Posts Tagged Real Estate Economic Drivers

RENTAL PROPERTY MANAGEMENT – SYSTEMS FOR THE PROS

SYSTEMS FOR THE PROFESSIONAL PROPERTY MANAGER

 Any business, in order to operate and deliver its products or services, must have systems and processes.  In this chapter, I will be sharing with you many of the systems and processes we implemented to manage the 320+ properties we were responsible for.  The process is like any other . . . it is never finished.  There is always something that, while it works better since you changed it, is still not working as smoothly as you would like.  What I am sharing with you is basically a snapshot of where we are in this ongoing process.

Filing

 Every organization has to do filing.  It is simply a way to put important documents and information away in such a manner as to be able to find it again with you need it . . . and that is the acid test!  You may have an awesome filing system that you have implemented but if you can’t find what you need when you need it, you have to ask yourself: is this really working for me?

The starting place for us in dealing with our properties was to assign a property number to each property.  This number is used in paying invoices; in setting up our property management software and . . . you guessed it . . . in setting up our filing system.    We start out arranging all of the properties in alphabetical order, by their street name and then begin assigning property numbers to them.  Under this convention all of your properties on numbered streets would come before your named streets in the order of your streets: 6th street, 10th street and 27th street, then Apple Street, Boston Street then Orange Street.  If you have more than one property on the same street; the ones with the lowest house number would come before those with the higher ones.  As you are designing your property numbering system, one thing to think about is to allow enough unassigned property numbers between the assigned ones to allow for some growth.  We only re-assigned property numbers once in the five years that we owned the company.  This was mainly due to the fact that we more than doubled our number of properties during that time.  As you can imagine, because we had outgrown our numbering system, we had a lot of property numbers with decimal numbers so that we could fit them between two consecutive whole numbers:  #110, #110.2, #110.5 & #111.

Here is an example of a numbering convention which works:

Property #               Property Address

1

623 E. 6th Street

2

Unassigned

3

Unassigned

4

842 So. 18th Ave

5

622 West 120th E. Ave

6

Unassigned

7

Unassigned

8

123 Apple Street

9

129 Apple Street

10

Unassigned

11

Unassigned

12

855 So. Boston Street

13

Unassigned

14

Unassigned

15

27 Highland Ave.

OK, now that we have figured out how to number our properties we are ready to set our filing system.  We recommend that you use a three folder system for each property.  One is a colored folder; red, blue, green or even electric colors are available at your local office supply store.  The other folder is a plain-Jane manila folder.  The two folders rest in the third folder, which is a hanging folder.  All three folders have the property number and address on it.

The Colored Folder – The colored folder is for all of the legal documents relating to the property, or you could also think of it as housing all of the long-term documents.  On the left side as you open the folder, we keep all of the documents relating to managing the property; Management Agreement; property set-up sheets; Owner information, and copies of any letters to or from the Owner of the property, etc.  On the right side of the folder, keep all of the information relating to the current Lease.  On this side you will keep the Lease itself, the rental application, any Change of Terms, any Three Day Notices or written correspondence with the Tenant or notes of communication with the Tenant.

The Manila Folder – This folder is for all of the day-to-day stuff that goes on with the property.  On the left side, you will keep all of the HOA documentation; newsletters, notices, etc.  On the right side is where you will keep all of the paid invoices for anything on the property: mortgage statements; HOA statements; and paid contractor statements, as well as the work orders for that work.

Another thing that we put in the manila folder is the Lease.  I know, I just said that you will keep that in the colored folder . . . whassup with that.  If you re-lease the property during the year, we put the new Lease in the colored file and move the outdated Lease into the manila folder.  This way, you will still have access to this information without having to go to your archives.

As I have mentioned before, I tend to be an efficiency-driven sort of person.  When I first saw this filing setup, I pushed hard for going to the multi-tabbed, all in one folders.  The reason that doesn’t work as well for this system is that at the end of the year you will want to purge your files and essentially the entire manila folder will go into to your non-active file storage.  This becomes a very efficient process when all you have to do is remove the manila file, mark it with a colored tab with the year it was for and make a new manila folder to replace it.  Also, if you don’t purge your files each year, they would become so fat and cumbersome that you literally would have to rent a larger space to house all of your files!

Archiving – If you are going to keep physical copies of your old files, you will need to maintain a storage facility where you keep all of your file archives.  Typically this is for files on properties that you no longer manage, or for files on properties that you do manage, but the files are so old that the likelihood of needing to access them is minimal.  A good rule of thumb is that you maintain records for 10 years and then have them shredded.

Depending on how long we have been managing a particular property, we would generally keep all of the past year’s files for that property in storage in our office.  Now, if you have been managing a property for 15 years, that doesn’t make sense; information that is 3 – 5 years old is only going to need to be accessed once at the most, during a given year, so it really doesn’t make sense to use your valuable file/office space for that and it goes to storage.  At any rate, this three folder system is working well for us.

Physical Hard Copy Filing vs. Electronic

With all of your current year files and three–five year archives, your filing will require a lot of space.  That is valuable and expensive office space.  If you can eliminate several file cabinets then you could add more work stations and not have to rent larger space in order to hire new people as you grow!

I recommend that you start out scanning all of your documents that you would normally file . . . as they occur!  This will start to build your filing system and when it is time to purge your physical files and move them to another cabinet you can skip that step and move them to archive.  You will have the electronic files on your computers (don’t forget to have an off-site backup!)

 

We hope this posting has been helpful for you.

Thank you for reading!

