Property Management
 – Who Needs It?
By Jan Leasure, Managing Broker, Monterey Bay Property Management
Featured in DCD Home magazine.

Property management deals with the employment of business practices and “people skills” to obtain the greatest net income from a piece of real estate. It also integrates minimizing the negative influence of an assortment of laws and regulations that impact the use of the property.

It is the property manager’s job to interact with tenants, vendors, contractors, neighbors, insurance adjusters, city, county, state and/or federal government officials, and anyone else who might influence the day-to-day operation of your property.

A good property manager can maximize income, minimize expenses, and help you maintain the highest property value possible while avoiding legal hazards. A good manager can set high standards for tenants and inspire them to meet and sometimes even surpass these ideals.

Property management is both a science and an art. A good property management company has the “science” part in place with good policies and procedures that allow them to excel over the long term in the management business. They also have the “art” of good people skills, and they utilize the psychology that is essential to success in this industry.

The most challenging aspect of the real estate business is not acquiring property, but in knowing what to do with the property once it is under your supervision! Professional property managers know what to do and how to do it. If your property is an income-producing property, you can count on your property manager to know the rental market and to place a highly qualified tenant with minimal vacancy.

Your manager will know the rental value of your property based on the rental values of similar properties in your geographical area. She will also know what vacancy rate you can expect and how long it will take to rent your property successfully.

Marketing your property to prospective residents and providing those prospects with courteous service are part of the repertoire of a good manager. A good manager will have the “science” in place to expose your property to a large number of prospects through a web site that is high on widely used search engines and a vacancy hotline that is available to callers 24 hours per day, seven days a week. She also has effective systems in place to insure that your home is shown to as many prospects as possible.

The application to rent is an integral part of effective tenant screening. A good property manager has a rental application that is much more sophisticated than the one you will find at the stationery store. She has the expertise to consistently screen applications and select a highly qualified tenant without violating federal and state fair housing laws. In fact, she will know the entire array of city, state, and federal landlord/tenant laws that apply to your property.

A manager’s expertise in this area allows her to draft rental agreements that meet your needs while conforming to all applicable regulations. If addendums to the rental agreement are necessary, she has the capability to draft those as well. The manager knows how much security deposit she can legally collect and she knows what disclosures must legally be made to the tenant. A good manager makes it a habit to provide the tenant with a move-in inspection report to verify the condition of your property on the day the tenant takes occupancy.

A good manager relieves her clients of the work, time, and stress involved in the general maintenance of the property. The property manager has plumbers, electricians, painters, handypersons, housekeepers, and numerous other vendors at her fingertips to keep the properties she manages in top condition. She will be sure that the vendors hired to work at your property are licensed, affordable, and reliable.

Furthermore, the professional property manager not only insures that these vendors are available on short notice, she insures that the vendors are available at night or on weekends, in case of an emergency. So when that supply line to the washing machine breaks in the middle of the night, there will be someone there to deal with the flood! Oh, and one other thing – you won’t have to take that late-night call from the tenant!

Many do-it-yourself landlords have had the unfortunate experiences of late rent payments, NSF (non-sufficient funds) checks, damage to their properties, as well as tenants who must be evicted.

A good property manager will have few of those experiences. Because she is an expert at tenant selection, she will rarely have a problem with a tenant. However, if a problem does arise, a good manager has the skill to broach the subject with the tenant, negotiate with the tenant if necessary, and take action to enforce the terms of the rental agreement.

Property owners don't worry about their properties when they hire professional property managers. Professional property managers are dedicated to selecting quality tenants and keeping their clients’ investments in good repair with minimal cost. They want your real estate investment to be a success, not a failure.

And finally, one last benefit - your leasing and management fees are usually a tax deduction. So when the tax deductions, reduced vacancy factor, and time savings are factored into the cost of professional property management, most property owners find good management a real bargain!
 

How to Select a Property Manager

A good property manager can put more money in your pocket than you can. A strong manager makes up for the commission paid with good management practices and attention to detail. You will reap the benefits of rents that keep up with market conditions, limited vacancy, and connections to good vendors and repairpersons. Many landlords believe that limiting rent increases keeps good tenants in place. A good manager, on the other hand, will raise rents reasonably, increasing the owner’s bottom line and keeping the good tenants happy with realistic rent increases. Managers are in touch with the rental market and know at what price to advertise a rental, thereby reducing the vacancy factor between tenants. Because of their connections to prospective tenants, a good manager will often facilitate a new tenant moving in as soon as the departing tenant moves out, eliminating vacancy altogether. Your manager knows which repairpersons to hire. She/he also knows which ones not to hire. The manager can save you time, money, and aggravation by getting the right person to your property to solve problems efficiently and inexpensively.

Give a large amount of weight to managers with experience of ten years or more. A manager who has been in the business for ten years has fought the landlord-tenant wars and elected to continue to make a living in property management. While none of us have “seen it all,” the experienced manager has more than likely seen a lot, and has probably learned a lot from experience. Furthermore, property management should be the full-time job of the manager. Not long ago, It was rare to find licensed real estate brokers whose full time business was property management. Not so today. Many people make their full-time income in the property management business. A full-time property manager will be better able to focus attention on your property when it needs it, and will be more likely to keep up with the legal changes related to landlord-tenant law.

Membership in professional organizations is an indication of a manager’s commitment to keeping up with trends in the industry. If your property is a single-family home, your manager should belong to the National Association of Residential Property Managers (NARPM), whose members specialize in the management of single-family properties. If you are hiring management for multiple residential units, your manager should belong to the National Apartment Association/California Apartment Association (NAA/CAA) or the Institute of Real Estate Management (IREM), which is applicable to both multi-family residential and commercial properties.

Certainly, you will want to understand the fees charged by the company. However, the amount of the fee is not the most important question to ask, nor should it be the pivotal answer on which you base your choice. You will likely find that fees do not vary greatly in a given market, but service will vary drastically, so don’t let a few dollars prevent you from hiring the best manager for the job. A good manager will save you more than his/her commission by placing good tenants who will take good care of your property. Good management can reduce vacancy and minimize expenses, both of which add profit to your bottom line.

Some questions you may want to ask prospective managers:

• How to you determine the price at which to advertise a vacancy?

•  What is the current condition of the rental market, and how does that influence your advertising practices?

• How long would you anticipate that it will take to fill my vacancy?

• How do you screen prospective tenants?

• How do you stay up to date on changes to landlord-tenant law?

• Why should I hire your company as opposed to the many other options available?

How NOT to hire a property manager: Don’t hire a manager by looking in the newspaper or the Yellow Pages to see who has the biggest ad. The size of the ad simply reflects the proportion of a manager’s income that has been designated for advertising.

Ask yourself, “If the management at the advertised company is so great, why do they need to do so much advertising?” Superior property managers get most of their business by word of mouth, thus they do not need to advertise much, especially in a small community. As mentioned above, do not hire a property manager because his/her fees are the lowest available. In property management, as in most other arenas, you get what you pay for. It costs a certain amount to do business and make a reasonable profit in any given geographical area. If one company is offering service for a significantly reduced fee, it is likely that the company is cutting corners on service somewhere to account for the reduction in gross income.

Successful income property owners know how to acquire good income properties and what to do with the properties acquired. If you are not in a position to manage your property yourself or are not sure how to manage, spend the time and money to hire a good property manager. A good manager knows how to cause the properties to create the greatest net income to you.