Unit 19 Flashcards
What do you need a license to do in property management?
get a commission, also need a broker
Three principal responsibilities of the property manager
- achieve the objectives of the property owners
- generate income for the owners
- preserve and/or increase the value of the investment property
What is the property manager’s job?
carry out the goals of the property owners
What is the property manager responsible for?
maintaining the owner’s investment and making sure the property earns income
Property Management Clients
corporate owners, apartment buildings, owners of small rental residential properties, absentee owners, homeowners associations, investment syndicates, trust, owners of office buildings
Property Management Professional Associations
BOMA, BOMI, CAI, IREM, ICSC, NAA, NAHB, NARPM
Management Agreement
a contract creating a general agency relationship between the owner and the property manager
What is the first step in taking over the management of a property
management agreement
What is a property manager considered?
a general agent
What is the property manager’s first responsibility
to realize the highest return on teh property in a manner consistent with teh owner’s instructions and applicable law
What is in the management agreement
- Description of property
- time period agreement covers
- Definition of the manager’s responsibilities
- Statement of the owner’s purpose and responsibilities
- Extent of the manager’s authority
- Reporting
- Compensation
- Allocation of costs
- Liability
- Antitrust Provisions
- Equal Opportunity Statement
What responsibilities is a property manager charged with
fiduciary; care, obedience, accounting, loyalty, confidentiality, disclosure
management plan
outlines the details of the owner’s objectives with the property, as well as what the property manager expects to accomplish and how, including all financial objectives
What does the property manager analyze in preparing the management plan?
- owner’s objectives
- regional and neighborhood market
- specific property
Critical indicators for property manager
- occupancy
- absorption rates
- new starts
Types of financial reports
operating budget, cash flow, profit & loss statement, budget comparison statement
Operating Budget
the projection of income and expense for the operation of a property over a one-year period; based on anticipated revenues and expenses and provides expected profit
Cash flow report
monthly statement that details the financial status of the property
Income
includes gross rentals collected, delinquent rental payments, utilities, vending machine proceeds, contracts, late fees, storage charges
Expenses
fixed and variable expenses
Fixed expenses
those that remain fairly predictable
Variable expenses
recurring or nonrecurring
What is the most important financial report
cash flow
Profit & Loss Statement
a financial picture of revenues and expenses used to determine whether a business has made money or suffered a loss
P&L Formula
Net Profit Formula
Cash Flow Formula
Net Operating Income - Debt Service - reserves
Net Profit
Gross receipts - operating expenses- total mortgage payment + mortgage loan principal
Net operating income formula
total income - operating expenses
Total Income Formula
Gross rental income + other income - losses incurred
Budget comparison statement
compares actual results with the original budget, often giving either percentages or a numerical variance of actual vs. projected income and expenses
What must property manager consider when setting rental rates
- rental income must be sufficient to cover property’s fixed charges and operating expenses
- rental income must provide a return on investmnet
- rate should be comparable with prevailing rates in comparable buildings in the area
- current vacancy rate
What does a high vacancy rate indicate
poor management, defective or undesirable property, rental rates are too high
What does high occupancy rate indicate
rental rates too low
2 biggest property management expenses
- market
2. advertising
selecting tenants
should only select tenants who can meet their financial obligations; must comply with all federal/state/local afair housing laws; premises suitable for tenant
What terms of rental payments should be invluded in the lease agreement
- time and place of payment
- provisions and penalties for late payment and returned checks
- provisions for cancellation and damanges in case of nonpayment
What should a property manager do to make sure a tenant can meet their financial obligations
investigate financial references, check wtih local credit bureaus, interview former landlord
What is an operating budget based on
anticipated revenues and expenses; provides amount of expected profit
Maintaining good relations with tenants
want good relationship with tenants to have high retention and good reputation
3 types of maintenance for property management
- preventive
- repair or corrective
- routine
Preventive maintenance
includes regularly scheduled activities to preserve the long-range value and physical integrity of the building
Corrective maintence
actual repairs that keep the building’s equipment, utilities, and amentities functioning
Routine Maintenance
day-to-day duties and providing regularly scheduled upkeep
Tenant improvements/build outs
construction alterations to the interior of the buildign to meet a tenant’s particular needs
Building Related Illness and Sick Building Syndrone (SBS)
