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MANAGING RENTAL PROPERTIES – The Management Contract
Posted by patandkrislarkin in Uncategorized on February 6, 2012
MANAGEMENT CONTRACT
A written management agreement is paramount if you are going to manage someone else’s property. This doesn’t have to be a thirty-page document; in fact, it can be very simple. The main thing is that you spell out what you agree to do for the Owner as his property manager, and what the Owner agrees to pay you for those services. That gives you the “bare bones” agreement and you can add to it from there.
I have included a copy of our management agreement for you to get an idea of what kind of a document you will consider using. Again, please be sure to have a competent attorney review all legal documents you are considering using and have them comment or recreate them into a document that works best for your needs.
Termination of Management Services
All good things must come to an end, as do management contracts. They end, either because they expire and are not renewed, the Owner sells the property, or the relationship between the Owner and ourselves simply was not a good fit.
Our management agreement allows for early termination by either party with 30 days written notice. If we have leased the property for the Owner and paid a commission, the only thing we asked of the Owner was to be paid for the unrealized portion of the leasing commission. In other words, if we paid out $1,200.00 to a real estate agent from an outside company to find a Tenant for this Owner’s property, and 3 months later the Owner decides to terminate the agreement for whatever reason, then the Owner would have to reimburse us for the 9 months of commission, or $900.00, before we would let them out of the agreement. Now, like everything, there are exceptions; we once had an Owner with whom the chemistry between us was so negative that we were glad to “eat” the remaining commission just to get out of the bad relationship!
When you know that you will soon not be managing a property any longer and you know the date, you need to send a letter to the Tenant advising them of the situation. Basically, we prepare a letter that says “as of this date, we will no longer be managing the property you are living in.” Tell them who will be managing it, where to send their rent payments as well as who has their security deposit. Send it to the Tenant via certified mail and send a copy to the Owner. Just prior to the effective date, cut a check for the security deposit and send it to the Owner. Be sure that all of these steps are well documented in writing. They don’t have to be fancy or eloquent, just documented.
The above is an excerpt from our new book: “Manage To make Money . . . with a Career i Property Management”. This book helps you to transition your career to one in the residential property management field. We also offer 3 hour workshops on transitioning your career. If you would like to view the management contract or other documents referenced you will need to see the book.
If this information has been helpful to you and you would like to explore more residential property management tools or resources, please visit our website.
Thank you for reading!
Pat & Kris Larkin
PROPERTY MANAGEMENT FEES UNDERSTOOD
Posted by patandkrislarkin in Uncategorized on January 23, 2012
Now that we have explored the property management business and pursuing a career change there, it is time to look into the ownership/business side of managing properties for others. In this chapter we will explore what services you may want to offer your clients and what the prevailing fee structures are out there.
The scope of services that you may offer for your Owners may vary quite a lot. Below is a list of the services that we provided for our Owners. You may see what suits you and/or your marketplace the best and add or subtract from this list as you see necessary:
- Preparing the property for putting on the market for lease
- Marketing the property for lease
- Screening potential Tenants
- Preparing and executing all lease documents
- Maintaining the property – including 24 hour emergency response
- Dealing with Home Owners Associations
- Collecting Rents
- Evicting Tenants for non-compliance with Lease (either non-payment of rent or non-compliance with other terms and conditions of the Lease Agreement).
- Paying expenses for the Owner:
- Paying mortgage(s)
- Paying Home Owner Association Dues
- Paying maintenance and legal bills
- Paying property taxes
- Providing a monthly operating statement for the Owner
- Depositing any excess earnings into the Owners bank account
Fees
How do your know what to charge your Owners? What philosophy do you employ? When we did our research as part of our due diligence before we purchased our property management firm these were questions at the forefront of our minds. We called every property management company we could find and quizzed them about their fees so we could start to get a good idea as to what our competition was like. The exercise also gave us an idea of what our marketplace was comfortable with what it would pay as well as what it would not accept.
