Basics of Property Management Flashcards
Imagine you’re someone who owns one multi-unit building with just a few units in it. You live in the building too, in fact! You select tenants, you collect rent, you personally arrange for all maintenance and repairs in the building by hiring plumbers, electricians, and contractors when needed. At times, you might even handle the maintenance work yourself.
Chances are high that you are not the type of person who would need to hire a property manager — because you’re doing such a great job of managing the property yourself! Good for you! 👏
However, many property owners do not have the required skill set, or simply own too many properties to handle on their own. For example, they may not want to be in charge of collecting rent or tracking expenses, they don’t feel knowledgeable enough in accounting, or perhaps they simply cannot be available to address tenant concerns. These property owners hire property managers.
A property manager is someone who is hired by a property owner to market, maintain, and oversee the day-to-day operation of a property (usually a rental property).
Their function is to oversee property operations on behalf of the owner and to realize the highest return possible on the owner’s investment.
What is Property Management?
A property manager works in the field of property management.
Property management is the vocation of renting or leasing someone else’s real property on their behalf in exchange for compensation and in accordance with a property management employee contract.
Who Is the Property Manager?
Most property managers have similar duties, all of which we will cover in this level. But a property manager’s title and responsibilities may vary depending on their role.
For example, there are three main types of property managers:
Individual property managers
Individual building managers
Resident managers
Let’s take a closer look at each of these.
Individual Property Managers
Individual property managers:
Are often real estate brokers who manage properties for one or more property owner(s)
Are sometimes part of a property management firm*
Are sometimes self-employed
*Property management firms specialize in the vocation of managing properties (surprising, I know).
Individual Building Managers
Individual building managers:
Are typically in charge of one larger property
Are hired by either another property manager or by a property owner, directly
Are NOT required to have a real estate license
Resident Managers
Resident managers:
Are in charge of ONLY residential properties
Are required to live on the property being managed
Are employed by a real estate broker, managing agent, or property owner
Are sometimes required by the state
This depends on the size and category of the property. For example, in California there are certain commercial properties that MUST have a property manager on-site 24 hours a day to supervise and protect tenants.
Recap
Take a look at how these three types of property managers stack up against each other in the image below.
A listing of types of property managers according to property types, the hiring entity, and special qualifications.
Image description
Types of Property Managers
Whatever your title ends up being, there are basic duties and responsibilities that all property managers share. These duties tend to fall under a few main areas of responsibility:
Marketing
Tenant relationships
Rent setting and collection
Lease agreements
Facility maintenance
Facility finances
Risk management and safety
Property managers wear a lot of hats and it can seem overwhelming, but we will spend all of this level exploring each one of these responsibilities. For now, just keep these general responsibilities and duties in mind.
Property Managers and Fiduciary Duties
You remember your fiduciary duties, right, Anthony? Obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care? As a property manager, you owe all these fiduciary duties to the owner of the property. This also means that it is your duty to maximize your owner’s investment. Whether by means of decreasing costs and expenditures, attaining 100% occupancy within a building, or pursuing capital improvements on the property with the goal of increasing profits, it is the property manager’s primary goal to realize the highest return possible and maximize the owner’s return on that investment.
The Basic Duties of Property Managers
Not just anyone can be a property manager! In most states, property managers are required to hold a real estate license, and Arizona is no different. Property managers in Arizona are required to hold an active Arizona real estate license. In order to hone their skills and stand out from the crowd, many property managers will take programs in order to receive a Certified Property Manager designation, or to specialize in managing a certain type of property.
Since a property manager may not be able to handle every task required to manage a property, there are a few exceptions to this rule that apply to other individuals that are involved in property management. This exemption also extends to assistants and maintenance personnel, which we will discuss in a later chapter.
Those who are not required to hold a real estate license are:
HOA property managers
Commercial property managers
Residential leasing agents or on-site residential managers
Those in short-term rentals in a common interest community, such as a timeshare
Licensing Requirements
While you must hold a real estate license in order to be a property manager, there are many other tasks related to property management that may be performed by other employees of a property management firm. Most of these are day-to-day tasks that a property manager may be too busy to handle, such as answering phone calls and scheduling appointments.
Some of the activities that non-licensees are permitted to perform are:
Handling property maintenance calls to the extent of:
Fielding maintenance calls from residents
Collecting personal information from callers
Creating work orders to be sent to the property manager
Dispatching the firm’s designated repair person/company in case of emergency
Handling calls from potential tenants
Providing a set price range for rental units
Making appointments for potential tenants to meet a rental agent for a showing
EXAMPLE
Alyssa is an assistant community manager at a large community of apartments with over 100 units. The majority of her day-to-day tasks include answering phone calls and emails from potential tenants, making appointments for showings, and creating work orders.
Finder’s Fees
Current, happy tenants can be some of the best advocates for a rental property, and an unmatched resource when it comes to referring new renters. That deserves a reward, don’t you think?
Arizona property managers are allowed to pay finder’s fees to unlicensed tenants of the properties they manage. A finder’s fee is a fee that is paid to a person who introduces or arranges an introduction between the parties to a rental transaction.
