Posts Tagged New Job
There are many instances when you will have to have your Owners infuse their account with funds. This situation occurs for a number of reasons: the property has a monthly negative cash flow; you have just had to do some major repair (replacing the furnace or air conditioner); a major remodel after a long-term Tenant vacated, or something as simple but expensive as paying property taxes.
First of all, let me say that we strongly recommend that you maintain a buffer amount (minimum $500.00) in each of your Owners’ accounts. This will give you the flexibility to take care of small repairs without having to have your Owner send you a check, and depending how much of a positive cash flow the property may have, you can replenish the buffer fairly easily for that.
Holding on to the idea that Owners (as is the case with all of us) do not like surprises about money . . . unless we have won the lottery! Now, emergencies happen and usually, they are difficult if not impossible to anticipate. But I am speaking here about the expenses that the Owner is going to have on his property that we can anticipate: long-term Tenant moving out, real estate taxes (they’re always due on the same date – year after year) or a special assessment from the HOA. When we can anticipate these expenses we need to be proactive in estimating how much they will be and when our Owners will need to send funds. This will accomplish a couple of things:
1.) It gives your Owner a warm fuzzy feeling to know that you are watching his back and keeping him from having unpleasant surprises and 2.) It gives you the funds from which to pay the expenses. Otherwise you could find yourself in the unenviable position of having done $10,000 worth of work on an Owner’s property and when you call him to get the funds you learn he is in Zimbabwe for 2 months . . . or worse yet, he thought that the expenses were going to be less and he doesn’t want to pay the $10,000 and now wants to negotiate the amount with you . . . YIKES!
Dunning Letters and E-Mails to Owners for Funds
We have had very good luck with sending e-mails out (to our Owners that do e-mail) when we need funds. You may think this is very elementary but before you tell your Owner that you need more funds, be sure to do your homework. What do I mean by that? You don’t want to send your Owner an e-mail telling him that you need $1,500.00 to pay for the new water heater if his property is running $100.00 negative cash flow each month and he has no reserve buffer left. If you don’t say something about the negative cash flow and the status of his account, you will just be asking for more money again next month. This makes the Owner feel like you are not on top of your game (which you aren’t) and causes both of you more work in the long run.
Again, be proactive with your Owners and anticipate what their cash position looks like. Act like it is your money and how you would want to be treated. If I had the above scenario, I would tell the Owner that I needed $1,500.00 for the water heater (as we discussed previously) and the negative cash flow on the property has run through his reserves. We would like an additional $500.00 to replenish his reserve account and $600.00 to cover the next six months of negative cash flow at $100.00 per month.
Maintaining Security Deposit Liability Integrity:
When a Tenant pays you a security deposit on a property, that is a liability that you will maintain in the Owner’s account. The purpose of the security deposit is so that you have funds (security) in the event the Tenant fails to pay the rent or leaves the property damaged when he or she moves out.
When there is a cash need for repairs or whatever else on an Owner’s property, there is the temptation of the Owner to see that cash in their account and want to use it to pay those expenses. If you allow them to use it, this is a very, very slippery slope to allow yourself to step onto. For a couple of reasons: 1.) unless you document it well and in writing, after a few years, our memories fail us and our Owners are no different, they will typically not remember using that security deposit to pay operating expenses from and 2.) as property managers we are required by law to notify the Tenants that we are no longer holding their security deposit; that the Owner is, and give them the Owner’s contact information.
Now we, as property managers, are the Owner’s agent and the security deposit does belong to the Owner, we are just holding it for them. If the Owner insists on using this money, we recommend that you go about this in the following way:
- Write a check to the Owner for the full amount of the security deposit and mail it to him with a letter explaining the transaction and a copy of the letter you are sending the Tenant.
- At the same time send a letter to your Tenants advising them who is now holding their security deposit.
It is important that you not go back and forth with this transaction; giving the deposit to the Owner, putting it back in the account, back to the Owner, etc. First of all, this will breed a lot of insecurity and concern on the part of your Tenant and secondly, it is a lot of work and liability for you! If you are going to do this, we advise that you tell your Owner (put it in your management agreement if you want) that you will make one transfer of the security deposit and that is it. Something to think about, given enough time and aggravation it won’t be long before your State’s Department of Real Estate will be conducting an audit of your trust account. That could be right up there on the fun scale along with root canals and IRS audits!
There are a lot of very good fully integrated property management software programs on the market today. When I say fully integrated, I use the term loosely as these various programs are integrated to varying degrees. In general terms, there are programs on the market now that will take care of the accounting for your Owners; interface with your word processor so you can write letters to Owners or Tenants and it will file them with the property; and will keep a rent log for single or multiple properties.
This is the teaser. We will be discussing software programs and their pros and cons in the next chapter.
I hope you enjoyed our various topics today. Next we will start some discussion on “systems” used by property managers . . . don’t miss out!
If this information has been helpful to you, visit our website for more resources to help you profitably manage your rental properties!
Thanks for reading!
Pat & Kris Larkin
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
MANAGE TO MAKE MONEY . . . With a Career in Property Management
Managing properties for someone other than yourself.
The following post is an excerpt from our new book: “Manage To Make Money . . with a Career in Property Management”. I will be posting various excerpts from it as it is a great resource for re-tooling your career for one in residential property management.
The property management company which we owned and operated was started back in the early eighties. It wasn’t necessarily a deliberate or planned event . . . it was more by default. The woman who started the company was a real estate broker and was selling homes and condos around The Orange County, California area to the many professionals there. After a few years, these professionals began to move up the corporate ladder and their companies began to transfer them around the country and the world. Knowing that if they sold their home in this expensive and forever appreciating market, and ever wanted to come back and buy another home it would be very difficult for them. They contacted the lady who sold them the home in the first place and asked her to keep an eye on their property for them and keep it rented while they were away for the next two or three years. They agreed on a fee and the company was born. Now, this was a one-at-a-time sort of deal. But over the years, with her doing the excellent job she did, her reputation spread throughout these companies, and as more and more people were transferred, they sought her out. After several years, her property management firm was managing 120 privately owned homes and condos!
As I said, the start up of our firm was clearly by default. Little did Lynn, the founder, know when she started managing properties that the area which she was operating in had two very key elements present that are very helpful for a property management firm: 1.) the area she was operating in has one of the highest education levels per capita of any major metropolitan area in the county and 2.) this area also has the highest percentage of non-owner-occupied homes (Owners who don’t live in their property) in the State. As it turns out, those proved to be a couple of very important ingredients to her success. Now that doesn’t mean that you have to have those ratings in order for your property management endeavors to be successful, but . . . you will want to be sure that they are at least, present in your demographics. The more they are present, the better the chances for success you will have.
If this positing has been helpful or interesting to you and you would like more to discover at your own rate, the book “Manage To Make Money . . . with a Career in Property Management” (along with many other resources) is available at our website: http://www.ManageToMakeMoney.com