One thing that we found was that there were several questions that we needed to answer regarding our fee structure.
We were faced with two predominant pricing philosophies: should we start with a low base fee for minimal services and add on fees for services beyond the base, or have a set fee or percentage and include all services? These were tough questions that we had to figure out and they will require some market research on your part in your particular locale. In this chapter I am going to explore both fee structures we considered and compare them for you. I will also share with you what our research in Southern California showed us and what fee structure we ended up with.
Low Base Fee Structure:
Most property management fees are based on a percentage of rent collected each month. As an example: a 10 percent fee for a property that rents for $2,000.00 per month would be $200.00 per month.
The low base fee structure is just what the name implies; it offers a very minimal scope of standard services in return for a low percentage fee. Because the base scope of services is so minimal then the Owner can expect to pay extra as they add services they wish the property manager to perform for them.
This is a very good structure for Owners who want to be more involved in their property management activities and don’t mind paying their own mortgage or HOA dues or leasing their own property. As an example: the base fee in this case will typically be between 4 percent and 6 percent of the monthly rents collected.
All-Inclusive Fee Structure
Again, just as the name implies, with the all-inclusive fee structure there are virtually no extra fees, and the scope of services is much more broad. This is an ideal structure for the Owner who has been transferred out of the country and/or doesn’t necessarily want to be involved with any aspect of managing the property or keeping track of the extra charges. Fees for the all-inclusive structure are, as you have probably already surmised, higher than the low base fee structure. You will find that the all-inclusive fees will range from 8 percent to 12 percent of the monthly rent collected. Following is a comparison of these two fee structures for your consideration:
Example based on $2,000.00 per month rent:
Low Base Fee All Inclusive Fee
| Basic Property Management Scope of services offered: |
Fee |
Owner’s Cost per Year |
Fee |
Owner’s Cost per Year |
Base Fee
|
5% |
$1,200.00 |
10% |
$2,400.00 |
| Additional Services | ||||
|
Cost + 10% |
Cost + 0% |
$0.00 |
|
|
6%/year |
$1,440.00 |
Incl. |
$0.00 |
|
$50.00/month | $600.00 | Incl. | $0.00 |
|
$50.00/month |
$600.00 |
Incl. |
$0.00 |
|
$50.00 | $100.00 | Incl. | $0.00 |
| Evicting Tenants for non-compliance with Lease (either non-payment of rent or non-compliance with other terms and conditions of the Lease Agreement). |
Hourly Rate |
Hourly Rate |
||
|
Total Yearly Cost to Owner for all Services |
$3,900.00 |
$2,400.00 |
As you can see from the above examples, each of these structures has its place, depending on your needs. If an Owner is going to be somewhat involved in the management of the property, such as leasing the property, or paying the mortgage or other expenses, then perhaps the Low-Base Fee structure is best for them. On the other hand, if they plan on being minimally involved or not at all involved in the management of their property and will need the full scope of property management services, then the All-Inclusive Fee structure may be the most economically feasible.
Click here to view a short video on Understanding Property Management Fees
Thank you for Reading!
Pat and Kris Larkin
If this information has been helpful to you, you may want to visit our website to see the other helpful property management resources we offer: www.ManageToMakeMoney.com
TRANSITIONING YOUR CAREER TO PROPERTY MANGEMENT – BREAKING IN TO THE BUSINESS
Posted by patandkrislarkin in Property Management, Uncategorized on January 13, 2012
Before you go charging off to pursue a career in property management, we recommend that you first see if property management is for you. Or, are you for property management.
Managing rental properties takes a very broad but distinct set of skills and temperament. To give you a broad brush idea of what it takes to be a good property manager I have included below a brief job description of a property manager. Of course, the description will vary between property management companies:
Property Manger/Leasing Agent:
- Responsible for all maintenance on properties
- Responsible for all make-readies of properties between Tenants
- Responsible for collecting rent from Tenants
- Responsible for delivery of all notices to Tenants, including 3-Day Notices to Pay Rent or Quit
- Responsible for all Tenant issues relating to maintenance.
