Achieving Financial Success as a Property Manager: An Insider's Guide
0x636E
September 15th, 2022

Introduction

Hi, I’m Jeff Rohde. I began my career in real estate nearly 30 years ago by investing in my portfolio. For almost two decades, I have helped people buy and sell millions of dollars worth of real estate, including retail, office, industrial, single-family and multi-family residential income properties and raw land.

I have also earned the Certified Commercial Investment Member (CCIM) designation, held by only a few people worldwide and the highest professional certification in commercial investment real estate.

In 2005, I founded a private real estate brokerage focusing on residential and commercial investment real estate and property management. I’m also the founder of J. Scott Digital – a company providing freelance copywriting and content creation services to real estate, property management, insurance, and accounting businesses – and publisher of the Basic Property Management blog.

In this book, we start by discussing how property management companies make money. Then, we’ll look at common methods such as charging fees for property management, leasing, brokerage, and project management services. Additionally, we’ll explore how providing a full-service solution to real estate investors and property owners can be lucrative for you as a property manager.

There are a lot of books out there on how to make money in property management, but most of them are written by people who have never actually managed properties themselves. This book is different. It’s written by someone who has years of experience in the industry and knows exactly what it takes to be successful.

In this book, you’ll learn all about the ins and outs of property management, from finding the right properties to manage, to marketing them effectively, to dealing with tenants. You’ll also get a crash course in financial management, so you can make sure your properties are always profitable.

So if you’re ready to learn how to achieve financial success in property management, this book is for you. Let’s get started!

Part 1

From Rent Collection to Evicting Tenants: An Overview of the Property Manager’s Job Duties

If you’re thinking of becoming a property manager, or are new to the role, it’s important to understand the range of duties that come with the job. In part one of our book, we’ll provide an overview of the typical duties and responsibilities of a property manager, and some pointers on how to make extra money by performing each task.

Keep in mind that responsibilities can vary depending on the size and type of property portfolio, as well as the company or organization you work for. But in general, a property manager is responsible for maintaining and managing all aspects of their properties.

Let’s take a closer look at some of those key duties and responsibilities.

(If there are any specific questions you have about being a property manager which aren’t answered here, be sure to check out BasicPropertyManagement.com. You’ll find hundreds of free tips, tools, and techniques for property managing both residential and commercial real estate.)

The role of a property manager

As a property manager, you play an important role in maintaining relationships with all of the stakeholders in your real estate venture. Each stakeholder has their own interests and needs, and it is your job to ensure that everyone is satisfied.

Ownership

The owner or partnership is typically the most important stakeholder, as they are the ones investing money into the property. It is your responsibility to keep them updated on the status of the property and to make sure that it is being well-maintained.

There are a few best practices that you can follow to make sure that your property owner is always well-informed:

1. Keep them in the loop from the start.

From the moment you sign the management contract, make sure to keep your property owner updated on all aspects of the property. This way, they will know what to expect and will be able to provide input if they have any concerns.

2. Provide regular updates.

Give your property owner regular updates, even if there is nothing new to report. This way, they will know that you are on top of things and that they can trust you to keep them informed.

3. Be proactive about communication.

If you know that something is going to happen that will impact the property, make sure to communicate this to the owner in advance. This way, they can be prepared and will not be caught off guard.

4. Be available when they need you.

Make sure that you are available to answer any questions or address any concerns that your property owner may have. They should feel like they can reach out to you at any time and that you will respond quickly.

By following these best practices, you can ensure that your property owner is always well-informed about the property status. This will help to build trust and confidence in your relationship, and will make it easier to manage the property successfully.

You should also keep them informed of any changes in zoning or other regulations that could affect their investment.

If a change in zoning or regulation is being considered that could affect your property, it’s important to stay up-to-date on the latest information and be prepared to address the issue. As a property manager, you may need to take action to protect your investment and ensure compliance with the new regulations.

For example, let’s say that a city is considering changing its zoning laws to allow for more high-density development near your rental property. This could potentially reduce the value of your property and make it more difficult to find tenants. To prepare for this possibility, you might research other areas with similar zoning changes to see how they have been affected. You could also start looking into different ways to market your property so that it appeals to a wider range of renters.

If the zoning change does go through, you’ll need to be proactive in working with your tenants to ensure that they are still able to meet their lease obligations. You may need to offer incentives for them to stay, such as a rent reduction or additional amenities.

This can also be a great way to add value for your owner, and it can also open up new opportunities for you to earn additional income. For example, if the city is considering changing the zoning laws in a way that would allow for more development on the property, you could negotiate a higher management fee in exchange for handling the additional work.

In short, paying attention to local zoning laws can be a great way to protect your property owner’s interests and also earn some extra income. So next time there’s a change being considered, make sure you’re at the table representing your owner!

Lender

The lender is another key stakeholder, as they are providing the funding for the property. You will need to keep them updated on the status of the property and its finances. They will also want to be sure that the property is being well-maintained so that it retains its value.

It’s important for a property manager to interact with a lender on behalf of the owner for a few key reasons. First, the property manager is typically intimately familiar with the day-to-day operations of the property and can provide valuable insights into the property’s cash flow. Second, the property manager can help the owner negotiate more favorable loan terms. And finally, the property manager can act as a buffer between the owner and the lender, helping to keep communication lines open and preventing misunderstandings.

Some examples of when a property manager might interact with a lender on behalf of an owner include:

1. Requesting loan disbursements: The property manager will request loan disbursements from the lender as needed in order to cover expenses related to the property. The lender will likely require documentation from the property manager proving that the expenses are necessary and that the property can afford them.

2. Requesting a modification to the loan terms: If the property is struggling to make ends meet, the property manager may request a modification to the loan terms from the lender in order to make the payments more manageable. The lender will consider factors such as the current occupancy rate and financial condition of the property before making a decision.

3. Communicating delinquent payments: If the owner falls behind on their loan payments, it is the property manager’s responsibility to communicate this to the lender. The lender will then work with the property manager and owner to develop a plan for getting caught up on the payments. This may include a forbearance period or other arrangement.

As a property manager, you may be able to make additional income by representing a property owner with a lender. For example, if a property owner is trying to get a loan from a bank, you may be able to help them by acting as their agent. In this role, you would be responsible for communicating with the bank on the owner’s behalf and helping to negotiate the terms of the loan. If the loan is approved, you would then receive a commission from the owner.

While representing a property owner with a lender can be a great way to earn extra income, it’s important to remember that you are also taking on a lot of responsibility. This includes making sure that all of the documentation is in order and that the owner is able to make the loan payments on time. If you’re not comfortable with this level of responsibility, it’s probably best to stick to managing the property and forgo any extra potential income of this sort.

Insurer

The insurance company is another important stakeholder, as they are responsible for insuring the property. You will need to keep them updated on the condition of the property and any changes that could affect the premiums they charge.

As a property manager, you may also be required to work with the insurance company on behalf of the property owner. This may include filing claims, negotiating settlements, and managing the repair process. In some cases, you may also be responsible for finding replacement tenants or arranging for alternative accommodations.

There are three situations where a property manager may be required to work with the insurer:

1. When a tenant files a claim for damages caused by a covered event (such as a fire or weather damage).

2. When the property owner files a claim for damages caused by a covered event.

3. When the property owner files a claim for loss of rent due to a covered event.

A property manager may make additional money by representing the property owner with an insurance company. This may involve getting a commission on the policy premium, negotiating a higher settlement amount, or finding a replacement tenant.

Some potential ways a property manager might make extra money by working with an insurer on behalf of the property owner include:

  • Obtaining quotes from different insurers on behalf of the property owner.

  • Negotiating with the insurer on behalf of the property owner.

  • Assisting with the renewal of the policy.

  • Making sure that adequate coverage is in place for the property owner.

  • Reviewing the policy documents to check for any exclusions or conditions that may affect the property owner.

  • Providing advice to the property owner on how to make a claim and what documentation will be required by the insurer.

  • Liaising with the insurer to ensure that the claim is processed quickly and efficiently.

  • Helping the property owner to obtain reimbursement from the insurer for any out-of-pocket expenses incurred as a result of an insured event.

  • Assisting the property owner in obtaining quotes from different insurers for buildings and contents insurance.

Municipality

The zoning department is another key stakeholder, as they are responsible for approving or denying any changes to the zoning of the property. You will need to keep them updated on the status of the property and any proposed changes to its use.

A property manager’s role with the municipality can vary greatly depending on the size and location of the property being managed. In some cases, the property manager may be responsible for interfacing with the municipality on behalf of the property owner to ensure that all necessary permits and licenses are in place. In other cases, the property manager may be responsible for working directly with the municipality to resolve any issues that arise with respect to the property.

In either case, it is important for the property manager to establish a good working relationship with the municipality. This will help to ensure that any issues that do arise can be quickly and effectively resolved.

There are many ways in which a property manager can interact with the municipality. Some of the most common ways include:

1. Applying for and renewing permits and licenses: In many cases, the property manager will be responsible for applying for and renewing any permits or licenses that are required in order to operate the property. This may include things such as building permits, business licenses, and occupancy permits.

2. Paying taxes: The property manager will also be responsible for paying any taxes that are owed on the property. This may include things such as real estate taxes, personal property taxes, and Business Improvement District (BID) taxes.

3. Resolving code violations: If the property is not in compliance with local codes and ordinances, the property manager may be required to work with the municipality to resolve the issue. This may involve anything from obtaining the necessary permits to making changes to the property.

4. Working with utility companies: The property manager may also be required to interface with the local utility companies on behalf of the property owner. This may include things such as setting up new service, paying bills, and resolving any issues that arise.

5. Serving on boards and commissions: In some cases, the property manager may be asked to serve on boards and commissions that are related to the municipality. This can be a great way to get involved in the community and make sure that the property owner’s interests are represented.

6. Acting as a liaison: In many cases, the property manager will act as a liaison between the municipality and the property owner. This may involve anything from attending meetings to communicating with the municipality on behalf of the property owner.

By working closely with the municipality, a property manager can help to ensure that the property is in compliance with all applicable laws and regulations. Additionally, this close working relationship can also lead to additional income for the property manager. For example, the property manager may be able to earn a commission by acting as a liaison between the municipality and local businesses or by serving on boards and commissions.

