when it comes to responding to emergencies. We call this economy of scale.

C. Vacancy, Turnover, and Leasing

Vacancy, turnover, and leasing, much like maintenance, are constant time and money eaters. In fact, money and time lost from vacancy will be the biggest stress point of managing your property. If it takes you two weeks to get a place rent-ready you have lost two weeks of potential income. As a property manager, it is essential to have systems in place for setting up a rental quickly and efficiently.

D. Laws and Regulations

The most important, and often most overlooked aspects of managing a property are the legalities involved in dealing with both, your potential residents and those that already reside in your property. The laws and regulations in any given area are complicated and nuanced. The average person simply doesn’t have the capability to keep up with changing laws or to effectively interpret them. And when it comes to the legalities of property management, ignorance can be costly.

By way of example, ask yourself this: Are you familiar with the law regulating the relationship between the landlords and the tenants? Or the law that governs a rent increase? Even seemingly simple procedures can become major issues if you handle them incorrectly. For instance, if you need to evict a resident, how many days’ notice do you legally have to give your tenant? How does that notice have to be delivered? What are valid reasons for evicting someone? An eviction that is handled incorrectly can cost you a lot of time and money – and in the end, you might not even be able to evict the resident, even if the reasons were valid.

E. A Solid Lease

A well-drafted lease is essential for protecting your interests. Most of the owners have leases that are simply too short. Remember, if it’s not in the lease, it doesn’t exist. For instance, if you don’t have a clause in the lease that says your resident isn’t allowed to have pets, you can’t go back and tell them to get rid of their dog. The lease must specify that before they move in.

F. Document Everything

When it comes to interacting with your residents, clear and precise communication is the key. You should always document every aspect of your interactions. When it comes to your word versus your resident’s word, you never want to have to say, “But I told you…” Residents have an incredible ability to hear and remember only what is convenient for them. How could you possibly remember every detail of the conversation you’ve had with your residents?

G. Forms

There are many forms that you should always have on hand:

• Lease Agreement
• Addendum to the Lease Agreement
• Move-in/ move-out forms
• Community policies and procedures
• Resident conversation logs
• All manner of legal notices
• Traffic logs to keep track of potential residents

Each community will have its own needs. Make sure to adapt forms to fit those needs.

It’s important to remember that all investments have associated costs. Many times, you are not aware that you are paying those fees because they are layered into the investment itself. Such is the case when using financial advisors or stockbrokers. Real estate is a business, not just an investment. One of the things I appreciate about real estate is that the fees are not hidden. If you hire a property manager, you know exactly the rate at which you will be charged for their services. This is not the case with many other investments.

Thus, property management isn’t something that can be easily handled by an investor. It includes a lot of nuances and complexities that go a long way in protecting the interests of the investors and their investments.