•••••iA National Profile ofthe Real Estate Industry and.docx

•••••i
A National Profile of
the Real Estate Industry and
the Appraisal Profession
by J. Reid Cummings and Donald R. Epley, PhD, MAI, SRA
FEATURES
T
J- he
he real estate industry has been devastated on many fronts' in
the years
following the Great Recession, whieh began in 2007^ due to the
bursting of the
housing bubble and the subsequent finaneial crisis relating to
the mortgage
market meltdown.' The implosion of the mortgage markets
initially began when
two Bear Stearns mortgage-backed securities hedge funds,
holding nearly $10
billion in assets, disintegrated into nothing.* Panie quickly
spread to financial
institutions that could not hide the extent of their toxic,
subprime exposures, and
a massive, worldwide credit squeeze ensued; outright fear soon
replaced panic.
Subsequent eredit tightening and substantial illiquidity in the
financial markets
rapidly and severely affected the housing and construction
markets.' Throughout

the United States, properties of all kinds saw dramatic value
declines.
In thousands of cases, real estate foreclosures disrupted people's
lives,
forced businesses to close, eaused financial institutions to
falter, capsized wbole
market segments, devastated entire industries, and squeezed
municipal and state
government budgets dependent upon use and property tax
revenues.* While the
effeets of property value declines and the waves of foreclosures
in markets across
the country captured most of the headlines, one significant
impact of the upheaval
in US real estate markets has gone largely unreported: its
impact on employment
in the real estate industry, and specifically, the real estate
appraisal profession.
This article presents a
current employment
profile of the US real
estate industry, with
special attention given
to appraisal profes-
sionals. It serves as an
informative picture of

the appraisal profession
for use as a benchmark
for future assessment
of growth. As a
component of the real
estate industry, the
appraisal profession
ranks as the smallest
in employment, is
highly correlated to
movements in empioy-
ment of brokers and
agents, and relies on
commerciai banking,
credit, and real estate
lessors and managers
to deliver its products.
1. James R. DeLisle, "At the Crossroads of Expansion and
Recession," TheAppraisalJournal 75, no. 4 (Fall 2007):

314-322; James R. DeLisle, "The Perfect Storm Rippiing Over
to Reai Estate," The Appraisal Journal 76, no,
3 (Summer 2008): 200-210.
2. Randaii W. Eberts, "When Wiii US Empioyment Recover
from tiie Great Recession?" International Labor Brief
9, no. 2 (2011): 4-12 (W. E. Upjohn Institute for Employment
Research): Chad R. Wilkerson, "Recession and
Recovery Across the Nation: Lessons from History," Economic
Review 94, no. 2 (2009): 5-24.
3. Kataiina M. Bianco, The Subprime Lending Crisis: Causes
and Effects of the Mortgage Meltdown (New York:
CCH, inc., 2008): Lawrence H. White, "Fédérai Reserve Policy
and the Housing Bubbie," in Lessons From the
Financial Crisis: Causes, Consequences, and Our Economic
Future, ed. Robert W. Koib (Hoboken, NJ: John Wiley
& Sons, Inc., 2010), 453-460.
4. John Bellamy Foster, "The Financialization of Capital and the
Crisis," Monthiy Review 59, no. 11 (Aprii 2008):
1-19.
5. Major Coleman iV, Michael LaCour-Littie, and Kerry D.
Vandeii, "Subprime Lending and the Housing Bubbie: Taii
Wags Dog?" Journai of Housing Economics 17, no. 4 (2008):
272-290.
6. Dean Baker, "The Housing Bubbie and the Financiai Crisis,"
Rea/-Wor/d Economics Review no. 46 (2008): 7 3 - 8 1 .
ANationaLRrMlejlîheBeaLIstatdflctustry^ancIth&Apprms.aJ.Er
ofessLaa. _IJhe Appraisal Journal, Spring 2013

Hundreds of thousands of professionals
are involved in brokering, leasing, managing,
appraising, and developing all property types.
Service professionals include residential sales
agents, multifamily-property managers, commercial
investment advisors, industrial property brokers,
land developers, property appraisers, and many
others.^ Their professional education and training
includes academic work performed in colleges and
universities; industry-specific education and training
programs; advanced professional association
development and designation certifications; company
and franchise training; pre- and post-licensing
continuing education requirements; and many years
of on-the-job training and experience.
The disintegration of the housing and financial
markets has affected all professionals in the real
estate industry and its employment components.
This article shows professional real estate appraisers
have been particularly hard hit. Before the recession,
as property values and sales grew, and as demand for
loans increased, appraisers' workloads did as well.
When the bubble burst, appraisers felt its impact and
experienced significant declines in their businesses.
As a result, the real estate appraisal industry
experienced a significant loss in jobs. Recent growth
in employment within the appraisal profession has
neither mirrored other sectors in the real estate
industry, nor that of the US economy.
The purpose of this article is to provide a cross-
sectional view of the national real estate industry
with special attention given to employment in the
appraisal profession. Nothing in the professional
literature attempts to establish a data-driven profile

of the appraisal business, or compares and contrasts
it to other real estate-related professions. This article
is not a survey, but rather an effort to establish a basic
real estate appraisal employment baseline that will
serve as a benchmark for future trend comparisons.
This profile uses the latest data estimates from
private, state, and federal sources in support of
regional input-output tables used for the estimation
of economic impacts from events in a region.^
The results indicate that overall real estate industry
employment at the end of 2011 was higher than at
the beginning of 2001. However, the trend of annual
increases in the number employed evident in the
early years of the 2001—2011 study period reversed
itself during the recession. Declines in employment
appear to coincide with concurrent declines in the
economy during the latter years of the same period. The
results further show a significant correlation between
employment in the real estate appraisal profession and
production measures of the national economy, but not
with national employment This research is not only
very timely, it also is extremely important because
changes in the employment trends in the real estate
industry since the financial crisis began have been
substantial. The information and analysis presented
offer unique insights into understanding the current
state of the real estate industry, and in particular, the
real estate appraisal profession.
Employment Profile and Trends
This article examines national employment trends
in five real estate-related categories:
• Agents and Brokers
• Appraisers

• Lessors and Lessors' Agents
• Property Managers
• Other Services (i.e.. Escrow Agents, Consultants,
Fiduciaries, Asset Managers, and Listing Services)
It extracts the data according to the North American
Industry Classification System (NAICS) at the
six-digit code level across all real estate-related cat-
egories for the period 2001—2011.'' Each category
draws from information provided by the US Census
Bureau NAICS category definitions.
Agents and Brokers
The industry classification Offices of Real Estate
Agents and Brokers (NAICS Code 531210) includes
people primarily engaged in acting as agents and/or
brokers in one or more of the following: (1) selling
real estate for others, (2) buying real estate for others.
7. Association of Real Estate License Law Officiais, Digest of
Real Estate License Laws and Current Issues (Chicago:
Association of Reai Estate License
Law Officiais, 2011).
8. Proprietary data obtained by paid license from Economic
Modeiing Speciaiists. Intl. For information on purchasing
licenses enabling information access,
see http://www.economicmodelihg.com.
9. NAICS codes adopted by several government agencies such
as the US Bureau of Ecohomic Analysis and the US Bureau of
Labor Statistics for the
standardization and reporting of data such as employmeht ahd
income. Further expianation of the accounts used ahd specialties
covered is shown in

the Appendix at the end of this articie.
appraisai Journal, Spring 2 0 1 3 , ^ -EcoJile Qflhe
and (3) renting real estate for others. Figure 1 shows
that at the end of 2001,1,061,482 people in the United
States worked in Offices of Real Estate Agents and
Brokers. At the end of 2011,1,717,627 people worked
in this classification, or 61.8% more than in 2001. The
annual employment number increased each year in
2001-2007, peaking in 2007 at 1,857,576. However,
coinciding with the beginning of the recession, the
number of people in this classification began to
decline, and the annual decreases continued until a
slight increase occurred in 2011 over 2010.
Two caveats are noteworthy. First, substantial
increases in employment during the early years of the
period may be due to entry of new licensees hoping
to capitalize on the potential income opportunities
provided by Üie booming, pre-financial crisis real estate
markets. Therefore, tbe sharp growth trend may have
been an unsustainable anomaly. Second, the data does
not differentiate between those licensed professionals
who work full-time versus those who only work part-
time. Therefore, some portions of categorical declines
in the post-flnancial crisis economy may be due to
part-üme licensees choosing not to renew their licenses
during the economic downturn.
Appraisers
The industry classification Ofiices of Real Estate
Appraisers (NAICS Code 531320) includes people

