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Top 10 Property Management Pitfalls


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Daniel Bornstein, Property Management Attorney gives an insiders view on how to avoid common property management mistakes that cost your business money and result in potential liability.

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Top 10 Property Management Pitfalls

  1. 1. TITLE Date Speaker Are You Ready for 2010? Avoid the Top 10 management pitfalls that reduce profit and increase liability
  2. 2. Introduction <ul><li>Daniel Bornstein, Esq. </li></ul><ul><ul><li>Real estate attorney and founding partner at the Law Offices of Bornstein and Bornstein </li></ul></ul><ul><ul><li>Proprietor of Legal One Property Management </li></ul></ul><ul><ul><li>Real estate investor </li></ul></ul>
  3. 3. Today’s Focus <ul><li>Identify 10 areas of property management vulnerability. </li></ul><ul><li>Provide solutions to insulate against these mistakes. </li></ul><ul><li>Highlight best practices for property management companies. </li></ul>
  4. 4. Outline <ul><li>Inception of the Property Management Relationship </li></ul><ul><li>Legal Knowledge and Education </li></ul><ul><li>Staffing </li></ul><ul><li>Client and Tenant Relationships </li></ul><ul><li>Bookkeeping and Operations </li></ul><ul><li>Conclusion </li></ul>
  5. 5. #1: Inception of the Property Management Relationship <ul><li>Pitfall #1 </li></ul><ul><li>Failure to draft and execute outstanding property management agreements at the inception of the relationship. </li></ul>
  6. 6. #1: Inception of the Property Management Relationship: Best Practices <ul><li>An excellent property management agreement: </li></ul><ul><ul><li>Sets expectations and boundaries </li></ul></ul><ul><ul><li>Delineates and monetizes responsibilities beyond rent collection and tenant selection commission </li></ul></ul><ul><ul><li>Example: </li></ul></ul><ul><ul><ul><ul><li>NOT COVERED BY THE MANAGEMENT FEE </li></ul></ul></ul></ul><ul><ul><ul><li>  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: . . . </li></ul></ul></ul>
  7. 7. #1: Inception of the Property Management Relationship: Best Practices <ul><li>An excellent property management agreement: </li></ul><ul><ul><li>Contains a broad indemnity provision </li></ul></ul><ul><ul><li>Example: </li></ul></ul><ul><ul><ul><ul><li>SAVE HARMLESS </li></ul></ul></ul></ul><ul><ul><ul><li>  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. </li></ul></ul></ul><ul><ul><li>Provides a clear method for termination upon non-compliance </li></ul></ul>
  8. 8. #1: Inception of the Property Management Relationship: Best Practices <ul><li>Are you still using the CAR form agreement? </li></ul><ul><li>Compare with a more aggressive agreement: </li></ul><ul><ul><li>Scope of CAR agreement is limited and not thorough </li></ul></ul><ul><ul><li>Does not provide you with adequate protection </li></ul></ul>
  9. 9. #1: Inception of the Property Management Relationship: Best Practices <ul><li>Two More Relationship Inception Best Practices </li></ul><ul><ul><li>Of course, visit and inspect the property before accepting responsibility for it. </li></ul></ul><ul><ul><li>Make sure that property manager is a named beneficiary on property owner’s insurance policy. </li></ul></ul>
  10. 10. #2: Legal Knowledge and Education <ul><li>Pitfall #2 </li></ul><ul><li>Lack of formal training and knowledge of the law </li></ul>
  11. 11. #2: Legal Knowledge and Education <ul><ul><li>Discrimination / Fair housing regulations </li></ul></ul><ul><ul><li>Americans with Disability Act (ADA) </li></ul></ul><ul><ul><li>Contract law, leasing </li></ul></ul><ul><ul><li>Security deposit accounting rules </li></ul></ul><ul><ul><li>Employment law (resident manager’s compensation, workers compensation) </li></ul></ul>
  12. 12. #2: Legal Knowledge and Education: Best Practices <ul><li>Maintain a program for education: </li></ul><ul><ul><li>Participate in Trade groups </li></ul></ul><ul><ul><li>Attend Seminars </li></ul></ul><ul><ul><li>Maintain a Close relationship with law firm </li></ul></ul><ul><ul><li>Online education – </li></ul></ul>
  13. 13. #3: Staffing <ul><li>Pitfall #3 </li></ul><ul><li>Employees have little background in real estate and are often unfamiliar with landlord tenant laws. </li></ul><ul><li>Example – Rent control Law </li></ul>
  14. 14. #3: Staffing: Best Practices <ul><ul><li>Hire experienced people in the industry who demonstrate prior knowledge </li></ul></ul><ul><ul><li>Enlist employees in education programs and trade groups </li></ul></ul>
  15. 15. #4 & #5: Still Staffing! <ul><li>Pitfall #4 </li></ul><ul><li>Significant employee attrition due to compensation dissatisfaction </li></ul>Pitfall #5 Through employee attrition, losing historical knowledge of landlord and tenants.
