The Property Management Function

Property management is another field of opportunity for real estate brokers to build a career. Property management includes managing homes and duplexes, office and industrial complexes, shopping centers, apartments, and condominiums. Basic knowledge of the general principles and responsibilities relating to this field is fitting for all real estate licensees.

Property managers need a firm grasp of agency, contracts, fair housing, rentals and leases. Additional knowledge is required in business administration, marketing, purchasing, accounting, advertising, insurance, repairs and maintenance, taxation and public relations.

Property Management and the Property Manager

Supervising the operation of office buildings, shopping centers, warehouses, industrial complexes, and residential properties for the owners of the properties is a complex, demanding, and essential aspect of real estate brokerage activity. The firm or individual who undertakes this task, the property manager, establishes an agency relationship with the property owner through the brokerage engagement commonly known as a management agreement. As an agent, the property manager has a fiduciary responsibility to the owner of the property and must abide by all the requirements of the license law including depositing all funds collected on behalf of the owner or principal into a designated and registered trust account.

Responsibilities of the Property Manager

Related to the activities associated with the day-to-day operation of the property, there are other considerations that are long-range concerns of the property owner. 

The Economic Performance of the Property - An obvious way that the property manager can enhance the property's economic performance is to increase rental income and reduce operating expenses. In addition, the property manager can enhance the economic performance of the property by advising the owner as to the proper time to refinance the loan. The property manager may also recommend modifications to the physical structure that increase or maximize the property's appreciation potential and advise the owner on the appropriate time to sell the property. 

Managing the Physical Asset - The property manager must be directly involved in the operation and maintenance of the physical property. Seeing to the maintenance and operation of the physical asset involves ensuring compliance with all applicable codes, health and safety requirements as well as other governmental requirements, cleaning the common areas of the building and cleaning windows, collecting and removing trash, decorating or redecorating the common areas and entryways, providing contractually required maintenance as well as implementing a system of preventive maintenance designed to avoid or delay more serious problems in the future.

Keeping the Financial Records of the Property - Typically the property manager keeps the financial records for the property. These records involve the documentation of the rent receipts and the operating expenses of the property and accounting for the deposits into and disbursements from the trust accounts. Included among the records of the operating expenses would be work orders for repairs and maintenance and invoices for goods and services.

Financial Analysis - In addition to keeping records, the owner may request the property manager to provide an analysis of revenues and expenses. For example, apartment revenues may have a cyclical pattern that the owner and property manager need to understand. The rents may be due on the first of the month but the typical tenant may only be able to pay rent on Friday or Saturday after receiving a weekly or biweekly paycheck. Consequently, the tenants may be able to pay their rent until the 5th or 6th day of some months. This fact may affect decisions involving granting a grace period and levying late fees. Expenses for maintaining and operating the property may also reflect a cyclical pattern. There may be a normal amount of maintenance and repair expenditures throughout a month, but expenditures might increase in the first week of each month after tenants move out at the end of the month. Maintenance and repair expenditures may be higher in the winter and the summer than in the spring or fall.
Besides the analysis of trends for revenues and expenses, the owner may request the property manager to analyze and make recommendations about the timing and extent of remodelling and renovation. In response, the property manager will analyze the income and operating costs of the property as-is and compare the revenues and operating expenses projected after the rehabilitation or renovation is complete. By performing this cost-benefit analysis, the property manager can advise the owner about the economic feasibility of the renovation. As part of this analysis, the property manager might also provide financial information concerning continued ownership of the property as an investment or its possible sale.

In summary, the owner of the property may retain the property manager to perform one or some combination of these four principal activities. The owner may want the property manager to find tenants and negotiate the rent. Or the owner may require the property manager to market the property, maintain and repair the improvements, and maintain the property's financial records. Or the property owner may require the property manager to do all four activities including giving financial advice and analysis for the operation of the property and its continuation as an active investment.