A property manager’s role with the municipality can vary greatly depending on the size and location of the property being managed. However, in all cases, it is important for the property manager to establish a good working relationship with the municipality. This close working relationship can lead to many benefits for both the property owner and the property manager, including some extra income.

Tenants

The tenants renting space in the property are also important stakeholders. You will need to keep them informed of any changes to the property that could affect their lease agreement. You should also make sure that the property is well-maintained so that they are happy with their living conditions.

A property manager must interact with tenants in different ways, depending on the type of property and the number of units. For example, a property manager of a large apartment complex may need to interact with tenants on a daily basis, whereas a property manager of a small duplex may only need to interact with tenants once a month.

Here are some ways a property manager may be able to make money by managing the tenants in a property:

1. Rent collection: A property manager can collect rent from tenants on behalf of the landlord. This can be done through online rent payment platforms, or by manually collecting payments from each tenant.

2. Late fees: If a tenant is late on their rent payment, the property manager can charge a late fee. This is typically a percentage of the rent amount, and is added to the tenant’s account.

3. Lease renewals: A property manager can charge a fee for renewing a tenant’s lease. This is typically a percentage of the rent amount, and is paid by the tenant when they sign their new lease agreement.

4. Move-in fees: Collect a fee for processing a tenant’s move-in paperwork. This fee is typically a flat rate, and is paid by the tenant when they sign their lease agreement.

5. Move-out fees: A property manager can charge a fee for processing a tenant’s move-out paperwork. This fee is typically a flat rate, and is paid by the tenant when they turn in their keys.

6. Advertising: Earn commission by placing ads for vacant units in the property. This can be done through online listings, or by posting flyers in the local area.

7. Maintenance: A property manager can earn fees by performing maintenance tasks in the units, such as painting or repairing fixtures.

8. Housekeeping: Generate extra income by performing housekeeping tasks in short-term rental units, such as cleaning or laundry.

9. Management fees: A property manager can charge a monthly management fee to the landlord. This fee is typically a percentage of the rent amount, and is paid by the landlord.

10. Evictions: If you’re a property manager, you may be able to make extra money by overseeing an eviction on behalf of the landlord. The process can be challenging, but if you’re up for it, you could earn a decent fee.

Each of these stakeholders is important to the success of your real estate venture. By maintaining good relationships with all of them, you can ensure that the property is well-managed and profitable for both you and your owner.

Part 2

How to Choose the Right Property Management Fee for Your Business

Imagine a conversation that goes something like this:

Property Manager: Hi, thanks for considering me to manage your property. I wanted to go over my fees with you so you have a clear understanding of what you’ll be paying me.

Property Owner: Ok, that sounds good. What do you charge?

Property Manager: I charge a percentage of the rent collected each month. The exact percentage depends on the type of property and how many units it has. For example, if it’s a small duplex, I might charge 10%, but if it’s a large apartment complex, I might charge 5%. In addition to the monthly management fee, I also charge a one-time set-up fee when I first start managing a property. This set-up fee covers the cost of me getting everything set-up and organized in my system.

Property Owner: Ok, that makes sense. So, for a small duplex, I would be paying you 10% of the rent collected each month plus a one-time set-up fee?

Property Manager: Exactly.

Property Owner: And what about when there are repairs or maintenance needed on the property? Do you take care of that too?

Property Manager: Yes, that’s all included in the monthly management fee.

Property Owner: Ok, that sounds good. I think I’m ready to sign on with you as my property manager. When can you get started?

Property Manager: Great! I can get started as soon as you sign the management agreement.

Property Owner: Sounds good to me. Let’s do it!

If only things were that easy!

Fees are one of the most important aspects of property management, and yet they are often one of the most difficult to negotiate. As a property manager, you want to make sure that you are getting a fee that covers your costs and allows you to make a profit. However, some clients may be more concerned with getting the lowest possible price, and may even expect you to refund your fees if their investment doesn’t perform as expected.

The best way to overcome this obstacle is to have a detailed and frank conversation with your client at the outset. Explain your fee structure and why it is fair and reasonable. If they are still not happy with the fees, be open to negotiating a lower rate – but make it clear that this will mean cutting back on the services you provide.

When it comes to property management fees, there is no one-size-fits-all solution. The right fee for your business depends on a number of factors, including the size and type of property you manage, the services you provide, and the local market conditions.

Choosing the right property management fee can have a big impact on your bottom line. A lower fee can attract more customers, but it may also mean less profit for you. On the other hand, a higher fee can deter potential customers, but it may also lead to more profits.

The key is to strike a balance that meets your needs and those of your clients. Here are some things to keep in mind when setting your property management fee:

1. The size of the property: The larger the property, the more work it will take to manage it effectively. As a result, you may need to charge a higher fee to cover your costs.

2. The type of property: Some properties, such as those in high-crime areas or those that require special care, may require a higher management fee.

3. The services you provide: If you offer additional services, such as tenant screening or maintenance, you may be able to charge a higher management fee.

4. Local market conditions: In markets where there is a lot of competition, you may need to charge a lower fee to attract business. Conversely, in markets where there are few property managers, you may be able to charge a higher fee.

5. Your experience: If you have more experience managing properties, you may be able to charge a higher management fee.

6. Your reputation: A good reputation can go a long way in attracting business. If you have a good reputation, you may be able to charge a higher management fee.

7. The terms of the agreement: Be sure to carefully review the terms of your agreement with the property owner. Some property owners may require a maximum management fee, while others may give you flexibility on pricing.

8. The payment schedule: You may be able to charge a higher management fee if you are paid upfront or on a monthly basis. However, if you are paid on a per-job basis, you may need to charge a lower fee.

9. The type of contract: You may be able to charge a higher fee if you have a long-term contract. However, if you have a short-term contract, you may need to charge a lower fee.

10. Your overhead costs: Be sure to factor in your overhead costs when setting your property management fee. If your overhead costs are high, you may need to charge a higher fee.

Flat fee, percentage fee, or a combination of both?

There are two common structures for management fees, and each has multiple variations. The first structure is a percentage of the total rent collected each month. The second structure is a flat fee, regardless of the rent amount.

There are different types of commission structures that you can use. One option is to charge a flat fee, with a percentage of rental revenue, after reaching a certain occupancy level. Another option is to increase the flat fee after a certain rental revenue or occupancy level is reached. Another option is to charge a percentage based on incremental increases in rental revenue or occupancy levels.

Below we will review the pros and cons of each method and real-life examples. But before we do that, there are two very important items you must consider when choosing the method you will use to get paid:

1. Break-even point

As a property management company, it’s important to have a clear understanding of your overhead costs in order to determine how much to charge for your services. There are a few key factors that you’ll need to take into account when calculating your overhead costs, including:

  • Number of properties you manage.

  • Size and location of the properties you manage.

  • Type of services you offer (e.g. full-service management vs. à la carte services).

Once you have a good understanding of your overhead costs, you can start working on determining your break-even point – that is, the point at which the revenue from managing a property covers all of your costs associated with that property. To do this, you’ll need to take into account both your fixed costs (e.g. office rent, salaries, etc.) and your variable costs (e.g. marketing, repair and maintenance, etc.).

There are a few different methods you can use to determine your break-even point, but the most important thing is to be as accurate as possible in your calculations. Once you know your break-even point, you can start pricing your services accordingly to ensure that you’re making a profit on each and every property you manage.

Some of the best practices for determining your break-even point include using:

  • Historical data: Look at past financial statements to get an idea of what your overhead costs have been. This will give you a good starting point for estimating your break-even point.

  • Market data: Research the average fees charged by other property management companies in your area. This will help you to price your services competitively.

  • Cost analysis: Break down your overhead costs into fixed and variable costs, and then calculate the break-even point for each type of cost separately. This will give you a more accurate picture of your overall break-even point.

Once you have a good understanding of your overhead costs and break-even point, you can start pricing your services accordingly to ensure that you’re making a profit on each and every property you manage. By following these best practices, you’ll be able to quoted owner’s confidently and accurately, ensuring that your property management company is successful in the long run.

2. Different fees for different owners

You do not need to charge the same fee for each property you manage. You can set your fee depending on how much work is needed to manage a property and how much money the owner can afford. This way, you and the owner can be happy with the arrangement.

A property manager may wish to offer different property management fee structures to different owners for a variety of reasons. The most common reason is that it allows the property manager to tailor their services to the specific needs of each owner. For example, a property manager may charge a lower management fee to an owner who is more hands-on and does not require as much assistance with day-to-day operations. On the other hand, a property manager may charge a higher fee to an owner who is less involved and requires more comprehensive services.

Another reason why a property manager may offer different property management fees is that it gives them the ability to adjust their fees based on the market value of the property. In general, properties that are worth more will require more time and resources to manage, and as such, will command a higher management fee. Conversely, properties that are worth less may not require as much time and effort to manage, and thus, a lower management fee may be appropriate.

Finally, property managers may also offer different property management fees to owners based on the level of service they provide. For example, a property manager who offers a full-service package that includes marketing, leasing, and maintenance services may charge a higher total management fee than one who only provides basic property management services. This is because the full-service property manager is typically responsible for more tasks and has a greater invested interest in the property’s success.

While there are many reasons why a property manager may choose to offer different property management fees to different owners, the most important factor is always going to be what is best for the owner and the property. Property managers should carefully consider the needs of each owner and the market value of the property before making a decision on what fee structure to offer. By doing so, they can ensure that they are providing the best possible service at a fair and reasonable price.

Flat fee

Using a monthly flat fee to manage your property may be the safest way to go. This approach is typically used for a single-tenant property or a multi-tenant property that has the potential to take up a lot of your time. This is because of things like a high vacancy rate, sub-optimal tenants, deferred maintenance items, or a property owner that “sucks up” a lot of your time.

When you get paid a flat monthly fee, you know exactly how much money you will make each month, no matter what. This is important because it means you can plan for your future better. Even if a single tenant leaves or the property is empty, or if a major tenant leaves in the case of a multi-tenant property, you will still get paid the same amount each month. This makes it easier for you to manage your money.