primarily engaged in estimating the fair market
value of real estate. Figure 2 shows that at the end
of 2001,80,724 people in the United States worked in
this classification. At year-end 2011,111,253 people
worked in this classificaüon, or 37.8% more than in
2001. The annual employment number increased
each year in 2001-2007, peaking in 2007 at 118,657.
In addition, again coinciding with the beginning of
the recession, the number of people in this classifica-
tion began to decline, and the decreases confinued
through 2011.
Although the percentages of growth in this
category are different from those of the category
Offices of Real Estate Agents and Brokers, it is
possible the explanafions are similar. The booming
real estate markets prior to the financial crisis
increased demand for appraisals, and therefore,
more people entered the profession. Likewise,
as the markets slowed after the crisis began and
appraisal demand declined, so did the demand
for appraisers. Due to the reduced demand, some
licensed appraisers may have sought other types
of employment, or suspended or terminated their
licenses. Further, some lenders, especially those
focusing on the residential mortgage sector,
increased use of alternafive valuation products or
turned to using broker price opinions (BPOs).'"
Figure 1 US Offices of Real Estate Agents and Brokers (NAICS
Code 531210)
a.
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r
1
2,000,000 -|
1,800,000 -
1,600,000 -
1,400,000 -
1,200,000 -
1,000,000 -
800,000 -
600,000 -
400,000 -
200,000 -
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2011
10. So many real estate brokers began performing BPOs after
the financial crisis that in IVlay 2011, the National Association
of Realtors (NAR) introduced a
new BPO training and certification program. Information
obtained from the Nationai Association of Reaitors available at
http://www.realtororg/rmodaiiy.
nsf/pages/News2011051306.
aJMonal2rMkoíJlifiJüaL£síalfiJndiJ.stryjDd the AppraisalJr l i i
e Appraisal Journal, Spring20;
Figure 2 US Offices of Real Estate Appraisers (NAICS Code 5 3
1 3 2 0 )
'S.
o
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140,000

120,000
100,000
80,000
60,000
40,000 -h-
20,000 -— ,̂.,-
2001 2002 2003 2004 2005 2006 2007
Year
2008 2009 2010 2011
Lessors and Lessors' Agents
The industry classification Lessors of Residential
Buildings and Dwellings (NAICS Code 531110)
includes people primarily engaged in acting as les-
sors of buildings used as residences or dwellings,
such as single-family homes, apartment buildings,
and townhomes. Included in this classification are
owner-lessors of residential buildings and dwellings
or people employed by them.
Figure 3 shows that at the end of 2001, 683,905
people in the United States worked as Lessors of
Residential Buildings and Dwellings. At year-end
2011,1,057,764 people worked in this classification.
or 54.7% more than in 2001. The annual employment
number increased each year in 2001—2007, peaking
in 2007 at 1,083,847. However, coinciding with the

beginning of the recession, the number of people
employed in this classification began to decline,
dipping slighüy in 2008 and 2009. The trend reversed
in 2010 and 2011.
The industry classification Lessors of Non-
Residential Buildings (NAICS Code 531120) includes
people primarily engaged in acting as lessors
of huildings (except mini-warehouses and self-
storage units) that are not residences or dwellings.
Included in this industry sector are owner-lessors
Figure 3 Offices of US Lessors of Residentiai Buildings and
Dwellings (NAICS Code 5 3 1 1 1 0 )
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2001
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2011
! Appraisal Journal, Spring 2O13L lPröfile of
th&RftaiXslatalcuksítyjnd the AppraisalÄ
of non-residential buildings and people employed
by tbem.
people in the United States worked in the Lessors
of Non-Residential Buildings classification. At year-
end 2011, 493,600 people worked in this industry
classification, or 33.7% more than in 2001. The annual
number of people increased each year in 2001—2005,
decreased slightly in 2006, and increased in 2007
and 2008, when it peaked at 510,576. Thereafter,
the annual number of people employed in this
classification decreased each year in 2009—2011.
The industry classification Lessors of Mini-
Warehouses and Self-Storage Units (NAICS Code
531130) includes people primarily engaged in
renting or leasing self-storage space (e.g., rooms,
compartments, lockers, containers, or outdoor space)
where clients can store and retrieve their goods.
people in the United States worked as Lessors of
Mini-Warehouses and Self-Storage Units. At the
end of 2011, 280,702, or 112.6% more than in 2001,

worked in this classification.
The annual number of people in this classification
increased each year in the study period except for
2009, when it decreased shghtiy by -2,393, or -0.86%
less than 2008. A possible explanation for the strong
growth performance could be a combination of
Americans continuing to accumulate more material
possessions and the downsizing of residences,
increasing the need for storage of their possessions.
Another explanation might be that foreclosures
forced people to place their possessions in storage
as they transitioned to other residences.
The industry classification Lessors of Other
Real Estate Property (NAICS Code 531190) includes
people primarily engaged in acting as lessors of real
estate (except buildings), such as manufactured-
home sites, vacant lots, and grazing land. Figure 6
shows that at the end of 2001,125,915 people in the
United States worked as Lessors of Other Real Estate
Property. At the end of 2011,146,858 people, or 16.6%
Figure 4 Offices of US Lessors of Non-Residential Buildings
(NAICS Code 5 3 1 1 2 0 )
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600,000 -
500,000 -
400,000 -
300,000 -
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2001
Figure 5 Offices of US
of
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250,000 -
200,000 -
150,000 -

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2001
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2002
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JThe Appraisal Journal, Spring 20:
Figure 6 Offices of US Lessors of Other Real Property (NAICS
Code 531190)
pi
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Figure 7 Offices
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2011
more than in 2001, worked in this classification. The
increases and decreases in the number of people in
this classification are inconsistent, showing increases
in 2001-2005,2007, and 2010, but decreases in 2006,
2008-2009, and 2011.
Property Managers
The industry classification Residential Property
Managers includes people primarily engaged in
managing residential real estate for others. Figure 7
shows that at the end of 2001, 178,244 people in the
United States worked in this industry classification,
and atthe end of 2011,289,706 people, or 62.5% more
than in 2001, worked in this classification.
During 2001—2011, the number of people in tbis
classification increased each year, with the highest
annual increase (10.7%) occurring in 2007, which
coincided with the beginning of the recession. The
10.7% increase in 2007 was the only double-digit
increase during the study period. One possible
explanation for this is that 2007 was the first year people
began losing their homes to foreclosure hecause of the
recession. As the demand for rental units increased due
to increased home foreclosures, there may have been
a eommensurate inerease in tbe need for residential
managers. Anotber explanation could be that more
apartment eomplexes came on line in 2007 due to the
rapid expansion of eonstrucüon of multifamily units in
the middle part of the decade, resulting in employment
of more residential property managers.

The industry classification Non-Residential
Property Managers (NAICS Code 531312) includes
people primarily engaged in managing non-
residential real estate for others. Figure 8 shows at the
end of 2001, 83,213 people in the United States were
employed as Non-Residenüal Property Managers. At
the end of 2011,130,346 people, or 56.6% more than
in 2001 worked in this classification.
ppraisal Journal, Spring 2013. A National Profile of tlie^R&aJ
£state.iDáiistry,.aad the Appraisal Profession
Figure 8 Offices of US Non-Residential Property IVIanagers
(NAICS Code 5 3 1 3 1 2 )
P
e
o
p
ie
N
um
be
r
140,000
120,000
100,000
t 80,000 —

60,000
40,000
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2001 2002 2003 2004 2005 2006
Year
i i i i
2007 2008 2009 2010 2011
With the exception of 2009-2010, when growth
was relatively flat, the number of people working in
the Non-Residential Property Managers classification
increased during the study period, with the highest
annual increase (9.4%) occurring in 2008. A possible
explanation for the significantly higher increase in
2008 is that demand for asset managers increased
due to the increased foreclosures of non-residential
properties. Another possible explanation is that
demand for commercial real estate was increasing
in the years prior to the financial crisis—peaking in
2008—and thus, more real estate firms employed
more non-residential property managers to service
the industry. It is important to note that because this
NAICS industry classification includes only those
managing non-residential real estate for others,
property management services for owner-occupied
properties are not included.

