Section 9: Property Management in Texas
As part of preparing a marketing plan for a landlord client, property manager Michelle has gathered information from numerous sources. Which of the following is likely to be most useful to her as she determines whether rent in the building she manages is in line with the competition?
Complete rent roll from the building she manages
Owner's covenants
Contains a description of the property and information about the legal owner and holder of the title.
The list of reports that a property manager would provide to the owner would likely include which of the following?
Rental contracts, including expiration dates
Sarah is a property manager who needs to determine the amount of coverage for property insurance for her owner/client. If she uses the cost to purchase the property today as the basis, she would be using the __________method.
Replacement cost
Anyone working for a property management company in Texas that works for more than one owner is ________________.
Required to have a minimum of a sales agent license to collect rent and perform other real estate functions
Marketing Plan and Continued Success
-A market analysis that compares the competition to your rates and the condition, amenities, and location of your property, as well as future trends -A building analysis that examines current and historical vacancy rates and tenant profiles -A measurable goal statement and the marketing techniques you are going to use to achieve the goal -A marketing budget that is realistic and that will enable you to reach your goals -A timeline for reaching your ultimate goal -A way to measure how well your plan succeeded and what you need to do differently going forward
Property Manager's Responsibilities
-A property manager is responsible for overseeing all activities related to the owner's property. -The property manager acts as the owner's fiduciary. -As a general agent for the owner, the property manager is authorized to perform all of the duties related to the property on the owner's behalf. -A property manager's loyalty is to the property owner. -The primary function of the property manager is to produce the greatest net return for the owner. -A property manager's principal role is that of a general agent for the property owner.
Operating Budget
-An operating budget helps maximize profitability and avoid unforeseen major expenses and repairs. -An operating budget can be used to identify problems. -An operating budget helps with planning and projecting for capital improvements. -An operating budget provides a baseline, as well as performance targets. -An operating budget provides income and expense projections based on the previous year's numbers.
Reporting Obligations
-By not providing detailed reports, property managers can not only damage their relationship with the owner, but they may also lose their real estate license. -Property managers will provide both monthly and annual reports based on the owner's requests and the property management agreement.
Property Manager Skills
-Command of generally accepted accounting principles (GAAP) -Knowledge about appraisals and how they work -Knowledge of financial trends and local market conditions -Knowledge about financing -Supervisory skills -Union negotiation skills -Knowledge of construction -Knowledge of ecology and how environmental issues and regulation impact property management
Property description
-Detailed description of the land and building(s) -Photos of the street and aerial views of the property
Which four of these items appear on a rent roll?
-How much each tenant is paying -List of all current tenants -Type of unit each tenant is paying for -When the lease is up
Which four of these are skills required of property managers?
-Lease renewal laws -Advertising and marketing -Building systems -Purchasing and purchase orders
No License Required
-Managing one's own rental properties -Managing rental property for a single owner as an employee (no rent collection involved) -Managing multiple properties for one owner as an employee (no rent collection)
Property Manager Real Estate License Requirements
-Managing rental property for a single owner as an employee (collecting rent is involved) -Managing properties for more than one owner for a fee (collecting rent is involved)
Duties provided
-Marketing and advertising -Maintenance and repair -Accounting and bookkeeping functions
Reporting provided
-Monthly and preventive maintenance reports -Rental contracts, including expiration dates
Which four types of properties typically require management?
-Office building -Retail -Residential -PUD
Texas Apartment Association
-One of TAA's primary objectives is to advocate for the rental housing industry in Texas. -According to the "How Do You Join" section of the Member Info page, the National Apartment Association is based in Alexandria, VA. -According to the "About the Texas Apartment Association" section of the Secret to Your Success page on the TAA website, members are automatically enrolled in TAA and NAA when they join the local affiliated apartment association in the area where they do business. -TAA members must adhere to the Texas Apartment Association's Code of Ethics. -TAA offers its members access to standardized lease forms, as well as networking opportunities and a variety of educational offerings.
The property management agreement cements the agency relationship between the owner and the property manager, and, as such, is a very important document. How familiar are you with the agreement and its contents? Identify the five items that should be included in a property management agreement.
-Owner's covenants -Property manager's scope of authority -Description and location of property -Insurance provision -Property manager's fee
Property Management Certification
-Property managers are not required to be certified in their specialty area. -The Institute of Real Estate Management (IREM), which is an affiliate of the National Association of REALTORS®, offers a certification program. -To apply for a Certified Property Manager designation, you must first complete the Institute of Real Estate Management program.
Property Manager's Obligations to the Owner
-Property managers are responsible for managing leases. -The property management agreement should clearly spell out the property manager's duties and obligations. -The property manager's primary obligation to the owner is to produce the greatest net return.