It is easy to calculate how much time and effort will be involved in managing a single-tenant property. This is because there is only one tenant, and even if the property owner takes up a lot of time, there are only so many things that can go wrong with one tenant, building, and owner. You can figure out how much time is needed to work on the property. You then set a price for how much more money you will make.

Calculating the flat fee you will charge for a property with multiple tenants is more complicated than calculating the fee for a single tenant. This is because there are more variables to consider, which may take up your time and resources.

A single-tenant property is easier to predict because there is only one owner, one tenant, and one building. A multi-tenant property is still easy to predict because there is only one owner and one large building. But within that building, there are multiple tenants, each with different personalities and needs and issues.

There are two approaches to calculating your monthly flat fee for managing a multi-tenant property.

  1. Charge a flat fee per unit.

  2. Charge a flat fee per square foot or square meter.

You will want to determine how much money you can make from managing the property. This is called a “reality check.” You do this by first figuring out how much money you will get every month from the people occupying the property. Then you take away your costs for managing the property. This will show you how much profit you can make from managing the property:

  • Total Gross Income (either per unit or per square foot/meter) – Hard Costs (on-site and back office labor) – Soft Costs (the value of your professional connections, skill in handling tenants, etc.) = Potential Profit

Now let’s take a look at collecting a monthly management fee based on a percentage of gross monthly revenue.

Percentage of revenue

The formula for the percentage of revenue model is similar to the flat fee compensation model and looks like this:

  • Total Gross Income (% of monthly gross property revenue) – Hard Costs (on-site and back office labor) – Soft Costs (the value of your professional connections, skill in handling tenants, etc.) = Potential Profit

Introducing a percentage of revenue as your fee for property management services is riskier than using a flat fee model. This is because the percentage introduces a variable to the total gross income side of the above equation, while your hard and soft costs remain unchanged.

People often think positively, especially about things like money. But sometimes that’s not the case. So it’s important to be prepared for when things go wrong. Here are three things that can cause your monthly income from a property to go down:

1. Long-term leases aren’t always long term

If you have a property with a tenant on a long-term lease, like for five years, and the rent goes up each year, you might think the tenant will stay for five years. But sometimes things change, and the tenant might leave sooner.

Step back for a moment and consider what would happen if the tenant suddenly goes out of business through bankruptcy, corporate consolidation, or a partnership dispute, and the space unexpectedly becomes vacant. How quickly can the space be re-leased, and would the new rental rate be the same as the old rate, or would it be less?

Replacing lost revenue from a long-term lease belonging to an anchor tenant, a tenant who occupies an end-cap of a multi-tenant property and rents a large amount of space, can be much more difficult and take quite a bit longer than you may think.

2. Tenants don’t always renew their lease

If you have a property that you are thinking of taking under management, but some of the tenants have leases that expire within a year or less, or are on month-to-month leases, it might be more difficult to find new tenants.

The property owner may try to make you feel better about the situation by telling you that it is not their fault that the tenants have not been renewed. The tenants have not been renewed yet because of the poor quality of the leasing agents or the previous property management company.

You don’t see any downside in this situation, so you agree to manage the property and be compensated based on how much money the property makes. This means you will get paid a percentage of the rent no matter what.

Shortly after you sign the property management agreement with the owner, you see that the month-to-month tenants are moving out. The tenants who have leases coming up for renewal start looking for other places to rent. Before you know it, the income from your property has decreased by 20%, 30% or more. Since you agreed to be compensated based on a percentage of the gross income, your management fee decreases by 20%, 30% or more each month.

3. Rents can go down as well as up

There are several reasons why rental prices for residential and commercial property can decrease and increase. Here are some examples:

1. The local economy may be struggling, which can lead to fewer people being able to afford to rent a property. This can cause prices to drop to attract tenants.

2. The area around the property may have become less desirable, such as if there has been an increase in crime or a decline in amenities. This can lead to renters being willing to pay less to live there.

3. The property itself may have become less desirable, such as if it is in poor condition or located in a bad neighborhood. Again, this can lead renters to pay less to live there.

4. The property owner may be facing financial difficulties and need to rent it out for less to generate income.

5. There may be an increase in the number of properties available for rent, such as if new construction has led to a glut of apartments on the market. This can lead to competition among landlords and lower prices for renters.

6. Government policies or changes in the tax code may incentivize landlords to lower rents to attract tenants.

7. In some cases, landlords may simply be willing to accept lower rents to fill their units and avoid having them sit vacant.

Of course, the opposite can also be true; rental prices can increase for various reasons. Ultimately, it will depend on the specific market conditions in your area.

Three examples of property management fees

In the next few chapters, we’ll discuss how to make up for some of that lost income – or even add to your property management income – by offering leasing and brokerage services and getting existing tenants to take on additional space. But before we do that, let’s look at three real-life scenarios of managing specific real estate types.

Single-family rentals (SFRs)

When it comes to managing a rental property, there are two main types of homes: basic rentals and luxury rentals. Basic rentals are your typical single-family homes, apartments, and condos. On the other hand, luxury rentals are high-end properties such as mansions, penthouses, and estates.

While the management of a basic rental is fairly straightforward, luxury rentals require a more personalized approach. Here are some of the key differences between managing a basic rental and a luxury rental:

Management fees

Luxury rentals typically command higher management fees than basic rentals. This is because luxury properties are more complex and time-consuming to manage.

Tenant screening

The screening process for luxury rentals is often more stringent than for basic rentals. This is because luxury property owners want to ensure that only the most qualified and responsible tenants live in their homes.

Maintenance and repairs

Luxury rentals usually require higher-quality maintenance and repairs than basic rentals. This is because luxury property owners expect their homes to be pristine at all times.

Marketing

Marketing a luxury rental property is typically more expensive and difficult than marketing a basic rental. This is because luxury renters are often harder to find and attract than traditional renters.

Managing SFRs during a recession

As the economy continues to suffer, many people find it difficult to keep up with their mortgage payments, let alone make ends meet. As a result, leasing and managing a basic single-family rental property without a lot of frills may be easier than trying to lease and manage a luxury rental. Here’s why:

1. There will be less competition for lower-priced rentals. While there may be more people looking for affordable housing, there will also be fewer landlords competing for tenants in this market.

2. Lower-priced rentals are more likely to be occupied. Even if your rental is not in the best location or needs some repairs, it is still likely to be occupied if it is priced affordably. On the other hand, luxury rentals may sit vacant for longer because people cannot afford them.

3. You will likely have more stable tenants. People struggling to make ends meet are often more motivated to keep their housing situation stable, even if it means living in less-than-ideal conditions. As a result, you may find that your lower-priced renters are more reliable and easier to work with than those who are used to a higher standard of living.

4. There is less risk involved. When the economy is down, there is always the risk that your tenants will default on their rent or damage your property. However, this risk is typically much lower with lower-priced rentals since people are less likely to walk away from something they can afford.

5. You can still make a profit. Even though you may not be able to charge as much rent as you could in a booming economy, you can still make a decent profit by leasing and managing lower-priced rentals. In fact, this can be a great way to weather the storm during tough economic times.

As you can see, there are many reasons why leasing and managing lower-priced rentals may be a better option during a recession. So if you’re thinking about becoming a property manager, consider focusing on this market instead of trying to compete in the luxury rental market.

How to make money managing SFRs in any economic cycle

Property managers can make money by managing single-family rentals, no matter how good or bad the economy is. Here are 10 ways property managers can make money by managing single-family rental homes:

1. Charging a management fee: This is the most common way for property managers to make money. The management fee is typically a percentage of the monthly rent. It covers the costs of tasks like marketing the property, screening tenants, collecting rent, and coordinating repairs and maintenance.

2. Collecting late fees: Most leases include a clause that allows the property manager to charge a late fee if the tenant pays rent after the due date. This can be a flat fee or a percentage of the monthly rent.

3. Charging for repairs and maintenance: Property managers can also make money by charging for repairs and maintenance that they coordinate on behalf of the landlord. This could be a flat fee or a percentage of the cost of the repair.

4. Charging for rent collection: Some property managers charge a fee for collecting rent from tenants behind on their payments. This could be a flat fee or a percentage of the amount collected.

5. Charging for evictions: If a tenant needs to be evicted, the property manager may charge a fee for coordinating the eviction process. This could be a flat fee or a percentage of the total cost of the eviction.

6. Charging for lease renewals: Some property managers charge a fee for renewing a tenant’s lease. This could be a flat fee or a percentage of the new lease amount.

7. Charging for rent increases: If the landlord decides to raise the rent, the property manager may charge a fee for coordinating the rent increase with the tenants. This could be a flat fee or a percentage of the new rent amount.

8. Charging for move-in/move-out inspections: Property managers can charge a fee for the rental unit’s move-in and move-out inspections. This could be a flat fee or a percentage of the total cost of the inspection.

9. Charging for extra services: Some property managers offer extra services like showing units to prospective tenants or coordinating with contractors for repairs and maintenance. These services may be offered for an additional fee.

10. Earning interest on security deposits: In some states, property managers are allowed to earn interest on security deposits held in escrow. This can be a significant source of income for property managers.

Property managers can make money by managing single-family rentals no matter how bad the economy is. These are just a few ways that property managers can make money by managing single-family rental homes.

Single-tenant property with a long-term lease

A single-tenant property is a commercial real estate property leased to a single tenant. The tenant is responsible for the entire space, including common areas and any dedicated parking spots. Single-tenant properties are typically found in retail, office, or industrial settings.

Some examples of a commercial property leased to a single tenant include:

  • An office building occupied by a single company.

  • A retail store leased by a national chain.

  • An industrial warehouse used exclusively by one business.

Leases for a single-tenant property are generally structured in three different ways: Net lease, double net lease (NN), or triple net lease (NNN).

A net lease is a type of lease agreement where the tenant is responsible for paying some or all of the property’s operating expenses in addition to the base rent. A double net lease (NN) is similar to a net lease, except that the tenant is only responsible for paying two of the property’s operating expenses: property taxes and insurance. A triple net lease (NNN) is similar to a double net lease, except that the tenant is responsible for paying all three of the property’s operating expenses: property taxes, insurance, and maintenance/repairs.

When a commercial property is leased to a single tenant, the landlord and tenant may agree to any type of lease agreement. However, it is most common for the landlord to require a net lease, double net lease, or triple net lease. This allows the landlord to pass on some or all of the property’s operating costs to the tenant.