Other Real Estate Activities
The industry classification Other Activities Related
to Real Estate (NAICS Code 531390) includes people
primarily engaged in performing real estate-related
services (except lessors of real estate, olfices of real
estate agents and brokers, real estate property man-
agers, and offices of real estate appraisers). Figure 9
shows that at the end of 2001, 592,155 people in the
United States worked in Other Activities Related to
Real Estate. At the end of 2011, 852,824 people, or
44% more than in 2001, worked in this classification.
The e m p l o y m e n t growth t r e n d of this
classification is similar to the growth trend in the
classification Offices of Real Estate Appraisers. The
annual number increased each year in 2001—2005,
and peaked in 2007 at 890,100. Coinciding with the
beginning of the recession, the number of people
employed in this classification then began to decline
and the decreases continued through 2011.
Correlations and Summary
The analysis in this article compares employment
categories of the appraisal profession to other seg-
ments of the real estate industry and various national
economic indicators. The statistical test used is a
simple correlation analysis utilizing the Pearson"
method to produce correlation eoefiicients between
the appraisal profession and other segments of the
real estate industry. The purpose of performing
this statistical test was to uneover strong and weak
relationships with other parts of the eeonomy that
could serve as future indieators of the welfare of the
appraisal profession.

Correlation analysis examines the degree
to which relationships exist between variables.
Correlations, labeled as eoefiicients, are numbers
between -1 and +1. A coefficient between 0 and +1
suggests a positive relationship between the variables,
whereas a coefficient between -1 and 0 suggests a
negafive one. Correlation analysis helps reduce the
range of uncertainty about the relaüonships between
the variables. Hence, correlation analysis produces
greater variance of the predieted outcomes—how
much movement of one variable is related to
movement of another variable—that are eloser to
1 1 . Joseph F. Hair Jr., Mary Wolfinbarger Ceisi, Arthur
Money, Phillip Samouel, and Michael J. Page, Essentials of
Business Research Methods, 2nd ed.
(Armonk, New York: M. E. Sharpe, inc., 2011).
^ ^ The Appraisai Journai, Spring 20:
Figure 9 US Offices of Other Activities Related to Real Estate
(NAICS Code 531390)
P
e
o
p
le
N
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m
b
e
1,000,000
800,000
600,000
400,000
200,000
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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
reality. A simple correlation is between two variables.
Perfect correlation exists between two variables
when the correlation coefficient is either +1 or - 1 .
Table 1 shows the correlation analysis results
for the study.'̂ They reveal a posifive relationship
between the appraisal profession and the other
sectors. The highest correlafion of+0.998 was with
the classification Offices of Real Estate Agents and
Brokers, which was statistically significant at the
0.01 level (this means that 99.8 times out of 100, this
relationship will exist and will be highly, posifively
correlated). Also, a strong, positive relationship
of +0.997 was revealed with the classification
Residential Property Managers, which was highly
significant at the 0.01 level. The interpretation is that
as employment in the sectors identified goes up or
down, employment in the appraisal profession will
do likewise.
The analysis leads to the following conclusions
related to the Real Estate Appraisers classificafion:
1. The industry classification Real Estate Appraisers
is the smallest among all real estate sectors
examined, with 111,233 johs in 2011.

2. Employment increased annually from 80,724
in 2001 to a high of 118,657 in 2007, for a total
increase of 37,933, or 46.99%.
3. Employment decreased annually from 118,657
in 2007 to a low of 111,233 in 2011, for a total
decrease of-7,424, or -6.3%.
4. During the study period, the largest annual
decrease was from 118,657 in 2007 to 114,397
in 2008, a decrease of-4,260 or -3.6%.
5. The smallest decrease, between 2009 and 2010,
was -271 or -0.24%.
6. The most recent decrease, between 2010 and
2011, was-1,705 or-1.51%.
Total Requirements Needed to Operate
The Bureau of Economic Analysis prepares and
publishes a variety of economic statistics on indus-
tries. Its data on total requirements represent the
total demand for goods or services that an industry
needs to produce its particular goods or services.'^
While other industries or resources operafing or
existing within the region saüsfy some of the demand,
in many instances not all of the requirements
are satisfied from within the same region. This
unsatisfied or leftover demand is satisfied through
imports into the region. Thus, the total requirements
equal the amount safisfied within the region plus the
amount of imports into the region.

Figure 10 displays the US 2010 total requirements
for real estate-related industries. Because this data
is for the entire United States, the region is the
entire country as well. The 2010 total requirements
for all real estate-related sectors totaled over $1.09
12. The correlations shown in Table 1 are between people
working in the appraisai profession and other real estate-reiated
sectors.
13. The totai requirements (TR) technique does not derive
estimates based on empioyment but instead focuses on the totai
demand for goods or services
that an industry needs in order to produce its particular goods or
services. In the United States, the Department of Commerce's
Bureau of Economic
Anaiysis (BEA) produces two types of TR tables, in coefficient
form, using benchmark input-output information drawn from
make and use tables. The tables
present input values of goods or services purchased directiy in
order to produce one dollar of output. The coefficients of the
TR tables provide the totai
sum of direct and indirect inputs necessary to produce output.
For example, the direct purchases (inputs) necessary to produce
an airplane wouid inciude
the steel and aiuminum used in the construction of the aircraft
fuselage, and the indirect purchases wouid include the energy
resources necessary to
produce the steel and the aluminum. The different types of
direct and totai requirements information produced by the BEA
depend on whether the defined
goods and services are industries or commodities. For a
comprehensive explanation of the BEA's methodology and data-
derivation techniques, refer to the
BEA's Methodology Paper Series and other methodoiogies oh
the nationai, industry, international, and regional accounts

avaiiable at http://www.bea.gov/
methodoiogies/index.htm and articies pubiished in the Survey of
Current Business avaiiable at
http://www.bea.gov/scb/index.htm.
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…
Chapter 17

305
G E T T H E S C O O P O N . . .
Knowing what a property management company
does ■ Getting referrals ■ Ways to find a profes-
sional management company ■ Interviewing a
management company ■ Finding other property
management options
Hiring a Professional
Management Company
T hroughout the book, I refer to hiring profes-sionals to assist
you with the management ofyour investment property. Hiring
and working
with professional property managers can be an
important part of the success in investing and
expanding your new business. When you can afford
to hire a professional management to do all of the
hard work, you will then begin to really enjoy owning
investment property.
You need to know when it is time to turn your
rental property over to someone who does this each
and every day, who knows day-to-day operations, who
has heard the latest scams, and is familiar with the
latest laws from the government. Most importantly,
you need someone who can take care of your prop-
erty management needs and the headaches that
come with rental property management and invest-
ment property ownership.
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Prandi, M. (2005). The unofficial guide to managing rental

property. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-06-02 22:19:04.
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306 PART VI ■ EXPANDING YOUR BUSINESS OR SELLING
PROPERTIES
The right property manager will almost make you forget you
own investment property. You need to hire someone who has
the skills and the ability to manage your property with the latest
technology, attracting quality and long-term tenants.
There are many important factors to consider when hiring a
management company. The important thing to know is what to
expect from the company managing your rental property and
what your responsibility is as the owner during the term of the
relationship.

What a property management
company does
A property management company plays the role of the inter-
mediary. The management firm steps between you and the ten-
ant, allowing you to be at a distance. A good management
company doesn’t make decisions based on feelings or personal
interests, but instead follows professional policies and proce-
dures and strict guidelines. Often, a property manager’s
response will be, “We are just the property managers.” This lets
the tenants know he or she cannot be swayed by emotion and
must stick to the rules. Also, it is usually easier for a manage-
ment company to raise rents based on its industry knowledge of
the market, allowing for consistency.
A professional property manager saves you time, work, and
stress in the following ways:
■ You don’t have to clean, paint, or make repairs (or hire
someone to do those tasks).
Moneysaver
Early on, invest in the time to meet with a professional
company, before
you make mistakes. I recommend calling a professional
company, making an
appointment for a consultation and paying for an hour or two of
time. Have
a list of questions prepared, so as to maximize your time with
the property
manager.
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307CHAPTER 17 ■ HIRING A PROFESSIONAL
MANAGEMENT COMPANY
■ Emergencies will be handled in the appropriate manner
to ensure tenant safety and protect your property.
■ You don’t have to advertise, take rental calls, and be avail-
able to show the available property.
■ You don’t have to screen applications and be apprehensive
about whom to choose.
■ You don’t have to execute a rental agreement, worry about
adding addenda, fill out the move-in inspection report, or
worry about the security deposit money.