  16. 16. #4 & #5: More Staffing Best Practices <ul><ul><li>Identify outstanding employees </li></ul></ul><ul><ul><li>Groom outstanding employees to positions of authority….gradually so they are committed to your business </li></ul></ul><ul><ul><ul><li>Example – A talented administrative assistant – pay for training for their real estate license </li></ul></ul></ul>
  17. 17. #4 & #5: More Staffing Best Practices <ul><ul><li>Set employee retention as a goal in your compensation policies </li></ul></ul><ul><ul><li>Compensation based on both traditional salary and satisfying key metrics </li></ul></ul><ul><ul><li>Offer intermittent bonuses and or incentive programs </li></ul></ul>
  18. 18. #6: Client Relationships <ul><li>Pitfall #6 </li></ul><ul><li>Failure to be aggressive in terminating toxic relationships with difficult property owners. </li></ul><ul><ul><li>The “80/20” rule </li></ul></ul><ul><ul><li>Consider your opportunity costs </li></ul></ul>
  19. 19. #7: Tenant Relationships <ul><li>Pitfall #7 </li></ul><ul><li>Failure to proactively address failed tenant relationships. </li></ul><ul><ul><li>Immediate communication with both owner & tenant </li></ul></ul><ul><ul><li>Nonpayment of rent </li></ul></ul><ul><ul><li>Understanding time & cost of eviction </li></ul></ul>
  20. 20. #7: Property Manager / Tenant Relationships: Best Practices <ul><ul><li>Communicating with tenants: Understanding the 5 tenant personality profiles </li></ul></ul><ul><li>The Political Tenant </li></ul><ul><li>The Silent Tenant </li></ul><ul><li>The Dysfunctional Tenant </li></ul><ul><li>The Passive Aggressive Tenant </li></ul><ul><li>The Perfect Tenant </li></ul>
  21. 21. #7: Property Manager / Tenant Relationships: Best Practices <ul><ul><li>Employ a systematic approach to addressing failed tenant obligations </li></ul></ul><ul><ul><ul><li>Set up schedule to make clear when rent is due and when payment is late. </li></ul></ul></ul><ul><ul><ul><li>Develop a database of templates for tenant communication </li></ul></ul></ul><ul><ul><ul><li>Have your law firm ready to act if necessary </li></ul></ul></ul>
  22. 22. #8 & #9: Bookkeeping and Operations <ul><li>Pitfall #8 </li></ul><ul><li>Failure to document, disorganized filing. </li></ul>Pitfall #9 Failure to properly manage or oversee bookkeeping, trust accounts, and comply with DRE rules and regulations
  23. 23. #8 & #9: Bookkeeping and Operations: Best Practices <ul><li>Use information technology to organize and automate bookkeeping and management tasks. </li></ul><ul><ul><ul><li>Example: </li></ul></ul></ul>
  24. 24. #8 & #9: Bookkeeping and Operations: Best Practices <ul><li>AppFolio Features: </li></ul><ul><ul><li>Complete general ledger accounting, customizable reports. </li></ul></ul><ul><ul><li>Tools to manage tenants, vacancies and vendors. </li></ul></ul><ul><ul><li>Track maintenance requests online and email work orders. </li></ul></ul><ul><ul><li>Generate batch email owner statements. </li></ul></ul>
  25. 25. #10: Bookkeeping and Operations <ul><li>Pitfall #10 </li></ul><ul><li>Failure to properly retain, monitor and oversee construction tradesmen, handy man, and independent contractors </li></ul><ul><li>Examples: </li></ul><ul><li>Not checking if contractors have valid license. </li></ul><ul><li>Not checking if permits are required for construction project. </li></ul><ul><li>Hiring handy men to do work beyond their ability. </li></ul><ul><li>Not reporting an injury. </li></ul>
  26. 26. #10: Bookkeeping and Operations: Best Practices <ul><li>Your client’s willingness to do unpermitted work will not always insulate you from liability. </li></ul><ul><ul><li>You can still be liable for authorizing unpermitted work even if you are just complying with your client’s wishes. </li></ul></ul><ul><ul><li>Ethical conundrum: Duty as your client’s fiduciary vs. subjecting yourself to potential liability. </li></ul></ul>
  27. 27. #10: Bookkeeping and Operations: Best Practices <ul><li>What to do? </li></ul><ul><ul><li>Document, document, document </li></ul></ul><ul><li>Include a proper indemnity agreement in the property management agreement. (Remember pitfall #1?) </li></ul>
  28. 28. Conclusion <ul><li>Putting it all together: </li></ul><ul><ul><li>Property management is part communication, part bookkeeping, and part landlord-tenant coordination </li></ul></ul>
  29. 29. Questions? Additional Resources <ul><li>Additional Resources: </li></ul><ul><ul><li>Property Management Education: </li></ul></ul><ul><ul><li>Local SF Associations:, PPMA </li></ul></ul><ul><ul><li>Web-based Property Management Software – </li></ul></ul><ul><li>Contact Information </li></ul><ul><li>Daniel Bornstein </li></ul><ul><li>The Law Offices of Bornstein and Bornstein </li></ul><ul><li>507 Polk Street, Suite 320 </li></ul><ul><li>San Francisco, CA  94102-3339 </li></ul><ul><li>Telephone:  (415) 409-7611 </li></ul><ul><li>Facsimile:   (415)  409-9345 </li></ul><ul><li>Email:    [email_address] </li></ul>
  30. 30. TITLE Date Speaker Thank You!