Pros and cons of managing a single-tenant net-leased property

For several reasons, a property manager may find it easier to manage a commercial property leased to a single tenant.

First, there is likely to be less paperwork and communication required when dealing with a single tenant. Second, the property manager can develop a closer working relationship with the tenant, which may make it easier to resolve any issues that arise. Finally, a single tenant is likely to be more predictable regarding their rental payments and overall behavior, making it simpler to manage the property.

On the other hand, managing a commercial property leased to multiple tenants can also have its advantages. For one, the property manager may be able to generate higher overall rental income from multiple tenants. Additionally, having multiple tenants can help to offset the risk of any one tenant defaulting on their rental payments or causing damage to the property. Finally, dealing with multiple tenants can also help to keep the property manager more organized and efficient in their work.

Property management fees for single-tenant properties

When it comes to charging a property management fee, there are two main options: a fixed amount or a percentage of the net rent collected. Each option has its advantages and disadvantages, so it’s important to understand both before making a decision.

With a fixed amount, the property manager knows exactly how much they will receive each month, which can be helpful for budgeting purposes. However, this can also be a disadvantage if the property is vacant for an extended period, as the owner will still need to pay expenses out of their pocket.

With a percentage-based fee, the manager only receives payment when the property is leased, which means they may make less money if the property is vacant for a long time. However, this type of fee can also be more profitable for the manager if the property is leased at a high price.

Risks are also involved in managing a property leased to a single tenant, as the tenant may default on their rent or damage the property. If this happens, the property manager may be left with unpaid bills or expensive repairs to make. As such, it’s important to weigh all of these factors before deciding which type of fee structure is right for you.

Multi-tenant property with different leases and vacancies

If you are a property manager for any type of property – residential, office, industrial or retail – you will more often than not have to deal with this situation. This situation is challenging because it is hard to calculate a property management fee that is profitable for you, fair to the property owner, and competitive to what other property management companies in your market may charge.

The subject property is a 20,000 SF (square foot) or 1860 square meter (SM) multi-tenant retail center. It has three individual free-standing buildings, built about twenty years ago. There are four other retail centers of newer construction within a 1 mile/1.6 KM radius, all of which have a very little vacancy, on average a 10% vacancy level or even less. The subject property has good signage for the tenants, plenty of accessible parking and mature landscaping.

The zoning allows for both retail and office use, and the tenant mix looks like this:

  • Suite 100-103: Sit-down restaurant, 3000 SF/280 SM, at market rent, lease expires in 30 days

  • Suite 104-105: Vacant, 1500 SF/140 SM

  • Suite 106: Insurance office, 1000 SF/93 SM, at market rent, lease expires in 1 year

  • Suite 201-202: Mobile phone store, 2000 SF/186 SM, below market rent, lease expires in 2 years

  • Suite 203-206: Tattoo parlor, 3000 SF/280 SM, below market rent, lease expired and waiting to be renewed

  • Suite 207: Pet groomer, 1000 SF/93 SM, above market, lease expires in 1 year

  • Suite 301-302: Beauty parlor, 2000 SF/186 SM, below market rent, lease expires in 60 days

  • Suite: 303: Vacant, 1500 SF/140 SM

  • Suite 304: Employment staffing agency, 1000 SF/93 SM, below market rent, lease expires in 2 years

  • Suite 305: Vacant, 1000 SF/93 SM

  • Suite 306-308: Coin-operated laundry, 3000 SF/280 SM, above market rent, lease expires in 5 years

In total, the retail center has a 20% vacancy level with about 40% of leases expiring in less than one year. If worse comes to worst, the property could be 60% vacant in 12 months or less. We will assume that all of the leases have the same terms. In these leases, the tenant is responsible for any items within their suite, such as plumbing leaks, malfunctioning electrical outlets, and maintenance, repair and replacement of their heating and cooling systems.

The property owner is responsible for mechanical and structural items such as exterior walls, roofs, water and sewer lines into the property, and maintenance of the common areas – items such as sidewalks, parking lot, landscaping and pest control, and common area lighting, water and sewer service.

Management tasks in a multi-tenant property

After looking at the property, you meet with the owner to discuss your property management agreement. You ask why this property has a much higher vacancy rate than other properties in the area – 20% vacant vs. 10%. You also ask why so many leases have expired or are close to expiring.

The property owner assures you that he is aware of the situation. He blames the high vacancy level and the lack of attention to lease renewals on the fact that he was managing the property himself and on the poor efforts of the previous leasing broker.

The competitive retail centers in the area are all at least 90% occupied. The leases for this property that will need to be renewed soon are all at or below the current market rents. This market data suggests that what the property owner has told you is probably true.

The work that you as the property manager will be responsible for can be divided into three categories:

1. Tenants: Collection of rents, enforcement of lease terms and conditions, and consultation with legal and collections services should a tenant need to be evicted.

2. Routine maintenance: Supervision of parking lot cleaning, landscaper and exterminator, filing of monthly ownership reports, payment of invoices, and remittance of monies to the owner.

3. One-time projects: Leaky roof repairs, parking lot light or sign lighting replacement, removal of graffiti or debris left by passersby. If you lease a vacant suite to a new tenant, you will also be responsible for overseeing the tenant improvements. This means that you will need to ensure that the necessary permits have been obtained and that the work is being done properly if the new tenant is responsible for making the improvements.

You will have to do some things as a landlord that could take up a lot of your time. For example, making sure tenants pay their rent on time and managing the vendors. But other things are routine, like taking care of any routine maintenance items for the common areas.

It looks like there is a lot of demand for retail space in your area, and all of the leases that are coming up for renewal currently have lower rents than what is available right now. You think it would be a good idea to base your property management compensation on a percentage of the monthly revenue. That way, you will also get more money each month when the existing leases are renewed at higher rents and more space is leased.

Structuring the property management fee for a multi-tenant building

But before you make a final decision about how to structure your compensation plan, you decide to play devil’s advocate, and you put together a list of questions for further analysis:

1. Is the property owner telling the truth when they say that the leasing brokerage is responsible for why the property is vacant and leases are not being renewed? Or might other factors be at play that are not immediately obvious or being disclosed to you by the owner?

2. Do the other four retail centers in your area have a higher occupancy rate because they are newer? Are they all charging the same rental rates as you are? If not, you might have difficulty finding tenants without lowering your rent or offering other incentives.

3. Your largest suite is 1500 SF or 140 SM. This means that if someone needs more space, they will have to go somewhere else. It’s also annoying that the employment staffing agency in suite 304 has two more years left on their lease at a much lower price than the market rate. This means you can’t offer a new tenant who needs more space and is willing to pay rent that is at the market rate.

4. Since the retail center is more than 20 years old, there might be other emergency projects that you will need to take care of. These can be things like normal wear and tear or outdated building standards.

For example, a broken underground water or sewer line will prevent water from reaching the tenants, creating a particular hardship for the restaurant and the laundry, or hidden deferred maintenance items that neither the owner nor you are aware of and can not be easily discovered.

5. If there are big problems with the property, like a broken water line, or if there are hidden defects that you don’t know about but the tenants do, this could be why they haven’t renewed their leases yet. It might be more difficult than you think to renew their leases at the market rate.

Why a variable property management compensation fee could make sense

You realize that there are some questions that you can’t answer until you actually start managing the retail center. There is a lot of potential to increase revenue, but there is also a good chance it will take longer than you anticipate. There may also be a lot of extra work and one-time tasks that will take up your time and effort. To play it safe, you develop a variable compensation plan for managing the retail center.

  • Part 1: A flat fee based on the retail center’s square footage/square meters.

  • Part 2: A percentage of any increase in revenue above the current revenue that the retail center is generating.

You believe that this way of structuring your compensation covers your normal expenses to manage the retail center, as well as the additional time and effort that will be needed to manage any new tenant improvements or one-time special projects.

Closing thoughts

It is important to understand how much work and knowledge is needed to manage a property before you agree to be paid. This way, there are no surprises for either party once the agreement is made. It can be difficult to change the terms of compensation once an agreement is reached, so it’s important to be clear about what will be expected from both parties beforehand.

If you want to keep your relationship with the property owner good, you should not give them a reason to look for someone else to manage the property. Most property owners will renew the agreement with you year after year. This is why you became involved in real estate property management in the first place – to get a predictable income stream.

In this chapter, we have talked about how the routine and one-time maintenance and repair tasks can be turned into income generators for your property management business. We will talk more about this later in the book.

You can also make money by leasing the space yourself and renewing the existing leases. This is a better option than letting someone else do it, because they will make money from your property while you could be doing it yourself. The next section discusses how to provide leasing services as part of your property management business.

Part 3

Get Paid What You’re Owed: A Guide to Collecting Leasing Fees

Property managers are the lifeblood of any successful property. They’re responsible for finding qualified tenants, negotiating and drafting leases, and collecting rent payments on time. But as any experienced property manager can tell you, it’s not always easy to get paid for all the time and effort you’ve put in. This section will explore the different ways to make money from leasing your property. But first, I want to give you a word of warning.

Some new property managers make the mistake of charging less for their management fee if they also provide services that earn them money from the property, like leasing services. This can be a big mistake since you need to charge enough to cover your costs and make a profit:

  • When you offer a professional service at a low price, it makes people think that the service is not valuable. This can make them not trust your opinion or advice in the future. As a result, they might not be your client for very long.

  • Suppose the occupancy level for a property reaches 100%, or the property owner decides to give the leasing services to another broker. In that case, you will make less money than you originally thought. This is because your property management fee will be lowered.

There are many services that you can offer to a property owner. You can think of each service as a contract and as its own revenue stream. This will help you track how much money you make from each service. For this section, we will say that there are two revenue streams.

  1. Monthly management fee that you agree to.

  2. Fees you will receive from new leases, renewal of leases for existing tenants, and existing tenants expanding and leasing additional space within the property.

Lease fee: Percentage of lease vs. a flat fee

The leasing fee can always be negotiated, but it is usually based on either a percentage of the value of the lease or a flat fee. As a rule of thumb, the leasing fee will be higher for a new lease or if the tenant expands into additional space – because this is essentially a new lease – and lower for the renewal of an existing lease because, theoretically, there is less time and effort involved.