■ You don’t have tenants calling at all hours of the day and
night.
■ You don’t have to confront tenants on tough issues like
collecting rents or taking care of the property.
■ You don’t have to collect non-sufficient funds
checks (NSF).
■ You don’t have to serve legal notices or begin eviction
proceedings.
■ You don’t have to schedule and fill out the move-in or
move-out inspection report, starting the process all over
again with each tenant.
■ You don’t have to know each and every law that the gov-
ernment is discussing or passing.
■ You won’t spend time paying bills.
■ Professionals will be used for the maintenance on your
property.
I am certain there are good reasons for managing your own
rental property, but ask yourself whether they worth the hassle
and risk.
You don’t have to worry about the property or be shocked by
its condition when you hire a professional property manager.
They are dedicated to selecting quality tenants and keeping your
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PROPERTIES
investment in good repair with minimal cost. They want your
real estate investment to be successful. One of the last benefits:
Your leasing and management fees are usually tax deductible.
Many investors are afraid to end up with a property manager
who may not be capable of doing the job. You want to be sure
that this person can and will take care of your investment.
When to hire a property management
company
Knowing when to hire a professional property management

company comes with time and experience. You may prefer to
manage your rental property on your own, which is a good
thing,
especially in the beginning. After a while, though, especially
after you’ve experienced a problem tenant or two, you may con-
sider interviewing, and potentially hiring, a property manage-
ment company. When you have managed the property on your
own for a few years, you will also have a better understanding
of
exactly what a property management company does.
What to expect and not expect from your
property manager
It really helps to know what to expect and not expect from your
property management company. Having a clear understanding
helps the relationship with your property manager.
Here’s what you can and should expect the property man-
agement company to be doing:
■ Keeping accurate financial records
■ Sending monthly and yearly statements
■ Sending IRS-required 1099 statements
■ Issuing monthly or quarterly newsletters that keep you
updated on laws and other changes in the market
■ Taking continuing education classes in property
management
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MANAGEMENT COMPANY
■ Following your instructions concerning maintenance
issues
■ Keeping you informed of issues on your property
■ Responding in a timely manner
■ Using professional leases and management agreement
■ Maintaining a Web site that list the available rentals
■ Marketing your property in several ways (not just in the

newspaper)
■ Making an annual inspections of your property and details
of the inspection provided to you
Here’s what not to expect:
■ Weekly or monthly updates if everything is going well
■ Calls returned the same day, except in an emergency
(remember that a property manager’s job does require
him or her to be near the property at all times)
■ That yours is the only property they manage
■ A guarantee that the tenant will always pay rent on time
■ That there will never be any problems
■ That they can rent the property over the current market
■ That the company can rent your property even though
you haven’t maintained it
■ That maintenance costs are included in the monthly fee
■ That the cheapest property management company is also
the best
When the property is just too far away
A good reason to consider hiring a property management com-
pany is when your rental property is just too far away. Let’s
face
it: For most people, it is a mistake to buy a rental property one
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PROPERTIES
or two hours driving time each way and not hire a management
company. At first, the drive may not seem that bad. However,
after awhile, that long drive on your day off will get old and
tiresome, especially when you have a vacancy. Imagine driving
over to show the available rental and no one shows up! Hire a
professional.
When the property is too large
As you build up your rental properties and add more inventory,

there will come a time when your property or the total number
of units you own becomes too much to manage on a part-time
basis. It is one thing if you only own a single-family or even a
smaller building near you. But if you have a larger building or
multiple units, this is the time to look into hiring a professional
management company. In this case, a property management
company may very well pay for itself.
When you realize how much time you’re
spending managing your property
When you stop and think about how much time you are taking
away from your family, friends, and perhaps your job, you may
realize it is time to take the step to hire someone to do it for
you.
When you have just had enough
When you are tired of dealing with the late-night calls and ten-
ants who complain incessantly, when you’re not raising the
rents
because you feel bad for the tenants yet your monthly costs are
rising, and when you have rented to a tenant for all the wrong
reasons, this is the time to call in outside help. In the long run,
a property management company will not only save you money
but will also keep you out of trouble and they are the ones who
take the late-night calls and the first-hand complaints, not you.
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MANAGEMENT COMPANY
For the majority of investors/managers, the thought of hir-
ing a property manager to care for the property is unheard of.
Most of the time, owners believe that managing their property
will be easy. In fact, most never think of hiring a property man-
ager until there is a problem. There are so many different types
of problems, from slow-paying or non-paying tenants to tenants
playing loud music or always complaining about something.
Remember the movie Pacific Heights? If you have never seen it
or
forget what happened, view it again. The tenants that drive up
in a fancy car and a whole lot of cash may be the ones to ulti-
mately destroy your property after signing the lease. These are
the ones that seem so nice and you thought were going to be
the “perfect tenants.” If your instincts tell you something is
wrong, I guarantee your instincts are right.
How to hire a property manager
Choose a property management professional with as much care

as you would an attorney or doctor. Friends, neighbors, and
co-workers are often good sources for referrals. Try to find out
as much as possible about their rental and landlording experi-
ence. What kind of service did they receive? Would they choose
this particular professional or property management company
again? Most of all, make sure you feel comfortable with the per-
son you choose to work with. It is all based on trust.
Watch Out!
Some real estate companies do management as a token or a
favor. Don’t take
the bait. Hire a company that is not trying to manage properties
in several
different areas, or selling real estate, or managing associations
with a limited
staff.
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PROPERTIES
The National Association of Residential
Property Managers (NARPM)
Best known as NARPM, the National Association of
Residential Property Managers is one of the best and sim-
plest ways to search and find a really great property man-
agement company. NARPM is a professional organization
that promotes education, designations, and networking as
a resource to empower its members with knowledge and
skill. A NARPM member honors and subscribes to a code
of ethics and standards of professionalism, while educat-
ing its members.
Members are licensed, maintain a high professional
standard, and understand the ins and outs of managing
rental properties. A NARPM member knows that educa-
tion is extremely important to his or her business and is
able to attend special advanced classes that can earn a cov-
eted residential management professional (RMP) or mas-
ter property manager (MPM) designation. Associates are
able to attend annual conventions, leadership conferences,
and local chapter meetings with other property managers.
The conventions and conferences are packed with a variety
of educational classes, workshops, keynote speakers, and a
whole lot of marketing.

Okay, I admit that I’m a little biased. I was fortunate
enough to earn my RMP and MPM designations and have
attended every national convention, conference, and
leadership training since I joined in the early ’90s. In addi-
tion, my company earned the prestigious certified resi-
dential management company (CRMC) designation that
required a great deal of preparation along with a thor-
ough policy and procedures manual. You must undergo a
detailed and thorough audit and succeed in completing a
four-page list of requirements. In order to keep this des-
ignation, the company has to be audited every three years.
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MANAGEMENT COMPANY
Most property managers don’t graduate from a college with a
degree in property management, as that has not been an area of
study until the last few years and still is not widely offered.
Most
have learned through years of experience and ongoing education
provided within the indus-
try. A good property man-
ager has good common
sense, good problem-solving
skills, and follows up on day-
to-day details. You need a
good businessperson who
communicates well and has
people skills.
You also need to hire
someone who is licensed
appropriately for your state.
Some states don’t have any
licensing for property managers; in this case go to
www.narpm.net or www.irem.org to see whether there is a
professional in the area. NARPM is the National Association of
Residential Property Managers, and IREM is the Institute of
Real Estate Management. Members of both organizations agree
to conduct themselves according to a code of ethics and they
are subject to the rules of the professional association. They
both offer professional designations that require experience
and education to attain. When you choose someone with a des-
ignation, you know they look at your property from a profes-
sional standpoint and are willing to spend money and time to
stay current on local laws and the rental market.

“ When looking for amanagement company
outside of my geo-
graphic area, I first
searched the Internet,
and then left a phone
message to see how
quickly they responded.
I then met with the
staff personally. ”—Willy F., investor and
business owner
Bright Idea
When choosing a company, visit the office during normal
business hours to
see how business is conducted. By visiting the office, you can
get a feel for
the business and meet the staff who will be involved with the
day-to-day
operations of managing your property.
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PROPERTIES
Ways to find a professional property
management company
There are many ways to find a company that fits your needs and
can manage your rental property effectively and efficiently.
Here are just a few ways to find a property management com-
pany to hire:
■ Ask your friends or co-workers whether they know any resi-
dential management company they would recommend in
the area of your rental property.
■ Drive around the area where your property is located, look
for signs, and call on those companies.
■ Search the Web (including the NARPM and IREM Web
sites, respectively, at www.narpm.net and www.irem.org)
for a professional company.
■ Let your fingers do the walking and look through the
good old-fashioned Yellow Pages.
■ Ask your Realtor for a recommendation.