Types of Property Managers

Property managers fall into two basic types or categories, either residential or commercial. Each comes with its own set of demands and needs to be divided further into specialized fields within residential and commercial management. There is some common ground, but there are major differences with regard to the type of tenant, lease term, and payment schedules for residential and commercial properties.

Property Managers Specialized Fields

Property managers can be broken down further into the following specialized fields or categories:

Residential

• Single-family home rentals

• Condominium communities

• Apartment buildings

• Public housing

• Senior housing

• Student housing

• Military housing

Commercial

• Industrial

  • Warehouses

  • Factories

  • Self-storage

  • Marinas

• Office buildings

• Retail

  • Shopping centers

  • Strip malls

  • Stand-alone buildings

These specialized types of properties require different marketing plans and property management agreements.

Responsibilities of the Property Manager

Related to the activities associated with the day-to-day operation of the property, there are other considerations that are long-range concerns of the property owner.

Efficiency and Effectiveness – The property manager demonstrates efficiency when he or she discovers ways of performing basic management tasks at reduced costs. The efficient property manager understands both the maintenance and repair requirements of the building and cost-effective purchasing procedures for the materials and services required. He or she is proficient at collecting rents and knows the laws concerning the enforcement of lease provisions. The effective manager knows what parts of the building exhibit physical deterioration and functional obsolescence and how to cure the physical deterioration and correct the functional obsolescence. He or she also knows where to get the lowest prices for high-quality appliances, equipment, materials, and supplies.

The property manager is effective when he or she is an innovator. Effective property management requires the manager to investigate opportunities to generate additional revenue by expanding the market that the property can serve. The effective property manager not only works to solve problems and to do things more efficiently through lower costs but also attempts to understand what creates problems. For example, an efficient property manager who recognizes high vacancy levels in the recent past will work diligently to get desirable vacant spaces ready for the market as cheaply and as quickly as possible. The effective property manager will do the same thing but will move one step beyond by asking the question, "Why has the property faced high vacancies?"

An efficient property manager is reactive. He or she responds to problems and handles those problems in the appropriate manner while attempting to control the cost. The effective property manager is an active agent or force in making things happen. The effective property manager identifies the problem, solves it, and then analyzes the situation to learn the cause of the problem.

Sociability and Communication – A property manager must relate to many people including the property owner, the prospective tenants, the employees of the property management firm, the employees who work at the property, contractors who provide services to the property, and the managers or supervisors of the property management firm where he or she works. To maintain good relationships with these people, the property manager must be a pleasant person who displays a level of confidence and who can communicate effectively.

Attention to Detail – Property management is a detail-oriented business; therefore, a property manager must be able to organize and manage the many details of the operation of a property. This responsibility includes inspecting the financial records; visiting the property to inspect its physical condition and its vacancy level; and responding to problems and issues raised by tenants, the on-site managers, bookkeepers, service contractors, and many others. The property manager's need for attention to detail increases as the number of properties that he or she manages increases. The pace of activity becomes much greater and the level of detail more extensive as the number of managed properties increases.

Negotiation Ability – A property manager represents the property owner in negotiations with a variety of individuals. The property manager may have to negotiate lease terms and rent levels with the tenant as stipulated in the management agreement. The property manager wants the best position for the property owner but must still meet the needs and desires of the tenant in order to get that tenant to sign the lease. The property manager typically represents the owner in negotiations with maintenance and repair contractors. In this situation, the repair and maintenance must be done, but it must be done at the lowest cost with the highest quality. The circumstances may require the property manager to interview and discuss the maintenance or repair job with several providers to find the most suitable provider and to get the service done for the lowest possible price.

Ability to Make Decisions – The owner may employ the property manager to make decisions regarding the financial and physical aspects of the property. These decisions require good information, sound judgment, and timely action. The decision should logically follow from applying judgment to the facts. The worst thing a property manager can do is to put off decisions until the last minute and vacillate or change his or her mind. Procrastination can irritate the people affected by the problem and can even make things worse. Indecision wastes time can cause needless concern and can waste money. The property manager should always have a record of the reason for spending any significant dollar amounts, even on an emergency basis.