Property Management Contracts Flashcards
Financial Reporting
A fundamental responsibility of the property manager to the principal. Reports may be required monthly, quarterly, and annually. Required reports typically include an annual operating budget, monthly cash flow reports indicating income, expenses, net operating income, and net cash flow; profit and loss stamens based on cash flow reports and showing net profit; and budget comparison statement showing how actual results match the original budget
Budgeting
An operating budget based on expecting expenses and revenues is a necessity for management. The budget will determine rental rates, amounts available for capital expenditures, required reserve funds, salaries and wages of employees, amount to be paid for property taxes and insurance premiums and mortgage or debt service. It will indicate the expected return, based on the previous year’s performance
Potential Gross Income
The maximum amount of revenue a property could generate before accounting for vacancy, collection loss, and expenses. Consists of total rent with full occupancy at established rent rates, plus other income from any source
Effective gross Income
The actual income of an investment property before expenses, expressed as total potential income minus vacancy and collection losses
Net operating income
The amount of pre-tax revenue generated from an income property after accounting for operating expenses and before accounting for any debt service
Cash Flow
The remaining positive or negative amount of income an investment produces after subtracting all operating expenses and debt service from gross income
Cash Expenditures
Expected expenditures for major items such as renovation or expansion should be included as a budgeting item. Large-scale projects are typically budgeted over a period of years
Cash Reserve
A cash reserve is a fund set aside from operating revenues for variable expenses, such as supplies, redecorating, and repairs. The amount of the reserve is based on experience with variable expenses in previous years
American with Disabilities Act
The ADA requires landlords in certain circumstances to make housing and facilities available to disable persons without hindrance
Risk Management
Depending on the nature of the risk, the size of the potential losses, the likelihood od its happening, and the costs of doing something about it, a manager and owner will generally choose one or more of the following risk management strategies:
- avoidance
- reduction
- transference
- retention
Gross Lease
A lease requiring the landlord to pay all of the property’s operating expenses, including those that pertain to an individual tenant
Net Lease
A lease which requires a tenant to pay rent as well as share of the property’s operating expenses to the extent providing for in the lease contract
Percentage Lease
A percentage lease may be gross or net, but the rent is not fixed, but depends on the income generated by the tenant in the leased property. A common arrangement is to set a fixed base rent plus a percentage of the tenant’s gross income or sales at the site. the percentage calculation may take effect only when the income reaches a certain level. The arrangement is commonly used in retail leases
Inclusion
Leases should set forth items that excludes or included in the leased property. For instance, a residential lease include built-in appliances such as dishwashers but exclude freestanding ones, such as refrigerators
Reversionary Rights
Like the grantor of a life estate, the grantor of a leasehold estate retains a future interest in the estate. The lease grants a number if rights to the property, including, primarily, the rights to enter, possess, and use the property for the long term of the lease. The lessee does not enjoy the full bundle to rights to the property