- Responsible for communicating maintenance needs of properties to owners and gaining their approval for work to be done prior to performing the work.
- Responsible for the collection of all “Funds Requests” from Owners.
- Manages all vendors and contractors as they relate to property maintenance
- Performs periodic inspection of properties
- Is primary contact for leasing ads alternating with other leasing agents
- Shows and leases properties.
- Screens all prospective Tenants, including running credit reports and writing up Lease agreements.
- Serves as liaison between Tenants, Owners and Home Owner Association.
- To have a working knowledge of the financial condition of each property managed.
- To oversee the timely production and communication of a monthly Owner’s statement and remittance of Owner’s distribution as appropriate
If that didn’t scare you off, let’s continue.
Again, in a broad-brush approach, below are some aptitudes and temperaments, which, while not absolutely necessary, will make your quest into property management smoother going:
Knowledge of Real Estate Law (state license is preferable)
- Knowledge of property maintenance.
- Knowledge of Accounting and financial statements.
- Strong People Skills
- Strong Communication Skills.
- Ability to “shift Gears” or change your daily or hourly priorities with a moment’s notice.
- Be a self-motivated, self-starter
- Ability to mange stress-charged situations and work toward consensus with all parties.
- Ability to work with agencies and organizations with authority and always work for consensus.
Something to think about: Our book: Manage to Make Money . . . with a Career in Property Management contains some self-evaluation tools to help you further assess your skill and temperament set for a career in property management. To check the book out CLICK HERE
Next is to figure out what type of properties you want to manage; industrial, commercial, institutional, retail or residential. Of course this book is oriented around residential but first a few notes about managing the other types: commercial, industrial, and institutional properties. Property management for these types of properties will tend to require much fewer hours to manage them. What do I mean by that? Well, with these types of properties for the most part, there is no one in them during the evenings or the weekends. No calls on Thanksgiving Day that someone’s oven doesn’t work. On the other hand, the retail and residential will require you to be on call more often to respond to service requests like the oven not working on Thanksgiving or the heating isn’t working on Black Friday and it’s too cold to have their sale. Just some things to think about.
So how do you break into the property management business as a career change? There are many ways you can do this but basically, you need education and experience. In many cases, the two go hand in hand, but, your life is going to be less complicated if you can get the education ahead of the experience. Otherwise, you will be making lots of mistakes as you learn the business and it will be in a real-world scenario with pretty high stakes.
We recommend that you take a course (or courses) similar to our “How to Profitably Manage Rental Properties” which will at least walk you through the basics of the day-in, day-out things that you will need to know in order to manage properties. In fact we taught a class in Pasadena, California and a few weeks after the class, one of our students contacted us. He wanted to get into the property management business and asked if he could intern with us for a while. We set up a part-time schedule with him and he learned a lot in his six months as an intern.
Another option would be to work for a property management company as an assistant to a property manager . . . a great source of education and experience.
Ok so that’s great, but how do you find a good property manager to even talk to? Believe it or not, it isn’t that hard, especially if you live in a fairly well populated area. There will be several companies out there to choose from.
How do you find a quality property manager? Do your homework, which will include research. My first and foremost piece of advice is to look for a firm that is a member of your local Board of Realtors. The Board of Realtors is a very strong trade organization, which also has a very positive history of regulating itself. You can call your local board and get a list of the firms who are property managers. If your board doesn’t keep the information that way then you can work backwards for it: search the web for property manager in your area and then screen them by which ones are Realtors.
Once you have the list narrowed down to between three and five, check them out! Go to their websites (if they don’t have one it’s not a non-starter but does raise a red flag) and see what they are about. From the website, you will be able to get a feel for their level of professionalism . . . or a feel for how much money they spent for a great web-designer!!
