Chapter 16 - Property Management Flashcards
Property Management
A branch of the real estate business involving the marketing, operation, maintenance and day-to-day financing of rental properties.
Property Manager
A person who manages properties for an owner as the owner’s agent. Responsibilities involve managing income-producing properties, negotiating commercial leases, finding contractors to maintain equipment, marketing the property, or screening tenants (i.e., accounting, marketing, maintenance, staffing, tenant screening, negotiating vendor contracts, collecting deposits & rents, communicating w/ tenants, investors & owners, offering financial advice and even helping owners consider niche markets for their properties).
–Agent similar to a power of attorney or attorney in fact
Management Agreement
A contract between the owner of a property and someone who agrees to manage it, establishing the guidelines for the business relationship. Includes:
- -Description of the property
- -Length of the agreement
- -Management authority (what services & privileges a PM may exercise during the contract term w/o getting approval from the owner)
- -Financial Reporting
- -Management Fee
- -Accounting Responsibilities
- -Insurance & Risk Management
- -Owners responsibility & objectives
- -How or why agreement may be terminated
Management Proposal
A document that sets forth the duties of the manager when employed by the owner.
What tools should be in a property manager’s tool chest?
- Business Administration Degree is recommended
- Human Resource Management Skills
- Good Listening Skills
- Good oral, written, and digital communication skills
- An understanding of building systems including HVAC, plumbing, security networks, elevators, water chillers, electrical wiring, natural gas supply lines, & boilers
- Efficient space planning, area design, and intentional building layout to ensure tenants have safe and comfortable spaces to live or work
- Advertising & marketing skills
- An understanding of all codes and regulations governing building materials before initiating a permanent repair
- Contract negotiation
- Specific Building construction knowledge
Shopping center vs. Strip mall vs. Mall
Mall = collection of stores under a common roof. You’ll find kiosks, vendor carts, bathrooms, small office and security personnel, and a food court. (Mayfair Mall)
Shopping Center = collection of businesses in an area with roadways and sidewalks connecting them, but not a common roof (Bayshore mall)
Strip mall = smaller version of a shopping center, w/ most businesses sharing at least one wall with another business (Mayfair Collection)
Anchor tenant
well-recognized store or brand that attracts shoppers to the area, EX: Home Depot or Macy’s
Capital Expense
Expenditures creating future value. Incurred when a property owner spends money to upgrade a building in an effort to add value and/or extend the useful life of the building.
Capital Reserve Budget
Money set aside by a property owner for long-term capital expenditures to a property, w/o drawing from the general operating account or creating a substantial hardship for owners via direct billing when the time comes to upgrade a property (build up over time, accumulate monthly)
Corrective Maintenance
A maintenance task performed to identify, isolate, and rectify a problem with a property so that the property can be restored to an acceptable condition.
- -EX: fixing an acute/ongoing problem like an overflowing toilet
- -necessary and should be completed as quickly as possible
Operating Budget aka Asset management plan
Detailed summary that helps all stakeholders gain comprehensive information about each revenue and expense line item and have the confidence that the budget will provide measurable standards to ensure financial goals are realistic and measurable as the year progresses.
- -An amount of money set aside by the owner for a specific period for the property manager to manage the property effectively.
- -Mechanism for projecting & controlling short-term spending or a baseline for managing income & expenses.
Preventive Maintenance
Keeping property and equipment in a good state of repair so as to minimize the need for more costly repair work or replacement.
- -EX: periodic inspections/routine maintenance to ensure appliances are in good working order
- -optional, however failing to do so could result in lost revenue and higher corrective maintenance costs in the long run
Property Management Report
An accounting report issued periodically by the property manager to the owner outlining all income and expenditures for that accounting period.
Variable Expense
Property expenditures that vary depending on the operations of the property.
Budget Adjustments
changes made throughout the year to the budget to stabilize it and reset a realistic benchmark capable of evolving as the market changes. Completed after comparing market comps, condition and amenities of each property compared to the competition, and the actual vacancy rates and expenditures thru out the year.
Trust Accounts
account established for the inflow and outflow of funds received from 3rd parties (i.e., tenants or clients) and held for specific reasons, or money paid to or on behalf of another person or entity.
EX: advance rent payments, security or pet deposits, owner funds, or assessments for future improvements
–should never be commingled with operating funds & separate, stringent accounting practices are required
Risk
difference between what is expected to happen and what actually happens.
–calculable uncertainty
What are some examples of risk related to property management?
- Tenant risk
- Physical property risk (i.e., tornado)
- Administrative risk (i.e., legal risk)
- Market risk
Risk avoidance
strategy to ultimately eliminate any exposure to hazards that may negatively impact a business’s assets. Choosing to do everything possible to prevent an event from happening.
EX: not having a pool on-site because there is too much risk present even with insurance coverage
Risk Transfer
strategy that involves contractually shifting the potential risk in a situation from one party to another (i.e., an insurance company). The transfer of risk allocates the potential risk equitably to those who control the resources needed to manage the liability.
Professional Liability Insurance aka E&O (errors & omissions) insurance
specific type of liability insurance that protects the insured against claims or damages made in a civil lawsuit. Typically excludes negligent actions except those that are caused by mistakes.