However, there is a catch – In order to be legal, a finder’s fee can only be issued in the form of a credit or reduction in the tenant’s monthly rent. If a property manager is found to be paying finder’s fees in any other form, it can result in penalties or even the suspension or revocation of their real estate license.
Chart showing that finder fees can be given as rental credit but not in the form of cash, check, or gift card.
Non-Licensees in Property Management
To get hired, a property manager will have to know how to create a management proposal for their owner. A management proposal is a plan that a property manager creates for managing a property that includes an analysis of the market along with the financial standing, operating budget, and other important factors of the property.
Having an idea of what you would include in a management proposal will help during the interview process. For example, during an interview you might be asked to list items you would include in a management proposal, or you might be asked to give specific examples of how you would run and operate the owner’s units.
Before an interview, do your research and familiarize yourself with the owner you wish to work for:
What kinds of properties do they own?
How many?
What details might be included in a management proposal for their specific property?
Based on that information, what questions might they ask you during the interview process?
Management Proposals
Because there are so many types of properties and property owners, most managers will pick a type (or types) of property in which to specialize.
Focusing on a specific area of expertise results in a property manager who is more adept at maximizing profits and who also instills their property owner with confidence that their investment is protected. Specialization sometimes gives license holders an extra edge in the hiring process, as well.
Scenario: Busybee Development
Busybee Development recently built a retail shopping center and needs to find a property manager for it. Two property managers apply: Audrey and Camille. Audrey has had 20 years of experience managing residential real estate, primarily apartment buildings. Camille has had seven years of experience managing commercial properties, primarily retail shopping centers. Who would Busybee Development be more likely to hire in this scenario?
Answer: Busybee Development would be more likely to hire Camille to manage their retail shopping center. While Audrey has more experience (20 years vs. Camille’s seven years), her expertise is in residential property management, not commercial property management. While their job titles are identical, the skills required by these two roles differ greatly. As a result, the property manager with the right kind of specialized experience for the property in question is the one more likely to get the job.
How to Stay Hired, Not Fired
Specializations are a good way to get noticed and hired by a property owner, but they’re not the only way. Buffing up your educational resume and seeking out designations will set you apart, as well.
Several organizations offer professional designations and specific courses to help you learn more about property management. For example:
Building Owners and Managers Association International (BOMA) offers designations in Real Property Administration, Systems Maintenance Administrator, and Facilities Management Administrator
Institute of Real Estate Management (IREM) (part of the National Association of Realtors) offers a designation as a Certified Property Manager
National Association of Residential Property Managers (NARPM) offers a designation as a Residential Property Manager and Master Property Manager
These are only a few of the many designations available to help you stay hired, not 🔥-ed (I know, my pun game is also 🔥).
Property Specialization
Let’s go over the broad categories of property that a property manager can specialize in. Even if you don’t specialize in one of these types of property, you will probably have some interaction with each of these:
Residential property
Commercial property
Industrial property
Special-purpose property
Each type of property requires a different skillset and involves different considerations. Let’s get into these, shall we?
Four Types of Property to Manage
You know what residential property is. You live in residential property! This can include single-family residences, vacation properties, multi-family residences, townhouses, condominiums, apartment buildings, and manufactured homes.
When managing residential property, a property manager will be interacting with tenants on a more personal basis and resolving home-related issues. They will need to be able to maintain positive relationships with many tenants simultaneously.
A single-family residence.
Single-Family Homes
Single-family homes are the most popular form of residential housing in the U.S. As you might imagine, the majority of these are owner-occupied and do not require professional management.
Single-family residences that are used as rental properties, on the other hand, may require professional property management. This is needed if the owner has many other single-family residences used as rental properties, or if the owner lives far away from their investment property and cannot tend to it efficiently.
Several different homes along the beach with a small wooden boardwalk leading into the water.
Vacation Properties
Consider vacation rental properties. They’re investment properties too, and are almost never owner-occupied. If you’re an investor who lives in New York and you own some condos on the beach in Maui, you might hire a property manager to oversee those income-producing properties for you. In cases like this, it is important that the absentee owner be able to trust the property manager from so far away.
Also, how about inviting your ol’ friend Ace to one of your island paradise properties, eh?
The frontage of a large, suburban home in ready-to-sell condition.
Multi-family Residences
Multi-family residences (also referred to as multi-unit properties) are things like duplexes, condominiums, and apartment buildings. These can either be investment properties or primary residences for owner-occupants.
Multi-family residential properties are often rented units, so they are a popular category amongst residential property managers (large apartment complexes owned by investment firms are particularly popular).
Mobile homes lined up on a green lawn.
Manufactured Homes Manufactured homes (also known as "mobile homes") are a vital source of affordable housing for many Americans.
Groups of manufactured homes are placed in manufactured home parks. Some people buy or finance their manufactured homes, but more than one-third of manufactured home residents rent their units. These manufactured home parks are often professionally managed.
A red on white sign reading foreclosure, house for sale.