■ Look in the local newspaper to see what company does the
most advertising.
■ Ask your local title company when signing the final papers
at closing.
After you have a few recommendations, write a standard list of
questions (or see the following section) so you compare apples
to
apples and ask the same type of questions to each company.
If you are buying a commercial, industrial, or large apart-
ment complex (100+ units), you want to find a property man-
ager with the CPM designation from IREM. IREM provides the
same type of professional education and conferences as
NARPM, but it caters to the large investment property manager.
Some property managers have earned designations in both
associations to be prepared for investors with both types of
investments.
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MANAGEMENT COMPANY
Interviewing a property management
company
Be prepared and have a list of questions ready for when you
tele-
phone or meet with a property management company. Here are
a list of some questions to get you started:
■ Why should I choose your company to manage my rental
property?
■ How long have you been in the residential property man-
agement business?
■ Do you also sell real estate? (Be sure that managing prop-
erties is what they do most and best.)
■ How many properties do you manage?
■ Do you have a professional designation in property
management?
■ How will I know when there is a vacancy?

■ How do you advertise that vacancy?
■ How long will it take to rent my property?
■ How do you feel about allowing or not allowing pets,
smokers, and/or children? (Be cautious with this. If they
say no to children, this could be discrimination, unless it
is a 55-and-older community.)
■ What is your screening process for prospective applicants?
■ How much do you collect at move-in?
■ What is the security deposit?
■ How much do you charge for monthly management?
Bright Idea
The more friendly, positive, and grateful you are to the property
managers and
the staff, the better the service. Property managers don’t get
enough credit
or recognition for the hard work they put in for investors. Take
the time to
say “thank you” and show your appreciation. It will go a long
way.
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PROPERTIES
■ What are your leasing fees and what do those fees include?
■ Do you charge a set-up fee and if so, how much will it be?
■ Are there any other charges throughout the year? If so
what are they?
■ What happens if the tenants don’t pay their rent on time?
■ How much does a basic eviction cost?
■ When should I expect my monthly cash-flow report, which
details all the activity within that month, showing all rents
collected and all of the amounts paid out?

■ When do you send my owner-withdraw check, which is the
amount of money left over in your rental property account
after paying the bills and keeping a small reserve? This is
sometimes referred to as a positive cash flow.
■ Will I need to change my insurance?
■ Who handles the late-night problems/emergencies?
■ What happens if the tenants break a lease?
■ Do you have a few current clients I can call for reference?
■ Who will be my contact person at your office(s)?
■ What kind of training does your staff have?
■ What type of property management software do you use?
■ What is the amount of money you can spend on a repair
without contacting me?
■ Do you show rentals on the weekends? What are your
hours?
■ How do you advertise to get renters? Who pays for it?
By sending out some questions or visiting the company’s
Web site, you will have many of these questions answered in
advance, thus narrowing the field. When you go to the property
management office, it is to meet the staff in person and to ask a
few more questions before making a decision. I think it is a
good idea to always meet the owner and staff in person. Make
sure you feel comfortable.
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MANAGEMENT COMPANY
Just the facts
■ Self-managing your property in the beginning may help
you understand the job at hand in the long run.
■ Hire a professional management company so you can
enjoy your investment.
■ A property manager saves you time, work, and stress.

■ Property management fees are tax deductible.
■ Use the same care to hire a property management com-
pany as you did in finding your accountant and attorney.
■ You will get a lot more value when you hire a company
that is a member of the National Association of Residential
Property Managers (NARPM) or the Institute of Real
Estate Management (IREM).
■ Some states don’t have licensing for property managers.
■ Most states require property managers to be licensed, usu-
ally requiring that they have or work under a broker’s
license.
■ Hiring a professional company can save you a lot more
than money — it can give you peace of mind.
■ There are a ton of other services out there that can help
you self-manage and market your vacancies if you choose
to do that.
Moneysaver
By using technology, you can save a lot of time and money. You
can, for exam-
ple, run a very small ad in the newspaper, directing people to
your Web site,
which ultimately saves you money. Someone can actually drive
by and get a
feel for the area without calling you first.
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PROPERTIES
■ Even though you hire a professional property manager,
you still need to know what is happening on a regular
basis with your investment.
■ Make sure to appreciate your property manager. A little
thank you goes a long way, as a lot of people take their
property manager for granted. It is a difficult job.
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Chapter 1
3
G E T T H E S C O O P O N …
Turning negatives into positives ■ Starting your
investment business ■ Understanding the good,
the bad, and the ugly of owning rental property
■ Running a business ■ Meeting important peo-
ple who contribute to your success ■ Financing
properties and finding tenants

Rental Property
Management 101
I
f you’re reading this chapter, you’re probably
considering purchasing rental property or
already own rental property that you want to
rent — for any number of reasons. This chapter
helps you make the decision to purchase property or
help you cope with the decision that has been made
for you (if, for example, you inherited property or
are renting a house you’re having trouble selling).
One thing is for sure — this is not an easy
process. You need to treat owning rental property
like purchasing a brand-new business that you know
nothing about. When you own rental property, there
are numerous things you must learn or you will end
up in trouble. One idea is to look for a reputable
property manager in your area and make an
appointment to discuss managing property. As a
property manager for others, I often get calls saying,
“I don’t know anything about renting property, but
I’m moving out of the area and don’t want to sell.”
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4 PA R T I ■ G E T T I N G A N O V E R V I E W O F R E
N TA L P R O P E R T Y M A N AG E M E N T
This is one of my favorite calls. You will likely find that
property
managers are willing to take the time to discuss the pros and
cons with you for the specific type of property and your
situation.
You need to be willing to take the time to learn the basics at
the beginning and be willing to continue to learn. Know in
advance that you’ll make your share of mistakes. When you do,
get up, dust yourself off, learn from the mistakes, and then
swear

you will never let those situations happen to you again. This is
where joining a group of other property owners or investors —
for advice and for moral support — can really pay off.
I have been managing my properties and managing for oth-
ers 23 years, and I still make mistakes. So I am still learning by
reading periodicals, taking courses, and networking.
Understanding the pros and cons
Here’s a look at the positives and the negatives of purchasing
and managing rental property. If, after perusing these two lists,
you decide that property management is not for you, profes-
sionals can manage your property for you — see Chapter 17.
Pros of managing rental property
The positive aspects of renting property are as follows; a lot of
these apply whether you hire a property management company
or not:
■ You own your own business.
■ You’ll never be bored.
■ You save the fees charged by a property management
professional.
Bright Idea
I recommend calling a local property management company and
offering to pay
a consultation fee. Make a list of questions in advance and
spend some time
talking about your rental property. By taking the time to get the
basics from
a professional, you may avoid several mistakes that you would
otherwise make.

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5C H A P T E R 1 ■ R E N TA L P R O P E R T Y M A N
AG E M E N T 1 0 1
■ Technology has made self-managing your properties easier

than in the past.
■ It’s a people business.
■ It can be fun and challenging.
■ You may enjoy it enough to make it your career and even
manage property owned by others.
■ After everything is set up properly, it’s not a lot of work.
■ You have a choice: You can be completely or minimally
involved.
■ You can see and touch your investment.
■ The business provides continual income rather than the
one-time income from a sale.
■ With creativity, you can purchase with little cash.
■ You can keep a home you may want to move back to later
(for example, if you’re transferred from an area you love).
■ Renting properties is usually profitable.
■ Renting property provides current or future lodging for
your children.
■ Buying your first property starts you on your way to pur-
chasing more.
■ Property values usually appreciate.
■ You diversify your investments.

■ There are great tax advantages.
■ You can defer capital gains with a 1031 exchange
(see Chapter 15).
■ It can be a second income.
■ It can be a part of your retirement.
■ You can use your 401k or other retirement plan to buy the
investment property.
■ It can be a long-term business.
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Cons of managing rental property
You may have days when you question why you purchased
rental
property and became a landlord. But then, when you arrange
an appraisal and find that your property value has gone up,
you’re probably pleased with the gain in value. The time,
money, and effort suddenly are all worthwhile, and you realize
that hard work really does pay off.
Keep in mind, however, that managing rental also has a few
downsides:
■ It takes a lot of time in the beginning to set things up.
■ There are many details you need to learn and understand.
■ The initial outlay may be greater than with other
investments.
■ Your property may have a negative cash flow, especially
at first.
■ Technology is hard to keep up with and takes time.

