Written by Rob Minton
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Last year, I took a Property Management class as part of my continuing education. The instructor was a real estate broker who provided property management services as part of his business. During the class, he said that he was thankful for his property management business because it helped his business get through slow times in the market. The monthly property management income covered the monthly overhead expenses of his business.
In other words, his business was engineered so that he didn't have to sell any homes.
During the class, I took many notes. I have summarized my notes from the class for you in this blog post. In total, I have 20 lessons to share with you. The first 10 have been included below.
1. Apply the 80/20 Rule to the property management business:
20% of the activities in property management generate 80% of the income. Focus on getting the 20% right. The 20% activities are: keeping unites leased and collecting rent. Everything else is an 80% activity.
2. Property management requires two different employees:
The first employee needed is a leasing manager. This person is responsible for showing vacant units and collecting rental applications. They are paid a commission equal to one month's rent. They should be able to handle 8 to 10 vacancies a month. The fee for their service is charged to the client. The second position required is a property manager. This person collects the rents, handles the money and manages the property from week to week. The same person shouldn't do both positions because they can steal from the business.
3. You must have checklists that are followed by your employees on each and every property:
Checklists are the key to managing the property management business. These checklists allow you to have uniform standards. The checklist should include your tenant screening process, a move in checklist, and a move out checklist. Your checklists and notes on completion are also helpful for defense against law suits. Adjust your standards based upon the season and the rental demand in the market.
4. Never rent to someone who has already been evicted.
5. Consult the property owner (investor) when an applicant has negative issues in their credit report:
Make sure the owner of the property "signs off" on a tenant with issues before you move them into their property. This way, the property owner can't come back at you for renting to a tenant with negative items in their credit report. An once of prevention is worth _____________.
6. Don't bother the property owner with property management issues:
You manage the property and you must have full authority to do so or you'll struggle. If you let the owner of the property get involved in routine management on the property, you'll create a mess and your staff will have a difficult time. Your staff should follow your uniform standards, which may be different from the property owner's standards.
7. Set realistic expectations with your property owners:
Don't over promise and under deliver. Do the opposite. Tell the property owner vacancies are typically filled within 3 months and then fill them in 4 weeks. If you tell the property owner you will fill vacancies in 4 weeks and then fill them in 3 months, you're in trouble. Also, prepare the property owner, in advance, that they will need to invest money from time to time to help cover repair issues and cover property expenses. They should plan ahead for these cash calls because they are part of owning investment property.
8. Screen rental applicants thoroughly:
Take the time to get good tenants in your managed properties Good tenants will make your property management business a lot easier. Check and verify the applicant's references, credit, income, employment, and criminal record. Follow your uniform standards on every applicant. Keep the following information in the tenant's file: rental application, copy of their drivers license, credit report, criminal check, handwritten notes on references, all invoices and receipts on the property, signed agency disclosure statement, lease and signed lead pain disclosure.
9. NEVER let a property owner get negative with you:
As the property manager, you['ll be responsible for paying expenses on the property. There will be situations when the income from the property won't cover the expenses. Do not pay these expenses on behalf of the property owner. Make sure you get the funds needed from the property owner before you pay the expenses. If you do pay the expenses without collecting the money from the property owner, you'll end up losing this money at some point in time.
10. Charge a retainer when taking new properties under management.
A retainer front loads the property owner's account. As the funds in the retainer get drawn down from property expenses, you can send an invoice to the owner to collect the required funds before the expenses become due. These funds may required to be held in a special property management trust account. Check with the licensing laws in your area.
To be continued in the next blog post…