REO Property
REO (short for “Real Estate Owned”) refers to bank-owned properties that have been through the foreclosure process. You may encounter these properties, as well, during your time as a property manager.
After the housing market crash, there was a significant increase in foreclosures. Since lenders aren’t typically in the business of owning homes, they often use property management companies to oversee the maintenance of their REO properties.
EXAMPLE
John purchased a cute little condo five years ago and, in doing so, signed a 30-year mortgage with a lender. However, John has fallen on hard times since losing his job. He falls behind on his mortgage payments. Soon after, the lender forecloses on the property and puts it up for sale at a foreclosure auction at the county courthouse to recoup their losses. At the foreclosure auction, the lender is unable to find any willing buyers for the property. As a result, the property reverts back to the lender as an REO property. The home will likely be assigned to an REO asset manager employed by the lender who can spend more time finding a buyer for the foreclosed property.
Residential Property
Commercial properties are those that typically provide “public accommodations” — goods, services, or facilities open to the public. This does not mean that it is public property, however.
For example, a retail store is open to the public, but the property is privately owned. A gas station is open to the public, but the property is privately owned.
All commercial property is income-producing. There are two broad categories of commercial real estate:
Retail property, from which goods are sold
Office property, where the occupants provide services to the public
Let’s look at some examples of each.
Commercial real estate that falls under the “retail” category includes such things as:
Stores (grocery, clothing, electronics — you name it!)
Shopping centers
Malls and outlets
Restaurants
Gas stations
And many, many more!
Commercial Property
Commercial properties are those that typically provide “public accommodations” — goods, services, or facilities open to the public. This does not mean that it is public property, however.
For example, a retail store is open to the public, but the property is privately owned. A gas station is open to the public, but the property is privately owned.
All commercial property is income-producing. There are two broad categories of commercial real estate:
Retail property, from which goods are sold
Office property, where the occupants provide services to the public
Let’s look at some examples of each.
Commercial real estate that falls under the “retail” category includes such things as:
Stores (grocery, clothing, electronics — you name it!)
Shopping centers
Malls and outlets
Restaurants
Gas stations
And many, many more!
Commercial Property
An important aspect of some commercial retail properties are anchor tenants, or anchor stores.
Anchor stores are major retail chains or department stores in a shopping center that provide exposure to smaller, complimentary satellite stores (called ancillary tenants).
Let’s get metaphorical: An anchor tenant is similar to an anchor for a ship; they keep large retail properties (like shopping malls) stable, preventing them from drifting too far away from specific goals (much in the same way that anchors keep ships rooted and prevent them from drifting off-course and into icebergs).
It is a good idea to place anchor stores strategically in your property. Make them easy to access and surround them with smaller, lesser-known stores. The anchor tenant will draw foot traffic to the other stores.
For example, a shopping center whose anchor store is a major clothing chain might surround it with ancillary tenants like:
Other smaller specialty clothing stores
A shoe store
A hair salon
A coffee shop
Several restaurants
A small electronics store
A bank
However, you probably WON’T find tenants like offices, manufacturing facilities, or residential housing surrounding that major clothing chain anchor store. They don’t need foot traffic!
Anchors aweigh, matey! Now let’s move on to industrial property. ⚓️
Anchor Tenants
Industrial property includes the facilities that manufacture products or materials.
This can be heavy manufacturing, such as automotive factories, oil refineries, and steel mills, or light manufacturing, such as buildings that merely manufacture and assemble products on a much smaller scale (electronics, food packaging, clothing, etc.). This also includes distribution facilities and warehouses.
As you might imagine, an automotive plant’s management needs differ significantly from the needs of a building that manufactures tennis rackets.
Industrial Property
Every type of property is special, Anthony — but some are more special than others, like those in our last property category. Special-purpose properties are properties that are commercial, but are neither industrial nor classic retail. For example, things like:
Theaters and entertainment venues Sports arenas Hotels Resorts Schools and universities Places of worship Nursing homes/senior care facilities And many, many more! It's not uncommon to find special-purpose properties that are managed by members of that particular business. These members are often uniquely skilled to address the property management needs of that specific niche. I mean, just imagine the type of specialized knowledge you would need to manage a professional sports arena. The popcorn budget alone would be mind-boggling!
Special-Purpose Property
One type of special-purpose property that property managers should be familiar with are planned unit developments (PUDs). PUDs are subdivisions that include residential dwellings alongside nonresidential real estate. PUDs depart from normal zoning and subdivision regulations. Recreational facilities may be co-owned by PUD lot owners as tenants in common.
You probably remember from a previous level that tenancy in common occurs when more than one person owns a property (and the parties are not married to each other).
In the event that one owner dies (RIP, Owner #1), they have the right to leave their portion of the property to the beneficiary of their choosing.
PUDs can put industrial, commercial, residential, and recreational properties all in the same subdivision. They give developers and property managers more flexibility to create a space that will both benefit and serve the community.
An example of a PUD would be a subdivision with a cluster of residential houses bordered by a common area (such as a park with access to hiking trails) and a golf course.
A park across the street from a row of condos (in a planned unit development).
PUDs