Finally, let's review some of the reports you'll be responsible for as a property manager. Which two of these reflect the types of reports you may be responsible for providing?
-Property managers are responsible for preparing reports the property management agreement requires as well as other reports the owner requests. -Monthly property management reports include information about maintenance, marketing, and tenants.
What are the two methods for determining the amount of a coverage needed for an income property?
-Replacement cost -Cash value
Per the property management proposal, the property manager has certain obligations to the owner regarding the management of the owner's property. Review each statement and determine which four describe the property manager's obligations.
-Report on the number of delinquency notices served and fees collected. -Prepare and oversee the budget for the property. -Provide monthly bank statements as well as information about monthly vacancies and fees collected. -Collect rent and track vacancies and turnover.
Operating Budget Contents
-There's a budgeted expense for having to physically evict tenants. -Both new and used appliances are listed as expense items. -The projected income takes into account a specific percentage of anticipated vacancies, as well as projected gross income and expenses. The coin-operated laundry is listed as income, not as an expense
Qualifications
-Years of experience and resume -Properties currently being managed and references from owners of non-competing properties
Commercial Real Estate Women Network (CREW Network)
A business networking organization dedicated to advancing the achievements of women in commercial real estate
PUD property
A homeowners association with amenities like a swimming pool, walking or bike paths, a park, a party room or meeting rooms -Manages the maintenance, landscaping, security issues and concerns, and enforcement of the homeowners association's regulations
The property management ______ cements the agency relationship between the property manager and the owner.
Agreement
The Building Owners and Managers Association International (BOMA)
An association that represents the owners and managers of commercial property in the U.S., Canada, and abroad
The Society of Industrial and Office REALTORS (SIOR)
An international commercial/industrial real estate association that offers exclusive professional designations to commercial brokers
The National Association of Realtors (NAR)
An organization that offers training, certification, and professional standard development to its members
Operating budget
Annual budget that includes income and expenses for the operation of the property
Residential property
Apartment buildings, single- and multi-family housing, condominiums, cooperatives, vacation homes, and mobile home parks -Responsible for maintenance and repair, tenant move-in/move-out, cleaning and upgrades, and tenant eviction
Measurement section
At year's end, we'll measure how we did against our goals to determine what we need to do differently to achieve our stated goals.
Carol works for a property management company that manages properties for multiple owners. One of her responsibilities is to collect rent. Which of these statements about Carol is true?
Because Carol works for a property management company that works for more than one owner, she is required to have a minimum of a sales agent license to collect rent and perform other real estate functions.
What type of insurance protects the business if it is unable to produce income due to a covered event?
Business interruption
The Institute of Real Estate Management, an affiliate of the National Association of REALTORS®, offers a specific certification program. What designation would you earn upon completing this program?
Certified Property Manager
What type of insurance provides two or more forms of coverage (e.g., business crime, business auto, boiler and machinery, marine and farm, liability) for commercial properties?
Commercial multi-peril
Capital expenses
Costs for improvements and major maintenance
Property management proposal
Document that's the precursor of the owner and the property manager entering into a formal agreement
Building analysis section
Due to our central location and proximity to restaurants, our building is experiencing a low vacancy rate of 17% and stable tenant base.
Variable expenses
Expenses that change depending on occupancy and other factors
Is the statement true or false? Because insurance claims are fairly simple, many property managers choose to handle their own negotiations with insurers when they have to file a claim on behalf of the owner.
False -Because of the complexity of insurance claims, many property managers, when faced with having to file a claim, will call on private adjusters, who are skilled in representing owners in negotiations with insurers.
As a residential property manager, Finn can independently make decisions regarding the day-to-day operations of the apartment building he manages. He can hire contractors, screen tenants, pay bills, and enforce lease provisions. What kind of agent is Finn?
General
Length of the agreement
Identifies the dates that the management contract begins, ends, and can be renewed.
Parties and date of agreement
Identifies the names of the owner and property manager who are entering into the agreement and the current date.
Management fees
Identifies what the owner agrees to pay to the property manager.
As a property manager for several residential landlords, Tomas must provide critical reports to each of the property owners for whom he works. Which of the following information points needs to be updated and issued monthly?
Income and expenses for each property
Many property managers use private adjusters to file and negotiate insurance claims on behalf of the owner because _________.
Insurance claims are complex and require special skills
As a(n) ______ property manager, you need to negotiate favorable leases with businesses. Longer-term leases are great for the owner, but you want to make sure you build in stepped-up increases in leasing rates.
Office
Property management agreement
Legal and binding contract that spells out the duties of both the owner and the property manager
Owner's scope of authority
Lists the responsibilities that the owner agrees to undertake.
Manager's scope of authority
Lists the responsibilities that the owner is appointing to the property manager.