illnesses that are more prevanlent today because of energy efficiency standards used in construction that make buildings more airtight with less ventilation
Federal Laws Property Managers should be aware of
- ADA
- Equal Credit Opportunity Act
- Fair Housing Act
4 Alternative Risk Management Techniques
- avoid it
- control it
- transfer it
- retain it
Avoid it
remove the source of risk
Control it
preparing for an emergency before it happens
Transfer it
shifting the risk onto another party
Retain it
deciding that the chances of the event occuring are too small to justify the expense of any other reponse
Tenant’s insurance
property managers should inform tenants that they have to have renter’s insurance (HO-4) to protect their personal belongings
Insurance audit
indicates areas in which greater or lesser coverage is recommended and highlights particular risks
Common insurance coverage for property owners and managers
- fire and hazard
- flood
- consequential loss, use, and occupancy
- contents and personal property
- general liability
- casualty
- surety bonds
Security of tenants
want tenants to feel secure; look out for security of renters
Surety Bonds
cover an owner against financial losses resulting from an employees criminal acts or negligence whole performing assigned duties
Worker’s compensation acts
claims for medical or hospital payments for injuries sustained by building employees hurt in the course of their employment
Fire and Hazard Coverage
coverage against direct loss or damage to property from fire on teh premises; also includes windstorm, hail, smoke damage, civil insurrection
Flood Coverage
covers flooding caused by heavy raings, melting snow, inadequate drainage systems, failed levees or dams
Consequential loss, use and occupancy
loss of rent; business interruption; covers the results of disaster
Contents and personal property coverage
covers building contents and prersonal property during periods when they are not actually located on teh premises
Casualty insurance
coverage against theft, burglary, vandalism, machinery damage, health and accident insurance
Multiperil Policies
offers an insurance package that includes standard types of commercial coverage
General Liability Insurance
covers the risks an owner assumes whenever the public enters the building
Errors and Ommissions Insurance
protects property manager agianst any financial management mistakes
2 methods to determine amount of a claim
- depreciated or actual cash value
2. current replacement cost
Depreciated or actual cash value
property is insured for what it was originally worth less the depreciation in value that results from use and the passage of time
Current replacement cost
building or property is insured for what it would cost to rebuild or replace today
Coinsurance Clauses
require the insured to carry fire coverage equal to 80% a building’s replacement value; usually for commercial policies
What is the primary maintenance objective of a property manager
protect the physical integrity of the property over the long term
Environmental audits
identify issues relating ot asbestos, radon, mold
Property manager’s primary goal
operate and maintain the physical property in such a way as to preserve and enhance the owner’s capital investment
Property Manager Specializations
- Community Association Management
- Housing for seniors
- Manufactured Homes
- Resort Housing
- Concierge Services
- Asset Management
- Corporate Property Manager
- Leasing Agent
Leasing Agent
usually an independent contractor working on a commission basis
Corporate property manager
allows a corporation to invest in real estate and increase its capital by hiring a property manager
Asset management
manager monitors a portfolio of properties similar to a securities portfolio by analyzing the performance of the proeprties and making recommendations to the owners of the properties
Concierge Services management
property manager specialize in training and managing of concierge staff for office buildings and other settings
Resort housing managemnet
managing second-home and resort rentals, caring for and maintaining often vacant properties, attracting and managing short-term rentals
Manufactured homes management
build community spirit
Senior Housing Managers
marketing, facility operation, housekeeping, meal service, social event planning, medical emergency planning
Community Association Management
assist in providing a comprehensive array of services to volunteer boards
ADA readily achieveable modifications
- ramping or removing an obstacle from an otherwise accessible entrance
- lowering wall-mounted public telephones
- adding raised letter and Braille marketing on elevator buttons
- instsalling auditory signals in elevators
- reversing the directin in whcih doors open
Who is responsible for determining whether a building meets ADA accessibility requirements
usually property manager
Equal Credit Opportunity Act
prohibits a lender from denying a loan based on a person’s race, color, religion, national origin, sex, maritual status, age or receipt of public assistance
ECOA’s affect on property managers
manager should use same lease application for every applicant, require credit applications from every applicant, consistancy in evaluating the cinome and debt of applicants and in determining whether to rent to an applicant
Fair Housing Act
prohibits discrimination in teh sale, rental, or financing of housing based on race, color, religion, national origin, sex, familial status, or dsiability