Next, check with the Better Business Bureau, Yelp Business or Yahoo Business and see if there are any complaints or comments that concern you, and if so what the status of them is. Also check with your State Department of Real Estate and confirm that they have a broker’s license with the State and that it is in good standing. Also, be sure to check if there are any complaints against the license. The internet is so well developed now that you should be able to do most of your homework sitting at your computer!
We recommend that you personally interview the companies who make the cut . . . at their office. This is a great opportunity to see their operation and possibly meet their staff. It is also a great time to see if there is a positive connection between you and them . . . do you share similar values? Do you communicate at the same level?
You may have to offer to intern for free or . . . at a much lower rate than is the market. This will help you get your foot in the door and you can always renegotiate, after you have shown that you are worth the investment.
Thank you for reading. To investigate our offering of Property Management Resources . . . Books, E-Books, Documents, Forms, Checklists, Seminar DVD’s and Live Seminars go to our Website: www.ManageToMakeMoney.com
PROPERTY MANAGEMENT PURPOSE & MINIMUM REQUIREMENTS
Posted by patandkrislarkin in Uncategorized on January 12, 2012
ALWAYS . . . GET A CREDIT REPORT
Posted by patandkrislarkin in Uncategorized on February 14, 2011
Screening prospective Tenants can be difficult but here are a couple of tips that will help you to minimize your risk of getting a bad Tenant.
One of the main elements in screening your Tenants is to get a credit report. There are many other ways to check out your tenants but a credit report will do the best job of surfacing potential issues in their ability to pay rent and in general will help you to sort through your applicants. You can get a credit report in a couple of different ways; First, is to have your prospective Tenants run their own credit report. But be careful, free credit reports are available but rarely have a credit score. A credit score is key. Without the credit score you are subjected to reading through reams of credit information… some good and some not so good and having to figure out if this applicant is a good risk or not. The credit score will do all of that for you. Secondly, you can find many companies on the web that you can sign up with to run credit reports for your applicants. These companies will of course check you out first to be sure that you are trustworthy enough to be dealing with such sensitive information and that you will get the proper authorizations from your applicants.
As to what credit scores are good and bad; that depends on your market but I can give you some very rough ideas: a stellar credit score is 800+ and a score in the 500 range is going to be due to a lot of late payments, possibly judgments or even a bankruptcy. If you are renting high-end properties, you probably would not want a Tenant with a credit score below 700. If you are renting blue collar properties or low income properties scores in the 600’s would be “golden”!
In summary, a credit report will “tell the tale” about your Tenants. Be careful though not to be too restrictive; these are tough economic times we live in and you need to hear everyone’s “story”.
To view a short video on this subject go to: http://bit.ly/eCprVn
DO YOU HAVE A GOOD PET CLAUSE?!
Posted by patandkrislarkin in Property Management, Uncategorized on February 2, 2011
We recommend that you include a “pet clause” (pun intended!) in every lease or rental agreement you enter into. It doesn’t matter whether or not you allow pets in your property . . . always include language concerning conditions for having a pet. If you don’t allow pets and you lease it with that condition, Tenants have been known to bring pets in anyway (say it isn’t true!). Seriously, a Tenant may get the emotional tug at their heart strings by a cute, sad-eyed puppy and they simply can’t resist. They buy the dog and decide to hide it from you. If that dog . . . especially if it is a puppy, causes damage to your rental property, and you have no terms and conditions the Tenants have agreed to, recouping costs for repairing damage caused by the animal can become fuzzy at best. If you allow pets and your Tenant signs your agreement regarding pets all the better!
For our lease addendum form including a pet clause with “teeth” (sorry, I couldn’t resist) or more tips on how to effectively manage your investment property, visit our web site at: http://www.ManageToMakeMoney.com or call 949-689-4344.
See the Video: http://bit.ly/fwdptV
PatandKrisLarkin.com 