Pat and Kris

 

For a virtual goldmine of  resources for time and money saving systems and secrets of the pros, visit our website at www.ManageToMakeMoney.com

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TRANSITION YOUR CAREER TO PROPERTY MANAGEMENT

Once you answer that nagging impulse in your heart telling you that you need a change, then there are some action steps you can take to get you headed in the right direction.  This exceprt from our book; “Mange To Make Money . . . with a Career in Property Management” should prove to be helpful.  I hope you enjoy it!

 

So you’ve decided that a change in career path is for you.  You are not alone in that thought.  From time to time, our economy will help us to see that our career path may be leading to a brick wall . . . or a dead end . . . QUICK . . . turn or make a change before you crash!

Making that determination is an important step, but, now what?!  Moving into a different area of discipline can be challenging. What is the next step in pursuing a new career . . . a career in property management?

Let’s roll up our sleeves and see.

The first step is to explore what other careers you might be interested in.  Our opinion is that we can all do OK in a career that is not necessarily in our gift set.  What does that mean?  Well, I believe that we were all created with gifts and natural talents that are unique to each of us.

For instance, I am well equipped for managing processes, I am creative, I am a good speaker and enjoy teaching people things that I know.  Now, if I decide that I want to be a doctor, beside the obvious void in my education, do I have the God-given gift to be a doctor?  Do I have the aptitude to understand the stuff I would need to learn in order to be a doctor?  The answer in my case is a resounding NO.

Think with me for a minute about people who are in the wrong career paths.  We’ve all run into them; they don’t really like their job and we are an imposition to them for expecting them to do their job.  You know the cranky store clerk, the non-helpful customer service person.  I’m not talking about someone having a bad day, I am talking about someone who is terminally unhappy in their job or in the wrong career.  That would probably be me if I chose to pursue being a doctor!

The first step in this direction is to identify what it is you were gifted to do.  OK well, that is like asking someone “how long is a string?”

We have created a short little construct to help you identify what it is you like to do.  Now, it is impossible to learn all of our gifting from one little construct.  Our gifts are like a treasure hunt; we have gifts that we may not discover for years.  For instance, Kris and I only learned that we love teaching just a few years ago.  But I have to say this; it was after a great deal of self-discovery coupled with chance.

You can only find this construct and other self-evaluation tools in the appendix of chapter 3 of our book.  You may purchase the book as well as many other helpful property management tools at our web site:  www.ManageToMakeMoney.com

Thank you for reading!

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PROPERTY MANAGEMENT DYNAMICS AND ECONOMIC DRIVERS

So what drives the property management industry? Let’s talk first about what property management is: basically, it is managing a real estate asset for the owner of that property.  It is driven by that owner purchasing a property, whether it be a commercial, industrial, institutional or residential property, and then hiring someone . . . a property manager, to do all the things necessary in order for that property to continue to be a viable and income producing asset.

At any given time, there are a certain number of properties out there in the marketplace which are in service and being managed by a property manager.  That number is going to change very little.  If anything, though, over time, the number will tend to increase.

What creates income property or rental property as you might call it?  The commercial, industrial and institutional markets are driven by new buildings being built or sold.  In the residential market, which is the primary focus of this book, a change in use or a sale of property are primarily responsible for creating rental properties.  Another, very minor contributor to the rental property market is new construction.  Depending on your locale, new homes or condos may or may not be at a price point to compete with the resale of homes.

Our experience with our owners was that most of them created new rental property by purchasing a home for the specific purpose of creating a rental property investment.  Others would purchase a new home for themselves and move out of their old home and put it in service as a rental.

OK, I went through all of that rigmarole to say this; with my background in home building and land-development, I have been through some pretty gnarly economic times.  Consequently, I tend to view things through my worst-case glasses.  So when I look at the residential property management industry I ask; so what will cause this industry to slow down or crash?  In home building the vitality of that industry is tied primarily to jobs and interest rates.  If people are not secure with their jobs or if interest rates are too high, they don’t buy as much.   But what about property management?  Do people quit renting when the job market gets sucky (sucky is a technical term!)?  Not directly.  But if the job market is horrible, as in, jobs are moving out of your area, then rents will slow down and the rental rates will trend downward.  But the real story is that if the job market gets sucky, people are less inclined to purchase a home, but they will rent instead.  What about interest rates?  Same story.  People are more inclined to rent a home and wait out the interest rates.  Remember . . . they have to have a place to live.

The two places where we have seen vulnerability in the property management business are: softening of rental rates when the job market is soft and a sell off on the backside of an economic downturn.  What the heck does that mean?  Picture this scenario; property owners are continually buying and selling their rental properties . . . for various reasons . . . life happens.  When the economy gets nasty and property values take a nose dive, owners (unless they are in dire circumstances) stop selling their properties.  This is due to a couple of reasons: 1.) They are upside down on their property . . . they owe more on their mortgage than the property will sell for.  2.) They don’t have to sell and to sell in a down market causes them to lose money.  They will simply wait the market out.  And wait the market out they do!

Our experience is that once the market returns, or at least starts to improve (the backside of the economic downturn), owners who chose not to sell earlier are now incentivized to sell.  It is a sort of a mini pent-up demand for selling.  Property values are now finally high enough that they can sell and pay off their mortgage, or, their loss will be less.

In a recession, in which at its worst, property values dropped 25 to 28%, we experienced a 10% sell off of properties on the backside of the downturn.  Not great, but had we been the owners of all that real estate, we would have been looking at much greater losses.

The key: continue to increase your business with the static market during the downturn.  That way, if you do experience a sell off, you can hope to end up where you were prior to the economic downturn.  If not . . . you have 10% more business . . . WOO-HOO!!

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