Value of lease

Typically, you would use this for a long-term lease. To calculate the value of the lease, multiply the monthly revenue by the number of months in the lease and then multiply that number by the percentage fee.

For example, $1000 per month x 60 months = $60,000 x 5% = $3,000 – or – using the same lease with a 3% annual rent increase, ($1000 x 12) + ($1030 x 12) + ($1060.90 x 12) + ($1092.73 x 12) + ($1125.51 x 12) = $63,709.68 x 5% = $3185.48

Flat fee

The flat fee for a lease is usually the value of one month’s rent or $1,000 in our example. But the amount you charge for leasing services will vary depending on several factors, including:

1. The fees that your competitors charge for the same leasing services

You should not discount your property management fee just because you also offer leasing services to the property owner. The owner will have to pay somebody the going rate to lease up the space, and it might as well be you who earns the fees.

There are several advantages for the property owner if you lease the vacant space and manage the property. For example, the owner does not have to deal with two different companies, one for managing and one for leasing. As the property manager, you understand all aspects of the property well. This puts you in a good position to present the benefits of leasing space to potential tenants and avoid renting to problem tenants.

2. How strong or how weak the demand for space is in your market

If you work in a market where there are more spaces than there are people who need them, then the saying “tenants are gold” will be true.

Another way of thinking about this is that landlords compete against each other to get good tenants in a tenant’s market. This means that tenants are very valuable. In this market, where it is tight, and property owners compete with each other, smart owners know that if they do not accept a tenant and pay the fee that the leasing broker is asking for, another owner will.

3. How motivated the property owner is to get vacant space leased

Some property owners are more motivated than others to lease their vacant space. The level of motivation affects how much they are willing to pay for good, quality tenants.

Other times, property owners are very careful about to who they lease space. They might have a specific vision in mind of what the tenant mix should look like and the image of the property as a whole. Other times, they might not want certain types of businesses on their property, or the business of a prospective tenant may conflict with that of an existing tenant on the property.

An example is when two insurance companies are on the same property or two restaurants offering a similar type of cuisine. But sometimes, other property owners will accept almost anybody and everybody, even if they only have a short-term lease. This might be because the owner is an investor or because they are refinancing their loan and want to show the lender that there is demand for space in the property.

Remember that if you want to lease your property, you will need to spend more time and effort on the property management side of things. This is because you will likely have one or more problem tenants.

4. The amount of time and effort you will need to spend providing a specific leasing service

When setting your fees for new leases, tenant renewals, and expanding existing tenants into additional space, you should offer competitive fees compared to what other leasing brokerages charge. However, it would be best if you also considered how much time and effort would be involved in getting the deal done.

If you don’t have many tenants, you will spend more time convincing new tenants to choose your property. This is because more people are looking for space than there is available space. Existing tenants are already happy with where they are, so you will spend less time working with them.

Suppose a tenant does not renew its lease. In that case, it can be difficult – or sometimes impossible, as in the case of the coin-operated laundry tenant in our multi-tenant retail center – to relocate to another area without losing many customers.

3 ways to make money from leasing

There are three things you can do when it comes to leasing space in a property that you are managing:

1. Lease new space.

2. Renew existing leases.

3. Get current tenants to lease more space.

We will use the multi-tenant retail center discussed in the previous chapter as our subject property in the following three examples.

To review, the subject property is a 20,000 SF (square foot) or 1860 square meter (SM) multi-tenant retail center comprised of three individual free-standing buildings, built about twenty years ago, with four other retail centers of newer construction within a 1-mile/1.6 KM radius all of which are at a 10% vacancy level or less.

The subject property has good signage for the tenants, plenty of accessible parking and mature landscaping. The zoning allows for both retail and office use, and the tenant mix looks like this:

  • Suite 100-103: Sit-down restaurant, 3000 SF/280 SM, at market rent, lease expires in 30 days

  • Suite 104-105: Vacant, 1500 SF/140 SM

  • Suite 106: Insurance office, 1000 SF/93 SM, at market rent, lease expires in 1 year

  • Suite 201-202: Mobile phone store, 2000 SF/186 SM, below market rent, lease expires in 2 years

  • Suite 203-206: Tattoo parlor, 3000 SF/280 SM, below market rent, the lease expired and waiting to be renewed

  • Suite 207: Pet groomer, 1000 SF/93 SM, above market, lease expires in 1 year

  • Suite 301-302: Beauty parlor, 2000 SF/186 SM, below market rent, lease expires in 60 days

  • Suite: 303: Vacant, 1500 SF/140 SM

  • Suite 304: Employment staffing agency, 1000 SF/93 SM. below market rent, lease expires in 2 years

  • Suite 305: Vacant, 1000 SF/93 SM

  • Suite 306-308: Coin-operated laundry, 3000 SF/280 SM, above market rent, lease expires in 5 years

In total, the retail center has a 20% vacancy level with 40% of leases expiring in less than one year when you begin managing and leasing the property.

1. New leases

You first think about what other types of businesses would be a good fit for the retail center and would work well with those already there. Some examples of businesses that could compliment your current tenants are legal, lending or finance services; a barber shop, massage or nail salon; and a computer or mail store business.

There are not many places to lease that are big enough for many people. You think you can get the restaurant business to stay, but you are not sure about the tattoo parlor. The owner has been difficult to get hold of lately and has not paid rent on time twice.

Marketing vacant space for lease

You know that it is important to get a lot of people to see your vacant space when you are trying to lease it. You should order and install custom-made signs to put along the street and in the windows of the vacant suites. You should also order a banner to erect on the building.

In addition, you should put together a brochure on the retail center that can be printed and handed out to prospects when you meet them, attached to emails, and downloaded from your firm’s website or a website specifically for the property. Lastly, it would help if you had a postcard designed that can be used in direct mail campaigns.

You want to get as much exposure for your rented space as possible. You can do this by listing it on websites directed at leasing brokers and posting it on websites open to the general public. This will attract people who are looking to rent a space like yours. Finally, you need to start a cold-calling campaign. This is where you visit people who lease space in other retail centers and try to convince them to move their business to your property.

Some properties get a lot of calls from people who see the sign out front. Other properties get a lot of calls from people who get the mailing. And other properties get a lot of calls from people who see the listing on an online service.

If you could find a surefire way to make people want to rent your available space, you would be a millionaire. But it is hard to do that. There doesn’t seem to be any reason why one thing works and another doesn’t. So to get vacant space leased, you have to do a lot of different things.

It’s good that you’re doing all of this marketing and prospecting, because if a potential tenant doesn’t like the space in the retail center you’re marketing, you can help them find a space in another property. It’s not always easy to lease the space in the retail center you’re managing, especially if your property management fee is based on a percentage of the monthly gross revenue. But it’s important to try your best.

It’s not always easy to find a perfect tenant for your retail center. The property owner may not like the business the tenant is in or the business the tenant is in may conflict with that of an existing tenant in your retail center. If this happens, you can still collect a leasing fee and make money from all of your hard work by finding an alternative space for the prospective tenant.

Your market efforts begin paying off

Some of your marketing initiatives take a little while to work, but when they finally do, you are happy with the response you get. Most of the inquiries for this retail center come from calls after people see the signs and banners. They also come from people who saw it online. It is hard to say for sure what caused someone to call because someone might see a marketing postcard from us and then drive by and call, or they might hear about it from a friend who heard about it from us.

Even though it might not be the best type of activity, you will still take any inquiries you can get. A good number of the people who call are just curious – maybe they are other brokers or business owners, or maybe existing tenants trying to figure out if you are giving new tenants a better deal on rent. Or maybe they are tenants from another retail center who want to use your center as leverage in their negotiations with their current landlord.

Luck would have it that on the same day, you showed your space to two possible tenants, one who wants to open a second nail salon, and the other is a massage therapy business whose owner is currently employed by someone else.

Qualifying prospective tenants

The owner of the property is selective about who he leases to. He wants people to fill out applications and provide financial statements, personal and business references, and a detailed business plan if it is a new business.

This selectivity is good for you as a property manager because it avoids having problems with tenants down the road. But it can be not good for you as a leasing broker because tenants that are new to their business might not get a chance to prove themselves. As a result, you could lose that potential leasing fee.

The tenant who owns the nail salon definitely meets the qualifications the property owner wants. They would be a good addition to the current group of tenants and would complement the beauty parlor business. After meeting with the tenant and agreeing to their terms, you draw up a lease for suite 303, which is adjacent to the beauty parlor, and present it to the property owner for their final review and approval.

The nail salon owners told you they were bringing on another partner, and she was anxious to get a new location up and running. Your intuition told me that any negotiations would be short and sweet. You were right. After clarifying a few minor points, the lease is signed, sealed, and delivered quickly.

The tenant has agreed to stay for a long time at a reasonable rent with annual increases. The property owner will make some improvements for the tenant at his own expense. You can do this project in-house for a low cost.

Maximizing your leasing commission income

The property owner is not sure if they want to give a lease to the new massage tenant. You think they are correct because when you explained the application process to the massage business owner, they didn’t understand what you were saying and said they would get all the information together as soon as possible.

Even though you know the owner won’t approve this tenant of the retail center, you start looking for a new space for them. You find a center whose owner is willing to take a risk on a new business. You work out a deal and find the tenant a space to lease. You still get paid for your time and effort, just not by the owner you originally worked for.

Your new nail salon tenant has signed their lease. This means that your occupancy rate at the property is now 87.5%. This is very close to the 90% occupancy rate of the four other retail centers in your area. You know that the current tenants have seen the new leasing activity, and you also take the time to let them know when you visit the retail center.

You might do this to show tenants that are close to finishing their lease that other people want to rent the property too. To do this, you need to be good at psychology. This is a tool that every good property manager should have.

The next step is to meet with the tenant who has a tattoo shop in suites 203-206. This tenant’s lease had expired before you started managing the retail center, and their rent is below market value. You have also had to chase this tenant down a few times to ensure they paid their rent on time.

2. Lease renewals

You get a call from another business in the tattoo industry. They ask if the space will be available soon. This might be because they know someone who is in the current business, or maybe they are just trying to get information about your situation.

