1. Management Plan Flashcards
What is the primary responsibility of a property manager?
To understand the owners objectives by creating a short and long term (management) plan.
What should a management plan include?
The manager needs to formulate a Management Plan. The plan describes in detail the subject property’s current use along with its physical condition, fiscal projections, and any operational issues. It also includes an analysis of the market (both regional and neighborhood), the competing properties, as well as potential improvements or alternative uses for the subject property.
A _______ ________ focuses on both a regional and neighborhood evaluation, which includes the demographic conditions, geographic features, governmental prospective, existing real estate supply,
potential future developments, and tenant/ resident demand.
Market Analysis
By performing the Market Analysis and a _______ __________ ________, it is easier to identify the subject property’s strengths and weaknesses. The manager can then consider different alternatives to improve the property’s weaknesses or further enhance its strengths with the ultimate goal to improve overall economic performance. This is also known as determining the property’s highest and best use.
Competitive Property Analysis
When conducting an “Analysis of Alternative” some of the thing to consider are:
- Rehabilitate the property without altering its existing use
- Modernize the property by updating finishes, purchasing new or more efficient equipment or enhancing existing features or amenities.
- Change the use of the building, including the conversion from one property type to another (i.e. from industrial to single story office), or by demolishing it for a completely new development.
- Conversion to a condominium ownership structure
What are the 3 types of obsolescence?
- Physical Obsolescence is characterized as a condition of aging (i.e. wear and tear) or deferred
maintenance. Examples are worn carpets, peeling paint, a leaking roof, or dead landscaping. - Functional Obsolescence is characterized by old or outdated designs or building systems.
Examples include equipment that is not repairable because parts or no longer manufactured; single pane window systems because they waste a large amount of energy; outdated bathroom fixtures because of changing designs and tastes. - Economic Obsolescence represents a loss in value due to outside forces (i.e. location, market
conditions). An example would be an office building, located in a small town, where the major
employer closes. This may result in both lower demand and rental rates.
The process that represents the loss in value from the various forms of obsolescence is called:
Depreciation
Question #1
If a new 400 unit apartment building is worth $12,000,000 and depreciates in value at 2.5% per year, what is its
Depreciated Value after five years?
Answer #1
$12,000,000 x 0.025 = $300,000 per year of Depreciated Value
$300,000 x 5 years = $1,500,000 accumulated Depreciation
$12,000,000 - $1,500,000 = $10,500,000 Depreciated Value after 5 years
Value Types:
This is the value that is generally used by investors. It is frequently determined either by calculating the Net Operating Income and applying a Capitalization Rate
to it or from Cash Flow by determining the Return on Investment.
Investment Value
Value Types:
This is the value used by government tax assessment offices. Since it is frequently determined using sophisticated mathematical models that are applied to many similar types of properties over a geographic area, it can be less accurate and produce results that are
higher or lower than other types of “values”.
Assessed Value
Value Types:
This is the value that is agreed to between a buyer and seller. It represents the “meeting of the minds”.
Market Value
Value Types:
This is used for income tax purposes and affects a property’s tax basis. In the past, the Federal Government has implemented accelerated depreciation programs to help promote economic growth.
Depreciated Value
Value Types:
This is only the price that the owner has offered to sell a property for.
List Price
What are the certain responsibilities and limitations that the manager needs to be aware of and follow.
- Loyalty to the client
- Confidentiality
- Accurate accounting and reporting
- Protection of owner’s funds (including not commingling the owner’s funds with the manager’s)
- Conflicts of interest
- Compliance with Laws and Regulations
What are the typical provisions found in a management agreement?
- Provides the name of the owner and manager
- Specifies the term of the agreement
- Describes the property
- Describes the services provided by the manager
- Identifies who collects the rent payments
- Identifies in whose name all service contracts are to be made
- Describes when funds are to be disbursed
- Identifies whose employees work at the property
- Determines if fidelity bonds necessary
- Indicates how many bank accounts are needed and their purpose
- Identifies who maintains various building licenses (elevator, boiler, etc.)
- Provides insurance requirements and who secures the policies
- Specifies the management fee compensation