■ Reporting income and expenses on your tax return
requires additional time and knowledge.
■ There are many local, state, and federal laws.
■ You will need to purchase more insurance.
■ Like anything, there is always a risk involved.
■ You can be sued.
■ There are ways you can be taken advantage of.
■ The hours are not 9 to 5.
■ It is like having a second job, often without vacations.
■ Dropping everything to respond to an emergency
isn’t fun.
■ Finding and dealing with contractors can be tricky.
■ It is a people business, which means you have to enjoy
talking to people.
■ You listen to many complaints.
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AG E M E N T 1 0 1
■ The market can and does change constantly.
■ Things do go wrong with rental property.
You can always hire a
professional to rent and/or
manage your property. This
way you don’t have to deal
with the emergency call in
the middle of the night or
all the problems that arise

from dealing with differ-
ent types of people. You
let them take on the time-
consuming tasks while you
receive the income.
Overcoming the negatives
To overcome the negative aspects of managing rental property,
consider these tips:
■ You already know by this point that it takes a lot of time to
get started. Just know that and set aside the time. Knowing
the time commitment in advance and taking things one
step at a time helps you in the long run.
■ Minimize or eliminate the risks by investing in setting up
your business and tending to the details in the beginning.
Also line up and meet with the professionals you will work
with (see the “Hiring real estate professionals” section for
details).
■ Keep your files concise and be sure to keep all paper
receipts in your property file (see Chapter 11). In addition,
many software programs can assist you with your record-
keeping. If you choose to set up your new business on a
computer, you may save a great deal of time and effort
when filing your tax returns. Invest in a scanner so that
all your documents can be accessed online. Get a digital
“ Purchasing rental prop-erties allowed me to
retire a lot earlier than
I expected. Over time,
I have made enough
money to hire a profes-
sional management
company, so now I can

leave town anytime
I want without the
worries. ”—Chuck P., investor
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camera so that pictures of the property can be down-
loaded to your computer and uploaded to your Web site.
■ You’re on call 24/7 and there are no vacations when you
self-manage your properties. However, perhaps you can
occasionally trade with friends who own property by taking
turns covering for one another while taking vacations.
In some states, you cannot pay your friends for their time
unless they have a real estate or property management
license, but you still have options. I even know people who
travel in a motor home all year, managing their rental
properties via e-mail and cellphone, and accessing all
records and monies online.
■ Ask around and do your homework before you hire
contractors. Most states require a license to do a trade.
If so, check government Web sites to find consumer
brochures. You’ll probably find some hints and tips on
what to ask before you choose the right one for you. If you
have friends who own property, ask them whether they will
share some of the names of their contractors. And don’t
be afraid to ask friends or other contacts how they’re han-
dling their rental properties. Be prepared to hear their
war stories, though — listen and learn from them, don’t
let them scare you.
■ Carry plenty of insurance and be prepared to be sued.
Make sure you review your insurance annually with your
agent. Always look at your property from a safety and lia-
bility angle.
■ Take workshops on how to deal with and listen to all types
of personalities. Know that managing rental property is
and always will be a people business.

■ Keep up with property-management laws by joining a local
income property owner’s association in your area. Use the
Internet by searching on “landlord association” and the
name of your area. Continue to read books and take classes.
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AG E M E N T 1 0 1
■ Expect things to go wrong and learn how to be proactive
and creative in handling them.
■ Keep up with technology.
■ Turn negatives into positives and be ready for the next
challenge.
Running your business like a business
Whether you’ve been managing property for years, are just get-
ting started, or are contemplating purchasing your first prop-
erty, it is a good idea to treat your rental properties like a
business. Start with the basics: Choose a name for your
business.
I suggest that you choose a name that is simple but allows your
business to grow, so that you can purchase and rent out other
properties under the same name.
I had a client who owned a five-unit Victorian that I managed
for years. He purchased the building when his daughter, Sarah,
was quite young and named his business Sarah Properties, after
her. Not only did this give the business a separate name, but it
made it special. The great part of the story is that his daughter
is now in college, and I believe the value and equity in the
prop-
erty appreciated enough over the years to help pay for the
daughter’s college education.
You also need to decide what form you want your new
business to take (for example, sole proprietorship, LLC, trust,
corporation, and so on). An attorney can give you advice, as
can other people who have experience owning and managing

properties.
Setting your business up correctly in the beginning means
you need to meet with several professional people to gain prac-
tical knowledge. Consider meeting with a real estate agent,
banker or mortgage broker, accountant, insurance agent, attor-
ney, and (if you want someone to manage your property for
you) property manager. See the following section for details.
After you have your new business name, have decided
what sort of form your company will take, have met with the
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10 PA R T I ■ G E T T I N G A N O V E R V I E W O F R
E N TA L P R O P E R T Y M A N AG E M E N T
necessary professionals to assist you, there are a few more
things
to do:
■ Set up a bank account. Order preprinted deposit forms
and a deposit stamp with the new business name. This
saves you a bit of time in the beginning, but as you accu-
mulate more properties, it can save you massive amounts
of time and makes your business far more efficient. Seek
out a bank that has online banking to save money in
stamps, and even look for one that provides a day-to-day
tracking of your bank account.
■ Get a P.O. box. If you don’t want your tenants to know
where you live and don’t have a professional office where
your tenants can mail their rent checks, get a post-office
box and add a second phone line in your home (or, if you
have excellent cellphone coverage in your area, get a cell-
phone dedicated to your business). A separate phone line
can have an informational voice mail on the outgoing
message. Also get an e-mail address that contains your
business name instead of your personal name. Put all of
this contact information on your new business cards.
■ Set up a Web site. Keep it simple — you just want a pres-
ence on the Internet. You should be able to set up a Web

site quite simply and affordably; in fact, you may be sur-
prised just how easy it really is to have your own site, which
can give potential tenants information about your prop-
erty. I believe a Web site is becoming a critical part of mar-
keting any rental property.
■ Take a class, attend a workshop, or hire a professional to
teach you the basics to get you started and to keep you out
of trouble. There are many fabulous resources out there
(including this book, I might add!).
■ Plan now to own property long term. You may not own the
same property forever, but you should have a plan to pur-
chase property and build your business from there.
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AG E M E N T 1 0 1
Hiring real estate professionals
One of your most important duties when you’re considering
purchasing property or have just started managing property is
to put together the best team to help you along the way. There
are many professionals you need to hire and get to know within
your new adventure who can help make you and your new busi-
ness a success. Take the time to interview and hire people who
can help you succeed as a new rental-property owner. Continue
to improve and keep up with the details of managing invest-
ment properties.
Realtor/broker
Just because you have a real estate sales license or a real estate
broker’s license doesn’t mean you are automatically a Realtor.
Realtor is a registered trademark of the National Association of
Realtors and it refers to people who are licensed by their states
to sell real estate — buildings or land — and who are members
of the association.
When hiring someone to represent you in the purchase of
your property, it is important to hire a Realtor, preferably one
who specializes in the type of property you want to buy. You
can

dive into more of that in Chapter 3. If you’re not sure which
Realtor to work with, ask anyone you know who manages rental
property.
Establish a relationship with one Realtor when going out to
look to purchase any property, including your first investment
property. Yet, even with a Realtor on your team, it’s up to you
to
Watch Out!
Don’t give out your home address and private telephone
number. In fact, at
some point you may want to consider not being listed in the
local phone
book. In order to maintain some privacy, keep a separate phone
number for
your business.
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know what you’re looking for when you go out to view rental
properties. Do your homework on your own, look for properties
in the newspaper and on the Web, and have some ideas of the
area and type of property you’re interested in.
Banker/mortgage broker
A banker (or mortgage broker) assists you in getting the proper
financing in order to purchase rental property. A banker gets
you the loan from the bank for which he or she works, whereas
a mortgage broker is an independent agent who works with sev-
eral different financial institutions to find you the best loan pos-
sible with terms to meet your needs. Mortgage brokers generally
charge a bit more, through what’s referred to as points, which is
usually a fee based on the percentage of the loan.
If you choose to work with a mortgage broker, meet with that
broker prior to making any offers, so that you know where you
stand financially and how you look on paper to a lender, a
process known as pre-qualifying. Remember: Many financial

insti-
tutions have large lending departments, which means you may
never meet the person making a decision to give you a loan.
Insurance agent
The most efficient way to purchase insurance is to have one
con-
tact for all your insurance needs. I suggest establishing a rela-
tionship with an insurance agent who will not only handle the
insurance on your investment property but also ensure that
everything you own (your primary residence, your automobile,
and so on) has the right amount of coverage.
Bright Idea
Call a friend or acquaintance and ask for recommendations for
the profes-
sionals they’ve used in managing their rental property or
business. Getting
referrals is the best source you can ask for. If you don’t know
anyone who
owns rental property, ask among friends, co-workers, and so on.
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AG E M E N T 1 0 1
Accountant/financial advisor
It is very important to meet on a regular basis with your accoun-
tant and/or financial advisor throughout the year to discuss
your investment and to be prepared in your tax planning
throughout the year. In this way, you can discuss your
properties
in advance instead of getting surprised when you visit your tax
accountant during tax season. Some accountants even have a
checklist to help you organize your files and your bookkeeping
system.
Sure, you need to have a basic understanding about your
investment, but you’re not expected to know all the tax laws.
That why you hire a good, reliable accountant to take care of
your tax needs.