You quickly think of a good answer and tell the caller that you are currently leasing the property for (a higher amount) and that the terms and conditions are the same for anyone who leases it. You tell them that you are meeting with the current tenant soon to discuss a lease renewal and promise to contact them if the tenant does not renew.

You don’t want to promise too much to a new tenant because if the current tenant renews its lease, you will need to help this new tenant find space. That way, you can earn money from the lease renewal fee and find this new tenant space to lease.

Strategic planning

Before meeting with the tattoo tenant, you call the property owner to discuss the strategy. You want to know how hard you should push the tenant to sign a new lease at the current rent and what concessions the owner is willing to offer the tenant for renewing its lease at a 10% higher rent.

You tell the property owner about the new tattoo tenant. You both agree that this tenant can be a backup in case things don’t work out with the current tenant. The property owner is happy and tells you that if the current tenant doesn’t want to pay the current price and sign a long-term lease, you can lease to the other business.

Although this approach involves some risk, and the property owner knows it is usually better to work with the tenant they already have, they also know that the tattoo business is very popular. More tenants are looking for space than there is space available.

Playing hardball during a lease negotiation

There is some risk involved in losing the current tenant and having your potential backup tenant fall through. However, you feel confident that if this worst-case scenario occurs, you can quickly find a third tenant to lease the space at the higher rental rate you are offering.

You talk to the property owner and decide that you will only offer a long-term lease if the tenant agrees to your at-market rent, which is about 10% more than what they are currently paying.

The tenant did not want to pay the increased rent. They said their business had been slow, and there was a lot of competition. They also said it had been hard to pay the current rent on time. You suspected they were only paying the rent late as part of a negotiating strategy for your meeting, and you were right.

Selling a rent increase to your tenant

One approach you use when a tenant complains about a rent increase is called the “reduction to the ridiculous,” where you take the incremental difference in the rent increase and divide it by the days in the month. For example, if the incremental rent increase is $300 per month, you divide that by 30 days for a result of $10 per day, meaning that the tenant is telling you it can not afford to pay an additional $10 per day more in rent.

When you go through this exercise with the tenant, it is caught off guard at first by the ridiculousness of not being able to pay a few dollars more per day, but then is quickly adamant that – Yes! – even a small amount more would be completely and totally unaffordable.

The meeting ends with you leaving the new lease for the tenant to review. The tenant says that no other tattoo business can afford to pay the new higher rent, let alone the current below-market rent. You smile inwardly at this comment and head back to your office to make a phone call to update the backup tattoo prospect.

Time is on your side

You waited a few days and then called the tenant about the rent increase. The tenant told you they couldn’t afford to pay more, but you had already expected that response.

Earlier in the week, you contacted a new potential tenant interested in renting your tattoo shop space. You told them that you were still negotiating with the current tenant but weren’t sure if they would renew. The prospect was eager to see the space, so the next day you stopped by unannounced to show them the retail center and the possible available space.

The business owner is not there, but the assistant manager is. It turns out that they know each other. You apologize for stopping by unannounced, and thank the assistant manager for taking the time to show you the space. As you walk back to your car, the prospect tells you in no uncertain terms that if the current tenant doesn’t renew its lease, he will take the space.

The next day, you receive a priority mail package from the tenant. They signed the lease you left with them during your earlier meeting. You call the property owner to tell them that you were able to get the tenant to sign. You also call the prospective tenant to tell them that the deal fell through but that they were very impressed with how you handled everything.

After looking at your calendar, you decide to meet with the restaurant tenant to talk about renewing its lease. You wonder what tactics you will have to use this time to get what you want.

3. Tenant expansion

The sit-down restaurant tenant in suites 100-103 occupies 3,000 SF/280 SM and is paying an at-market rent with its lease expiring in about 30 days. The tenant has been leasing the same space for over 15 years and, from what you have observed during your regular visits to the property, has a consistent breakfast, lunch and dinner business seven days a week.

You think that they will not leave, but you never know for sure. You do not want this space to go vacant because it would be hard to find another tenant who could be as successful as this one. Before meeting with the tenant to discuss a lease renewal, you update your survey of the competitive retail centers in your immediate trade area. You find a recently vacated restaurant space available for lease.

The space size is smaller, and the asking rent is higher than your tenant’s current rent. The vacated restaurant offered a different type of cuisine than your tenant offers, meaning that the kitchen area in the vacant space would need to be completely reconfigured at a very costly expense.

Playing it cool

You don’t have a replacement tenant lined up yet for the restaurant space, so you decide to take a different approach with the lease renewal meeting. You don’t draw up a lease ahead of time as you did with the tattoo tenant.

The tenant you contacted seemed happy to hear from you and eager to meet. When you met, they unrolled a blueprint of how they want to expand their business next to your restaurant. They want to offer a quick service and take-out menu in addition to their current sit-down restaurant business.

In exchange for doing their own tenant improvements, they are asking for a rent abatement (free rent) of three months, three reserved parking spaces for the new quick-service space, and exclusivity as to use, meaning that you agree not to lease to another restaurant tenant in the retail center. Regarding their new rental terms, they are proposing a long-term lease with the current rent remaining unchanged for the first part of the lease and fixed annual increases after that.

Giving something for nothing

The proposal they put forth is clear and concise. You also suspect that they have looked into the area and determined that the rent they are paying is fair, and that it is difficult to find similar space elsewhere. As the manager of a small retail center, you typically do not offer reserved parking or exclusivity.

If you give reserved parking to one tenant, others will want it too. That means you’ll have to keep track of who is using the reserved spots and make sure that other people don’t park there. It’s also important not to rent space to another business if it might take away customers from the current tenant. This is because you don’t want to hurt their business.

This property is not big enough for another restaurant. The tenant doesn’t know this, but you are already giving them something by letting them have exclusivity. After talking it over, the property owner agrees to all of the terms and conditions set by the tenant. They are happy to hear that the tenant’s business is doing well and that they are expanding.

Closing thoughts

The three examples show how you can make money from leasing services in addition to the fees you make from property management. However, it is important to remember that each case is different because many variables are involved.

The property owner’s investment vision could change or the owner could encounter – either good or bad – unexpected business or personal situations. People in your tenant situation may act differently than they did before. There could be personal things happening, like a divorce or a new partner, or there could be problems with the business. There are lots of things that could go wrong, so it’s important always to be prepared.

You can make money and profit from these changes as long as you understand your true expenses – both the hard and soft costs. So make sure that you structure your fees correctly.

The restaurant tenant’s expansion has increased the retail center’s occupancy rate to 95%. As a result, you will soon earn less from leasing the property because most of the space is now taken up. There are a few leases that need to be renewed and the vacant suite 305, but otherwise, things look bleak. That’s the bad news.

The good news is that your retail center is doing better than the other retail centers in the area. The property management fee you charge is also increasing. You might want to talk to the property owner about selling the center before someone else does.

Part 4

Selling Property and Earning a Commission: The Basics for Property Managers

When you’re a property manager, selling the property is one of the most important ways to make money. A lot of work goes into it, but it can be very lucrative.

However, a common lament amongst property managers is that no sooner do they get a property 100% leased up and comfortably cash flow positive with the property generating nice, predictable monthly management fees and no hidden repair disasters – and then the owner decides to sell!

When you think about it, what the property manager is really saying is that they were caught totally off guard by the owner deciding to sell and had not been preparing for the inevitable sale – and most importantly, how to profit from it.

One of the biggest dangers in any business, and real estate property management is no exception, is the danger of becoming complacent. To be fair, how this happens is completely understandable.

As your property management business grows, you will reach a point where any issue that arises with a specific property is similar to those you have previously dealt with. This happens because you are adding more properties to your management portfolio, which in turn increases your monthly recurring cash flow and leasing revenues. As a result, you become too comfortable with the status quo.

Maybe you stop looking for new business as aggressively as you once did or maybe you stop scrutinizing your company expenses as rigorously as you used to. Add to this the fact that property owners, regardless of whether they are individual private investors or institutional investors, will almost always tell you that they have no intention of selling a property and that they are holding for the long term. And you make the mistake of believing them.

Unfortunately, ‘stuff’ can happen and often does, usually when you least expect them to. Certain property types may attract so much investment demand that a property owner can not help but say ‘yes’ to an unsolicited offer that crosses their desk. Personal issues such as divorce, financial stress, or illness can arise with private individual investors. With institutional investors, a rebalancing of the investment portfolio or a company merger may arise.

Why you should plan to sell from day one

From the very first day you sign the property management agreement with the owner, the best thing you can do as a property manager is plan for the eventual sale of the property you are managing.

Another way of thinking about this is that you always want to be proactive and not reactive. Ask yourself this question: Who is the one person that intimately knows the ins and outs of the property, who has developed strong relationships with the tenants, and who has a firm grasp on how to continue to make the property perform well, maybe even better than it already is and to generate more profit? You do, that’s who.

So why should you not be the one to sell the property? And if you are selling the property you are managing, you will likely be the one to manage the property for the new owner. Your monthly revenue stream from property management and leasing remains unchanged, plus you will have booked a hefty one-time sales commission for brokering the property to the new owner.

Monitor the market value of properties you manage

As a property manager, you must constantly monitor the market value of the properties you manage. This is because the owner may eventually decide to sell the property, and you need to be able to give them an accurate estimate of its worth – and earn a sales commission. By monitoring the market value, you can also proactively inform the owner when the best time to sell would be.

There are several best practices for a property manager to follow to stay up-to-date on the market value of their properties:

1. Research comparable properties in the area. This will give you a good idea of what similar properties are selling for and how much your property is worth in comparison.

2. Stay up-to-date on market trends. This way, you’ll be able to anticipate changes in the value of your property and advise the owner accordingly.

3. Have regular conversations with the owner about the property’s value. This will ensure that they are always aware of its worth and can make informed decisions about selling or holding onto it.

As a property manager, you have a duty to your owners to help them make the best decisions about their properties. By staying up-to-date on market trends and being honest about the pros and cons of selling, you can ensure that they always have the most accurate information available to them.

