Top 10 Property Management Pitfalls

TITLE Date Speaker Are You Ready for 2010? Avoid the Top 10 management pitfalls that reduce profit and increase liability

Introduction
Daniel Bornstein, Esq.
Real estate attorney and founding partner at the Law Offices of Bornstein and Bornstein
Proprietor of Legal One Property Management
Real estate investor

Today’s Focus
Identify 10 areas of property management vulnerability.
Provide solutions to insulate against these mistakes.
Highlight best practices for property management companies.

Outline
Inception of the Property Management Relationship
Legal Knowledge and Education
Staffing
Client and Tenant Relationships
Bookkeeping and Operations
Conclusion

#1: Inception of the Property Management Relationship
Pitfall #1
Failure to draft and execute outstanding property management agreements at the inception of the relationship.

#1: Inception of the Property Management Relationship: Best Practices
An excellent property management agreement:
Sets expectations and boundaries
Delineates and monetizes responsibilities beyond rent collection and tenant selection commission
Example:
NOT COVERED BY THE MANAGEMENT FEE
Owner understands that the following services rendered by the Authorized Agent to Owner shall be reimbursed for their time at the agreed upon rate of $95.00 per hour, with a one (1) hour minimum. A full accounting of billable hours shall be provided to the Owner(s). These services include but are not limited to: . . .

An excellent property management agreement:
Contains a broad indemnity provision
Example:
SAVE HARMLESS
Owner shall indemnify, defend and save Agent harmless from all loss, damage, cost, expense (including attorneys' fees), liability, or claims for personal injury or property damage incurred or occurring in, on, or about the Premises.
Provides a clear method for termination upon non-compliance

Are you still using the CAR form agreement?
Compare with a more aggressive agreement:
Scope of CAR agreement is limited and not thorough
Does not provide you with adequate protection

Two More Relationship Inception Best Practices
Of course, visit and inspect the property before accepting responsibility for it.
Make sure that property manager is a named beneficiary on property owner’s insurance policy.

#2: Legal Knowledge and Education
Pitfall #2
Lack of formal training and knowledge of the law

#2: Legal Knowledge and Education
Discrimination / Fair housing regulations
Americans with Disability Act (ADA)
Contract law, leasing
Security deposit accounting rules
Employment law (resident manager’s compensation, workers compensation)

#2: Legal Knowledge and Education: Best Practices
Maintain a program for education:
Participate in Trade groups
Attend Seminars
Maintain a Close relationship with law firm
Online education – www.PropertyManager.com

#3: Staffing
Pitfall #3
Employees have little background in real estate and are often unfamiliar with landlord tenant laws.
Example – Rent control Law

#3: Staffing: Best Practices
Hire experienced people in the industry who demonstrate prior knowledge
Enlist employees in education programs and trade groups

#4 & #5: Still Staffing!
Pitfall #4
Significant employee attrition due to compensation dissatisfaction
Pitfall #5 Through employee attrition, losing historical knowledge of landlord and tenants.

#4 & #5: More Staffing Best Practices
Identify outstanding employees
Groom outstanding employees to positions of authority….gradually so they are committed to your business
Example – A talented administrative assistant – pay for training for their real estate license

#4 & #5: More Staffing Best Practices
Set employee retention as a goal in your compensation policies
Compensation based on both traditional salary and satisfying key metrics
Offer intermittent bonuses and or incentive programs

#6: Client Relationships
Pitfall #6
Failure to be aggressive in terminating toxic relationships with difficult property owners.
The “80/20” rule
Consider your opportunity costs

#7: Tenant Relationships
Pitfall #7
Failure to proactively address failed tenant relationships.
Immediate communication with both owner & tenant
Nonpayment of rent
Understanding time & cost of eviction

#7: Property Manager / Tenant Relationships: Best Practices
Communicating with tenants: Understanding the 5 tenant personality profiles
The Political Tenant
The Silent Tenant
The Dysfunctional Tenant
The Passive Aggressive Tenant
The Perfect Tenant

#7: Property Manager / Tenant Relationships: Best Practices
Employ a systematic approach to addressing failed tenant obligations
Set up schedule to make clear when rent is due and when payment is late.
Develop a database of templates for tenant communication
Have your law firm ready to act if necessary

#8 & #9: Bookkeeping and Operations
Pitfall #8
Failure to document, disorganized filing.
Pitfall #9 Failure to properly manage or oversee bookkeeping, trust accounts, and comply with DRE rules and regulations

#8 & #9: Bookkeeping and Operations: Best Practices
Use information technology to organize and automate bookkeeping and management tasks.
Example:

#8 & #9: Bookkeeping and Operations: Best Practices
AppFolio Features:
Complete general ledger accounting, customizable reports.
Tools to manage tenants, vacancies and vendors.
Track maintenance requests online and email work orders.
Generate batch email owner statements.

#10: Bookkeeping and Operations
Pitfall #10
Failure to properly retain, monitor and oversee construction tradesmen, handy man, and independent contractors
Examples:
Not checking if contractors have valid license.
Not checking if permits are required for construction project.
Hiring handy men to do work beyond their ability.
Not reporting an injury.

#10: Bookkeeping and Operations: Best Practices
Your client’s willingness to do unpermitted work will not always insulate you from liability.
You can still be liable for authorizing unpermitted work even if you are just complying with your client’s wishes.
Ethical conundrum: Duty as your client’s fiduciary vs. subjecting yourself to potential liability.

#10: Bookkeeping and Operations: Best Practices
What to do?
Document, document, document
Include a proper indemnity agreement in the property management agreement. (Remember pitfall #1?)

Conclusion
Putting it all together:
Property management is part communication, part bookkeeping, and part landlord-tenant coordination

Questions? Additional Resources
Additional Resources:
Property Management Education: www.PropertyManager.com
Local SF Associations: SFAA.org, PPMA
Web-based Property Management Software – www.AppFolio.com
Contact Information
Daniel Bornstein
The Law Offices of Bornstein and Bornstein
507 Polk Street, Suite 320
San Francisco, CA 94102-3339
Telephone: (415) 409-7611
Facsimile: (415) 409-9345
Email: [email_address]

TITLE Date Speaker Thank You!

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Top 10 Property Management Pitfalls

by AppFolio on Nov 16, 2009

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Top 10 Property Management Pitfalls — Presentation Transcript