Property manager's expenses
Lists the responsibilities the property manager will perform without compensation from the owner.
Office building property
Low- and high-rise buildings, office complexes, and business parks -Attracts and keeps the right tenants and tenant mix by negotiating favorable leases with businesses
Property manager primary duty
Maximize the net return for the owner
Capital reserve budget
Money set aside for things like repairs, upgrades, improvements, and major maintenance
How many rental units are managed by members of the Texas Apartment Association?
Nearly 2 million
Retail property
Neighborhood shopping centers, local shopping malls, and regional malls -Attracts anchor store tenants and focuses on the right tenant mix to promote longevity and draw customers
Additional documents
One-page sheet explaining the standard fee charged
Randa is trying to lower the vacancy rates for the commercial property she manages because her revenue targets have increased by 8% over the next year. What type of budget contains this revenue detail?
Operating budget
What section of the property management agreement states that the owner actually owns the property and it's not facing foreclosure?
Owner's covenants
When Saundra Neill signed a property management agreement with Henderson Properties, Inc., she made sure the agreement stated explicitly that Henderson owned each property she would be managing. In which section of the agreement would she find this verification?
Owner's covenants
Who are the parties to a property management agreement?
Owner(s) and agent
In property management, what's the legal and binding contract that spells out the duties for both the property manager and property owner?
Property management agreement
The owner's covenants and an insurance provision are included in which of the following documents?
Property management agreement
What document should detail the typical reports a property manager needs to provide for a property owner?
Property management agreement
Owner/manager relationship
Property manager and owner agree on duties within the authority the owner grants that will be carried out by both with honesty and trust
Multi peril
Protects against a range of perils (e.g., fire, hazard, liability, casualty)
Fire and hazard
Protects against direct loss or damage to the property from a fire or covered hazard
Surety bonds
Protects against financial losses as a result of an employee's negligence or criminal act in the process of carrying out assigned duties
Liability
Protects against lawsuits and claims of negligence from tenants or visitors
Business interruption
Protects against loss of income that occurs if the property is unable to produce income due to a covered event
Casualty
Protects against theft, burglary, vandalism and machinery damage (plus health and accident)
Contents and personal property
Protects building contents and personal property
Boiler and machinery
Provides for the repair and replacement of HVAC equipment
Commercial multi peril
Provides two or more forms of coverage (e.g., business crime, business auto, boiler and machinery, etc.) for commercial properties
What's a good way to learn the property management side of real estate?
Seek a mentor's advice
Signatures
Signifies in writing that both the owner and the property manager agree to the terms of the contract.
Resident manager
Sometimes this type of manager is hired by the owner to live in the apartment building, working on a salary and rent stipend.
What's one way property managers can assist property owners in maintaining their investments?
Spend enough to maintain and upgrade the property so tenants will want to live there.
Force of the agreement
States that the agreement will be construed in accordance with the laws of the state in which the agreement is being executed.
Insurance provisions
States that the property manager is named on the owner's insurance policy.
Development property
The construction of large projects, such as shopping centers, apartment buildings, and industrial parks -Plans the construction of large projects and works with municipal agencies and other local organizations to embrace the development project
The owner's covenants section of the property management agreement between manager Fred Baines and owner Lilian James contains three key pieces of information. First, Fred is named as the person responsible for managing the building. Secondly, Lillian is identified as the property's legal owner. What's the third key piece of information?
The fact that the owner is not facing foreclosure
The International Council of Shopping Centers (ICSC)
The global trade association of the shopping center industry
The Institute of Real Estate Management (IREM)
The organization that offers the Certified Property Management (CPM) certificate
Market analysis section
There's a current vacancy rate of 20% in apartment complexes comparable to ours due to the businesses that have moved out of the area.
An office property manager has responsibility for which area?
Thinking about how much build out or change to the design, floor plan, and power requirements a tenant will require
Individual property manager
This type of manager might be employed by a property manager or an owner and manage a single property.
Building manager
This type of manager might work for a property management firm or have their own company.
Real estate asset manager
This type of manager might work for a team of investors and focus on long-term financial planning.
Why might a property owner ask you to prepare a report showing the trend in rental delinquency rates?
To assess the adequacy of tenant income screening processes
Marketing approach section
To market using current tenants, we'll offer a free month's rent to any tenant who brings in new tenants who sign a six-month lease.
Goal statement section
To reduce our vacancy rate to 10% by year's end, we have the goal of attracting more tenants and keeping them long term.
Budget section
We'll need to increase our budgeted expenses by 2% to accommodate our marketing strategy.
Stabilized budget
When the projected expenses associated with a budget remain stable over time
The financial reports you've prepared over the past several months indicate a gradual increase in the number and cost of maintenance calls. What does this most likely indicate to your owner?
You may need to step up preventive maintenance tasks.