Understand the financial metrics investors look for

When analyzing a rental property, real estate investors use key financial metrics to evaluate the property’s past performance and the rental income and profit generated. The following are some important financial metrics that investors consider:

1. Net Operating Income (NOI): This is a measure of a property’s profitability, calculated by subtracting operating expenses from gross income. A property with a higher NOI is more profitable and more attractive to investors.

2. Capitalization Rate (Cap Rate): This metric estimates the rate of return on a real estate investment. It is calculated by dividing the net operating income by the property’s purchase price (or current market value). A higher cap rate indicates a better return on investment.

3. Cash on Cash Return (CoC): This metric measures the cash flow from a rental property after accounting for mortgage payments and other expenses. It is calculated by dividing the net cash flow by the total cash invested in the property. A higher CoC return indicates a better return on investment.

4. Debt Service Coverage Ratio (DSCR): This metric is used to assess a property’s ability to generate enough income to cover its debt payments (i.e. mortgage, taxes, insurance, etc.). It is calculated by dividing the net operating income by the total debt service obligations. A DSCR of 1 or higher means that the property can cover its debt payments with its current income; a DSCR below 1 indicates that the property cannot cover its debt payments and is therefore a higher risk investment.

5. Internal Rate of Return (IRR): This metric measures the overall profitability of an investment, taking into account both the initial cash investment and any future cash flows (i.e. from rental income). It is calculated by finding the interest rate that makes the present value of all future cash flows equal to the initial investment. A higher IRR indicates a better return on investment.

These are just a few key financial metrics real estate investors use when analyzing a rental property. By understanding these metrics, you will be able to help buyers and sellers more accurately evaluate potential investments and make sound decisions when it comes to trading a rental property.

How to prepare a buyer’s package

A buyer’s package is a collection of documents and information that a property manager puts together for a real estate investor interested in buying a rental property. The purpose of a buyer’s package is to provide the investor with all the information they need to make an informed decision about whether or not to purchase the property.

The following is a list of the documents and information that should be included in a buyers package:

  • A copy of the lease agreement.

  • A rent roll (listing of all current tenants and their contact information).

  • A profit and loss statement for the property.

  • A list of any recent repairs or renovations that have been made to the property.

  • Photos of the property, both inside and out.

  • A market analysis of the area detailing similar properties and their rental rates.

By providing all of this information upfront, you will give the investor a clear picture of what they are potentially buying, and help them decide whether the property is a good fit for their investment portfolio.

How property managers earn sales commissions

There are three types of properties that we talked about in the first part of this book: Residential, Single-tenant, and Multi-tenant. The buyer for each property type is different, and the buyer will look for different things when considering a purchase. When you sell a property, it will have an impact on your ongoing property management business. Finally, it is important to understand how to profit from the sale of a property.

Single-family rental

There are several types of single-family rentals, such as a house or a condo. Each has its own set of benefits and drawbacks, but overall, single-family rentals are in strong demand and are usually easy to sell.

One reason for this is that they provide more privacy than multi-family rentals, such as apartments. Tenants in a single-family rental have their own yard, garage, and entrance, and don’t have to share common spaces with their neighbors. This can be appealing to families or anyone who values their privacy.

Another reason single-family rentals are in demand is that various loan programs are available to buyers. For example, Fannie Mae and Freddie Mac offer loans specifically for single-family rental properties. These government-sponsored programs make it easier for buyers to obtain financing and get better loan terms. As a result, selling a single-family rental property can be much easier than selling other types of property.

Lastly, single-family rentals also offer the potential for great ROI. With the right property and tenants, landlords can see a significant return on their investment. For all these reasons, it’s no wonder that single-family rentals are such a popular choice for renters and investors alike.

Selling to an owner-occupant

When you’re selling a home, the first type of potential buyer you’ll likely encounter is an owner-occupant looking to buy a home of their own. Owner-occupants are individuals or families who plan to live in the property as their primary residence. They’re typically looking for a property that meets their specific needs and budget, and they’re often willing to pay a premium for a home that’s in good condition.

One of the main reasons why people are always looking for a home of their own is because it provides them with a sense of stability and security. Owning a home gives people a place to call their own, and it can be a valuable asset that can appreciate over time. Additionally, home ownership can offer significant tax advantages, as mortgage interest and property taxes are typically deductible.

People buying a home to live in generally have a wide variety of financing options available. One of the most popular loan programs for buying a home as a primary residence is the fixed-rate mortgage. With this type of loan, the interest rate remains the same for the life of the loan, so your monthly payments stay consistent even if market interest rates rise. This makes it easier to budget for your mortgage payments each month.

Another common type of loan for purchasing a primary residence is an adjustable-rate mortgage (ARM). With an ARM, the interest rate can change over time, which means your monthly payments may go up or down. However, there are usually limits on how much the interest rate can increase or decrease over the life of the loan.

Government-backed loan programs are also available for people looking to purchase a primary residence. These programs, such as the Federal Housing Administration (FHA) loan program, offer more flexible terms and down payment options than conventional loans.

If you’re a property manager and your client is looking to sell their home, there are some key steps you can follow to help them get the best price possible:

  • First, it’s important to do your research and find out what comparable homes in the area have recently sold for. This will give you a good idea of what price range to expect.

  • Next, be sure to stage the home in a way that is appealing to potential buyers. This means decluttering, deep cleaning, and making any necessary repairs or cosmetic updates.

  • Once the home is ready to show, market it aggressively to generate interest from buyers. This can be done through online listings, open houses, and word-of-mouth marketing.

  • Finally, when it comes time to negotiate, be sure to keep your client’s best interests in mind. Look for a fair price that meets their needs and doesn’t leave any room for the buyer to lowball.

By following these steps, you can help your client get the best possible price for their home, and earn a nice sales commission for yourself.

Selling to another real estate investor

When it comes to finding buyers for your single-family rental property, another real estate investor is the second type of potential buyer you may come across. Selling a home to another investor differs from selling a home to a buyer looking for a primary residence in a few key ways.

First, when selling to another investor, they will be mostly focused on the numbers. They’ll want to know things like how much rent you’re currently collecting, what the operating expenses are, and what the potential return on investment could be. They’re also likely to be more flexible on price than a traditional buyer would be.

Second, selling to another investor means that the sale will likely happen much faster than if you were selling to a traditional buyer. Investors are often motivated by time, so they’re more likely to move quickly on a deal.

Finally, when you sell to another investor, they’re likely to be more interested in the property itself than the surrounding neighborhood. This is because investors are usually more interested in finding properties they can fix up and rent out or resell for a profit, rather than finding a home in a particular neighborhood they want to live in.

It can take more time and effort for a property manager to sell a rental to another real estate investor rather than an owner-occupant. However, the trade-off is that the odds may be good that you’ll continue to manage the rental for the new owner. So, in addition to earning a nice sales commission, you’ll also continue to receive income from the property management fee.

It’s actually quite common for a property manager to continue working with a single-family rental property after it is sold to another investor. There are several reasons why this arrangement can be beneficial for both the investor-buyer and the property manager.

For the investor-buyer, using the same property manager can help ensure a smooth transition and continuity of service. The property manager will already be familiar with the rental property and have established systems and procedures. This can make it easier for the investor-buyer to take over the management of the rental property and avoid potential problems or disruptions.

As for the property manager, continuing to manage a single-family rental property sold to another investor can be a good way to maintain a steady income stream. It can also help the property manager build up their portfolio of properties under management and establish a good working relationship with the new owner.

Single-tenant net leased property

A single-tenant net leased property is a commercial or industrial property leased to a tenant long-term, typically for 10 years or more. The tenant is responsible for paying all operating expenses, including taxes, insurance, and maintenance, in addition to the rent. This type of lease arrangement provides investors with a stable income stream and predictable cash flow.

Single-tenant net leased properties include retail stores, restaurants, office buildings, warehouses, and manufacturing facilities. In many cases, the tenant will also have an option to renew the lease at the end of the initial term. This provides investors with additional security and peace of mind knowing that their income stream will continue for the foreseeable future.

Challenges of selling a single-tenant property

Different types of properties are easier or harder to sell. The easiest type of property to sell is a rental house because there are a lot of potential buyers, and it is easy to finance. However, keeping the property management business can be more difficult if someone buys it. A single-tenant property is often more difficult to sell, but it depends on whether the buyer wants to use the property themselves or is an investor who prefers buying single-tenant investments.

Some people think that single-tenant real estate investments are simple. But others know it can be hard to find a new tenant if the old one leaves. This can happen if a big company goes bankrupt. If a tenant currently uses the property on a long-term lease, the potential owner-user buyer will look for other properties. There are not as many of these buyers as others, so the sales time frame can vary depending on things like how good the tenant is and what is happening in the market.

You will want to compare the value of your property to similar properties. You should also tell the property owner what could stop someone from buying the property and how you plan to fix that. Most importantly, you need to figure out if your most likely buyer is an investor or an owner-user. If it is an investor, you need to have the correct lease terms in place.

For example, if you think the person who is likely to buy the single-tenant property you are managing is an investor, then you will want to extend the lease if it is close to expiring. Of course, you can also collect a renewal or extension leasing fee in this process.

On the other hand, if you think the person who is likely to buy your property is an owner-user, you might decide to let the lease expire. Make sure that you start your sales marketing program well before the lease expires so that you do not have a vacant property for too long.

Selling to an investor vs. and owner-user

When selling a single-tenant property, you may find two different values for the asking sales price. One is based on how much money the property can make for an investor (called the CAP rate), and the other is based on how much the owner would be willing to pay for it themselves (based on square footage or meters plus any intangible value).

A cap rate is simply the ratio of a property’s net operating income (NOI) to its purchase price. You can calculate a property’s cap rate by taking its NOI and dividing it by the purchase price. For example, if a property has an NOI of $100,000 and it was purchased for $1 million, then its cap rate would be 10%.

Why is the cap rate important? Because it allows investors to quickly and easily compare properties against each other. It’s a key metric that real estate investors use when determining whether a particular property is a good investment.

The reason why an owner-user of commercial real estate is more interested in the price per square foot when purchasing a property is that they’re looking at the property from a different perspective. They’re not as concerned with the property’s investment potential, but rather more interested in how much space they’ll have to work with and what their monthly expenses will be.