Remember that owning rental property has its tax advan-
tages. You can deduct your purchase costs, your operating
expenses, and annual depreciation. (And these tax advantages
don’t change when you hire a professional property manager.)
Attorney
If you own rental property, I guarantee you’ll need the services
of an attorney at some point. Typically, you want to meet with
an
attorney in the beginning to be certain your company is set up
properly, and then have him or her on call to assist in legal mat-
ters. You may even want to look for a real estate attorney who
specializes in evictions.
I found the attorney I use by going to the local county sher-
iff’s office and asking, “Who puts through the most evictions in
Marin County?” The first response I received was that they were
Bright Idea
Get to know your insurance agent and plan to have all your
insurance reviewed
each and every year. You need to have more than enough
insurance, so look
into an umbrella policy, which covers you for an extra one or
two million dol-
lars. Mare sure your insurance agent knows about all the
properties you own.
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not allowed to recommend any attorney. I reminded them I was
not looking for a recommendation. I was simply asking who
puts through the most evic-
tions in our county. They
gave me the name, and he
has been my real estate
attorney for over 20 years.

I decided I wanted to
hire the attorney who had
handled many cases, had a
great deal of experience,
and had seen it all. And he
certainly had a great deal of experience in evictions and in deal-
ing with tenants. He even helped me understand what causes
most of the evictions he handles and how to prevent that on my
property.
You want to establish a relationship with a real estate attor-
ney in advance of running into problems. Oftentimes, you will
find you can pay an attorney for an hour or two of consultation
time. If you ask, you may find out that, for example, a group
of attorneys is holding workshops nearby or speaking to a group
of investors. I know that the local attorneys in my area speak
at many different meetings that I attend. If you find and join
a local property-owner’s group, I can almost guarantee that
the group will have an attorney speak at least once during
the year.
Property manager
A property manager is a professional who manages investment
properties for others; often he or she only manages property
and handles rentals. Just because someone is a Realtor does not
mean he or she has the expertise and knowledge to manage
your property. Go to the National Association of Residential
Property Managers (www.NARPM.org) or to the Institute of
Real
“ Going through an evic-tion can be quite costly
and time-consuming.
Hire and get a rapport
going with an attorney
before you run into any

problems. ”—Lisa G., investor
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AG E M E N T 1 0 1

Estate Managers (www.IREM.org) to find a list of specialized
property managers who subscribe to an ethics code. Look for
ones who have spent their time and effort in obtaining a certifi-
cation for themselves and/or for their companies.
Even if you decide to manage your rental property yourself,
you should still get to know a local property manager in the
area. You find out more about hiring a property-management
company in Chapter 17.
Financing properties: Stretching
yourself to take that step
The financial part of your new purchase can be a confusing tan-
gle of jargon and paperwork. There is so much to know, so
don’t try to totally understand it on your own. Your banker or
mortgage broker can assist you. Just remember that there are a
lot of options out there, so do your homework! Also find out
whether the local city, county, or state has any housing
programs
that can assist you in financing either the purchase or renova-
tion of your property.
Most successful investors have a story of how they had to
stretch themselves to get into their first property. Most real
estate tycoons can also tell you the story of purchasing their
first
property and how they personally got started. At any rate, get-
ting started — taking that first step — is the hardest and
scariest
part, by far. Here’s my story:
I remember purchasing my very first home. I had to scrape
together every dollar I had. The day of the closing, I was still
short by $500 and had to borrow from the Realtor who was rep-
resenting me! It was a struggle. But then I fixed it up just a
small

amount, making a few changes to brighten up the inside — get-
ting rid of the pea green and keeping it neutral. Just a few short
years later, the property sold for double what I originally paid
for it. I moved to a larger home in a nicer area. This was my
start
in purchasing real estate, and I was only 22 years old!
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Years passed, and I was in a comfort zone, living in my larger
home and renting office space for my business. I had purchased
the property management company where I worked and taken
over the lease. Twelve years flew by, and then, all of a sudden,
I
received a letter from my landlord letting me know that my
lease had expired. In addition, my rent went from $1,800 per
month to $2,500 in one day. I knew it was time to explore my
options. I began to drive around and talk to others to see where
I could move and rent more reasonably. I went to see Katherine,
a Realtor friend of mine, to show her a flyer I had seen and ask
whether purchasing a small office building on the flyer was an
option. She immediately showed me a different flyer with infor-
mation about a property she had for sale that was a much better
value but, of course, more money. I looked at the better prop-
erty with a lot of fear. She encouraged me and worked the num-
bers, suggesting that I needed to speak to her mortgage broker
to make the transaction happen. Reluctantly and fearfully, I met
with her mortgage broker, Suzanne, who made it look easy. She
asked me lots of financial questions and worked out the num-
bers, and then told me that it should work out just fine and that
I should make an offer on the building. I remember she tele-
phoned Katherine from her office while I was sitting there and
told her I was on my way to
meet with her to make an
offer to purchase the office
building.
I met with the Realtor,
made an offer, and had it

accepted; of course, then I
was completely terrified if
for no other reason than I
had to use my entire sav-
ings. During …
Koehle/ Western Criminology Review 14(3), 53-60 (2013)
53
Online citation: Koehle, Greg. 2013. “Controlling Crime and
Disorder in Rental
Properties: The Perspective of the Rental Property Manager.”
Western Criminology
Review 14(3): 53-60.
(http://wcr.sonoma.edu/v14n3/Koehle.pdf).
Controlling Crime and Disorder in Rental Properties: The
Perspective of the Rental
Property Manager
Greg Koehle
Lock Haven University
Abstract: A rental property manager is expected to fulfill a
central role in third-party policing programs. Despite the
growing implementation of third-party policing programs, little
evaluative evidence exists on these programs, let alone the

perspective of the third party who is expected to fulfill a
regulatory or enforcement function. This research presents the
findings of a mail survey administered to rental property
managers who were expected to assume a third-party policing
role under a newly enacted nuisance rental property ordinance
in State College, PA. The survey focused on identifying the
rental property management techniques that would impact crime
and disorder and also gathered general opinions on the
ordinance. The survey was conducted in conjunction with a
legal impact study which found that the ordinance was very
successful in reducing crime and disorder in nuisance rental
properties. The survey found that the majority of rental
property managers have a desire and are willing to assist in
crime prevention and control, although need direction from
the police on how to fulfill this role.
Keywords: civil remedies for crime control, crime prevention,
private justice, third-party policing
INTRODUCTION
It has long been recognized that modern societies rely
on systems of private justice (Henry1994) or non-state
mechanisms of social control to prevent, police, or
otherwise reduce or punish deviance or law violations by
members who are involved in various institutional settings.
These settings include workplaces (Henry 1983), shopping
malls (Manzo 2005), schools, uni-versities, and housing
complexes, and self-help and mutual aid groups. The
present paper reports on a study of the third-party policing
(Buerger and Mazerolle 1998; Desmond and Valdez 2013;
Mazerolle and Buerger 2005) of rental properties in a
college town and focuses on the social control mechanisms
and perceptions of the rental property manager.

State College Borough is located in central
Pennsylvania. State College is often associated with being
home to the Pennsylvania State University. Penn State is
the largest university in Pennsylvania, and the 11th largest
in the United States with approximately 44,000 students
(University Budget Office n.d.). Conversely, State College
Borough is only four square miles; however, it is the most
populated borough in Pennsylvania with 39,898 residents.
State College Borough geographically surrounds Penn
State University. Approximately 19,000 Borough residents
are Penn State students, most of who live in rental housing
(State College Police Department Records Management
n.d.). Consistent with the social disorganization literature
(Kubrin and Weitzer 2003; Sampson and Groves 1989),
there is a high correlation between rentals and crime in
State College. Crime maps that overlay rental density and
crime density in State College show that the majority of
indoor and outdoor crimes occur in and around rentals
(State College Police Department Records Management
n.d.). Additionally, since at least 1970, there has been a
disproportionate and growing number of rental units in
State College Borough, and this trend has continued to the
present day (2013) with nearly 80% (9,717) of all housing
units in State College Borough designated as renter-
Controlling Crime and Disorder in Rental Properties
54
occupied (State College Police Department Records
Management n.d.).

In response to the data and perceived high correlation
between crime and rentals, the growing complaints at the
neighborhood level regarding quality of life issues,
outward migration, and diminishing resources, the State
College Borough Council revised their Nuisance Rental
Property Ordinance in November, 2004 (State College
Police Department Records Management n.d.). Ordinances
such as this normally involve civil penalties and have been
used or created throughout the United States when
criminal laws have been ineffective at addressing a variety
of issues ranging from neighborhood quality of life issues
to domestic violence protection orders (Mazerolle and
Roehl 1998). The revision to the State College Nuisance
Rental Property Ordinance allows for suspension of rental
permits for continued criminal activity. The revision of the
nuisance rental ordinance is directed at the rental property
managers and essentially holds them accountable for crime
occurring on the property, with the threat of rental permit
suspension, thereby not allowing the property to be rented.
This practice is known as “third-party policing,” which is
part of the growing trend of using civil remedies for crime
prevention and crime control (Mazerolle and Ransley
2005). Briefly defined, third-party policing is, “police
insistence of involvement of non-offending third parties
(usually place managers) to control criminal and disorderly
behavior, creating a de facto new element of public duty”
(Buerger and Mazerolle 1998:301). As stated earlier, very
little research has been conducted on third party policing
programs, and even less on the party expected to fulfill the
third party policing role. The purpose of this research is to
examine the attitudes and practices of rental property
managers in a third party policing role.
LITERATURE REVIEW

Third-Party Policing
Third-party policing can be applied very formally as
with the State College Nuisance Property Ordinance,
which is specifically aimed at property managers, or third-
party policing can be more of an ad hoc undertaking where
the police coerce business owners, property managers, or
other parties who have some real or perceived control
(Mazerolle and Ransley 2005). Third-party policing can
also be initiated by neighborhood groups such as the
Office of Neighborhood Associations in Portland, OR that
helped enact a municipal drug-house ordinance allowing
the city to impose civil penalties on the property owner in
situations where drug dealing had occurred on the property
(Davis and Lurigio 1996). Whether third-party policing is
an informal or formal endeavor, or initiated by the
government or community group, there is one consistent
feature, which is referred to as the “legal lever” (Mazerolle
and Ransley 2005). The “legal lever” provides any level of
government with the legal basis to coerce the third party to
change the routine activities of the tenants (Mazerolle and
Ransley 2005). In State College, the legal lever is the
Nuisance Rental Property Ordinance. The threat of
accumulating negative points, that is part of the Ordinance,
and subsequently potentially having rental permit
suspension for six to twelve months, would result in
substantial monetary loss to the property manager. And so
the assumption, from a rational choice model of human
nature, is that property managers will work to ensure
compliance.
Rental Property Manager Perspective
As stated earlier, the rental property manager is
expected to fulfill a central role in third-party policing

programs that focus on crime in rental properties. Little
evaluative research has been completed on third-party
policing programs, and even less has gathered the key
perspective of the rental property manager. The following
two studies focus on the rental property manager and
provide valuable insight to their role and attitudes about
the third-party policing programs.
A 1992 study of rental property managers across five
cities (Alexandria, VA, Houston, TX, Milwaukee, MN,
San Francisco, CA, and Toledo, OH) that have some
version of a nuisance property ordinance was conducted to
determine the managers’ attitudes and responses to being
the target of these programs (Smith and Davis 1998). The
sample for this present study consisted of four or five
rental property managers from each of the five sites listed
above; this resulted in a total of 22 interviewees. The study
was conducted using telephone interviews that consisted of
several open and closed ended questions related to the
opinion of the rental property manager regarding the
nuisance property ordinance and the actions they have
taken as a result of it. The study found that the rental
property managers were in favor of removing drug dealers
from their properties. In fact, half of the rental property
managers were those who reported the drug dealing to the
police in the first place (Smith and Davis 1998). The
property managers also reported that they were concerned
about the abatement notices they received because they
were worded in such a way that it sounded as if the
managers were responsible and /or profiting from the drug
dealers living in their apartments. The property managers
also expressed a concern for retaliatory actions from
evicted tenants. Out of the sample of 22, one case
involving a physical assault on a rental property manager
was reported. Finally, the rental property managers
expressed a concern for innocent people, often family

members of the drug dealers, having to move out as a
result of the eviction notices.
A larger study of Cook County Rental Property
Managers in 1993 showed some differences from the
above referenced study (Smith and Davis 1998). First, the
Koehle/ Western Criminology Review 14(3), 53-60 (2013)
55
rental property managers reported that tenants receiving
eviction notices were more likely to resist the eviction than
in the previous study. Half of the tenants refused to move
out after receiving an eviction notice, and over a third
(36%) appealed the eviction in court. With regard to
retaliatory actions by evicted tenants, 18% of the tenants
threatened the rental property manager and 8% damaged
their property. In both studies, the rental property
managers reported that they changed their rental
management practices as a result of pressure from the local
government, and believed that their actions reduced crime
at their rental properties. Both of these studies suggest that
rental property managers have the ability to prevent and
control crime.
STATE COLLEGE NUISANCE RENTAL
PROPERTY ORDINANCE
The 2004 revision to the State College Nuisance
Rental Property Ordinance created a point system for
certain local/ordinance and criminal violations occurring at

rentals in State College Borough. The point system is
maintained by the State College Borough Department of
Health. The points assigned to a rental permit vary based
on the severity of the offense. The following
local/ordinance violations are one point violations: refuse;
sidewalk obstruction; grass and weeds; and dogs. Two
point violations are: disorderly conduct; alcohol possession
or consumption by a minor; drug possession; simple
assault; harassment; open lewdness; and indecent
exposure. Three point violations are: furnishing alcohol to
a minor; aggravated assault; rape; statutory sexual assault;
involuntary deviate sexual intercourse; sexual assault;
aggravated indecent assault; and possession with intent to
deliver controlled substances. Points accumulate on the
date of the offense and are removed one year after being
assessed. Points can also be removed if the accused is
found not guilty. Additionally, the maximum number of
points that can accumulate in a 24 hour period is three.
When complaints are made by the property manager or
tenants of the premises that result in prosecution against
another person at the rental, these violations are excluded
and points are not assigned. A Nuisance Rental Property
Report, including the rental address, specific violations,
and points assessed, is updated weekly and available
online, or by telephone, to property managers. Upon
accumulation of five points, the rental property manager
receives written notice indicating that the rental has five
points, that it is creating a nuisance in the neighborhood,
and that the property manager shall submit a written
correction plan within 30 days of notification to the
Borough identifying how the ongoing problems will be
addressed, e.g., eviction, meeting with tenants. If the
property manager fails to submit a written correction plan
and the rental subsequently accumulates 10 points, then a
rental permit suspension is more likely. Upon

accumulation of 10 points, the rental permit may be
suspended for six months to one year, at the end of the
current lease. A rental permit in suspension causes the
corresponding rental to be ineligible for rental, resulting in
significant pecuniary loss to the property owner.
Prior to discussing the survey responses and
perspective of the rental property managers, it is important
to note that the survey was completed in conjunction with
a legal impact study of the Ordinance. Briefly, the legal
impact study employed an interrupted time series design
and examined five years of pre-Ordinance nuisance rental
crime data against five years of post-Ordinance rental
crime data. Also, the study included a non-equivalent
dependent variable that examined all crime in State
College exclusive of rentals during the same ten year time
period. In the five years after the Ordinance was enacted,
crime in nuisance rental properties decreased by 55%,
while the general crime rate outside of rentals in State
College increased by approximately 8%. The Ordinance
was found to be successful in reducing crime in nuisance
rental properties.
CURRENT STUDY
A survey was mailed to all 769 State College Rental
Property Managers who manage the 9,717 permitted rental
properties in State College. The first mailing occurred on
March 28th 2011, and a second mailing occurred
approximately four weeks later on April 22nd, 2011, with
the final surveys collected on May, 19th, 2011. Of the
surveys actually delivered (n = 743) a total of 254 were
returned through the two mailings, resulting in a 34%
response rate.
Survey Responses

•••••iA National Profile ofthe Real Estate Industry and.docx

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