In general, an owner-user is going to be more interested in the price per square foot because it’s a better indicator of what their monthly expenses will be. The reason why the cap rate isn’t as important to them is that they’re not as worried about making a profit on the sale of the property; they’re more concerned with having low monthly expenses.

When a property manager sells a single-tenant building they manage for their client, the two likely buyers are real estate investors and an owner-user. It is more likely the property manager may keep managing the property sold when an investor buys the building, because investors are typically more interested in maintaining the property’s value and generating income from it, rather than occupying it themselves. On the other hand, if an owner-user buys the building, they are less likely to want to continue paying for professional management services, since they will now be responsible for taking care of the property themselves.

Multi-tenant property

Multi-tenant properties are commercial or large residential properties that are leased or rented out to more than one tenant. Multi-tenant properties can be managed by a property manager for their client. The most common type of multi-tenant property is a shopping center, with multiple retail shops under one roof. Other examples of commercial multi-tenant properties include office buildings and warehouses. Large residential multi-tenant properties include apartments and condo developments.

Overall, multi-tenant properties can be a good investment for investors. They are stable and can generate income from multiple tenants. However, there are some challenges that come with managing a multi-tenant property. The property manager has to make sure that all of the leases are up-to-date and that each tenant is following the terms of their lease. In addition, the property manager has to deal with common areas and ensure they are well-maintained.

Financial metrics used when selling a multi-tenant property

The most common financial metric investors use to value a multi-tenant commercial property is the cap rate. The cap rate is calculated by dividing the net operating income (NOI) by the current market value of the property. For example, if a property has an NOI of $100,000 and a market value of $1,000,000, then the cap rate would be 10%.

The cap rate is a helpful metric for real estate investors because it provides a quick way to compare properties. For example, if two properties have the same NOI but different market values, the property with the higher market value will have a lower cap rate. By looking at the cap rate, an investor can quickly see which property is a better deal.

Investors also use the cap rate to determine how much they are willing to pay for a property. If an investor has a target return of 12%, they will only be willing to pay $833,333 for the property in our example above (NOI of $100,000 divided by 12%). However, if another similar property is available for $750,000, the investor might be willing to pay more for that property because it has a higher potential return.

Another financial metric investors may use to value a multi-tenant commercial property is the gross rent multiplier (GRM). The GRM is calculated by dividing the current market value of the property by the gross rental income (GRI). For example, if a property has a GRI of $200,000 and a market value of $1,000,000, then the GRM would be 5.

Generally speaking, the higher the GRM, the better the deal on the property. That’s because a higher GRM means you’re paying less for the property relative to its rental income potential. Of course, there are other factors to consider as well when evaluating a commercial property, but the GRM is a good starting point for your analysis.

Yet another financial metric that investors may use to value a multi-tenant commercial property is the price per square foot (PPSF). The PPSF is calculated by dividing the current market value of the property by the total square footage of the property. For example, if a property has a market value of $1,000,000 and is 2,000 square feet, then the PPSF would be $500.

When an investor is trying to determine how much to pay for a commercial property, the price per square foot can be a helpful metric. By dividing the current market value of the property by the total square footage of the property, the investor can get an idea of how much they would be paying for each square foot of the property. This can then be compared to other properties in the same area to see if the asking price is in line with similar properties or if it is too high.

One thing to keep in mind when using the price per square foot metric is that it does not take into account the specific features of the property. For example, a property that is 1,000 square feet may have more amenities and be in a better location than a property that is 2,000 square feet. As such, the price per square foot should only be used as one factor in determining how much to pay for a commercial property.

Finally, some investors may also use the debt service coverage ratio (DSCR) to value a multi-tenant commercial property. The DSCR is calculated by dividing the net operating income (NOI) by the total debt service (principal + interest). For example, if a property has an NOI of $100,000 and a debt service of $50,000, then the DSCR would be 2.0.

A real estate investor would use the debt service coverage ratio calculation to determine how much to pay for a commercial property compared to other similar properties for sale in the same area by looking at the net operating income of the property and the total debt service of the property. If the property has a higher net operating income and a lower total debt service, then the investor would be willing to pay more for the property than if the numbers were reversed.

The debt service coverage ratio is a helpful tool for investors to use when considering different properties, but it is not the only factor that should be considered. Other factors such as location, property condition, and potential rental income should also be considered.

These are just some of the financial metrics that investors may use to value a multi-tenant commercial property. It is important to remember that there is no one “right” way to value a property and that different investors may use different metrics depending on their individual objectives and investment strategies.

The odds are good you’ll continue to manage the property post-sale

When you’re selling a commercial property that you manage on your client’s behalf, the new owner will likely want you to keep managing the property. There are several advantages to having the same property manager continue working for the new owner.

1. The property manager is already familiar with the property and its tenants. This can save a lot of time and hassle for the new owner, who would otherwise have to learn about the property and get to know the tenants themselves.

2. The property manager already has established relationships with the tenants. This can help maintain good tenant relations and avoid potential problems down the road.

3. The property manager knows the local market and can help ensure that asking rents in the property are priced correctly. This is especially important in markets that are changing or fluctuating rapidly.

4. The property manager can help the new owner transition smoothly into their ownership role. This includes providing advice and guidance on issues such as budgeting, repairs and maintenance, and dealing with tenant concerns.

5. The property manager can provide continuity for the tenants. This is particularly important for tenants who have been in the property for a long time and who may be hesitant to deal with a new owner.

Overall, having the same property manager continue working for the new owner can be a big advantage. It can save time and hassle, help maintain good tenant relations, and provide continuity for the tenants. If you’re selling a commercial property that you manage, the new owner will likely want you to keep managing the property.

Why it’s important to plan ahead

Selling a commercial property with multiple tenants can be more difficult than selling a rental home or a single-tenant property for a few reasons.

First, the rental income from each tenant may be different. This means that it can be difficult to predict the overall cash flow from the property. Second, each tenant’s lease has a different expiration date. This could create vacancies at different times, affecting the property’s cash flow stream. Third, multiple tenants usually mean more paperwork and more coordination. This can make the selling process more complicated and time-consuming.

The buyer will calculate the value of each tenant and then add them all together. This number will be less the cost of any deferred maintenance or capital improvements that are needed on the property.

A property manager can help overcome these obstacles for their client-seller by:

  • Determining the rental income for each tenant and creating a cash flow forecast for the property.

  • Developing a marketing plan to fill any anticipated vacancies.

  • Handling the paperwork and coordination associated with multiple tenants.

Do you find this confusing? It’s not really that complicated. Let’s use our multi-tenant retail center from the previous chapter as an example. We will use the same analysis to figure out what is going on with our tenants, including new leases, renewals, and expansions.

  • Suite 100-103: Sit down restaurant, 3000 SF/280 SM, at market rent, lease expires in 5 years, seasoned tenant

  • Suite 104-105: Expansion of restaurant, 1500 SF/140 SM, refer to data for suites 100-103

  • Suite 106: Insurance office, 1000 SF/93 SM, at market rent, lease expires in 1 year

  • Suite 201-202: Mobile phone store, 2000 SF/186 SM, below market rent, lease expires in 2 years, seasoned tenant

  • Suite 203-206: Tattoo parlor, 3000 SF/280 SM, at market rent, lease expires in 5 years, seasoned tenant

  • Suite 207: Pet groomer, 1000 SF/93 SM, above market, lease expires in 1 year

  • Suite 301-302: Beauty parlor, 2000 SF/186 SM, below market rent, lease expires in 60 days

  • Suite: 303: Nail salon, 1500 SF/140 SM, lease expires in 3 years, new tenant

  • Suite 304: Employment staffing agency, 1000 SF/93 SM. below market rent, lease expires in 2 years, seasoned tenant

  • Suite 305: Vacant, 1000 SF/93 SM

  • Suite 306-308: Coin-operated laundry, 3000 SF/280 SM, above market rent, lease expires in 5 years, seasoned tenant

We have added a column to our tenant mix chart that shows how long into their lease the tenant has been and if they have been paying their rent on time. In real estate, these factors determine whether or not a tenant is “seasoned.”

Different markets, buyers, and lenders all have their own opinion on what makes someone a seasoned tenant. However, as a general rule of thumb, if someone has been leasing for less than a year they are considered unseasoned, and if they have been leasing for one year or more they are considered seasoned.

Potential buyers look at a property’s overall tenant seasoning to see how likely it is that the cash flow from the tenants will continue after the property changes hands. Generally, the more seasoned tenants a multi-tenant property has, the more certainty there is that the existing cash flow will continue. This allows the property to attract a higher purchase price from qualified buyers.

We have a multi-tenant retail center with nine tenants. Five of the tenants have been here for a long time, one is new, and three have leases that expire in one year or less. This makes it uncertain if they will continue to bring in money.

There are five tenants, or 50% of the property occupancy, have leases that are expiring soon. This represents a high potential risk to a buyer of this retail center. We need to work on renewing the existing leases so the property can be sold at the highest possible price.

A smart buyer will look at other things in the lease to figure out if the cash flow is likely to continue. They will look at the type of business, how it compares to similar businesses, and how much demand there is for its product or service. If the tenant is a regional or national chain, or has multiple stores in different areas, that is a good sign. For example, if the cellular phone carrier itself ran the mobile phone store, it would be less of a risk. If the beauty parlor was a location for a nationwide franchise, it would be less of a risk.

Although we used our multi-tenant retail center as an example, a similar lease analysis process would be used if the property was a multi-tenant office center. But what if the property was a multi-tenant residential building, like an apartment complex with 100 apartments for rent?

Usually, apartments are rented for one or two years at a time. So, if someone wants to buy an apartment building, they would look at how long it usually takes to rent out the apartment again, what kind of information they can get about potential tenants from their credit reports or applications, and whether the renter has paid a security deposit.

Closing thoughts

When a property you manage is sold, the odds of retaining the property management business with the new owner depend on whether an owner-occupant buys the property or a real estate investor. The odds that you’ll continue to manage the property once it is sold are greater with a single-tenant and multi-tenant property.

If you want to sell a property, it’s important to have a good relationship with the property owner. You should also plan carefully and communicate well with them so that you can broker the deal yourself and earn a commission:

  • First, understand who is likely to buy the property you are managing and what they will look for in order to justify paying the highest price possible.

  • Next, compare your property to others in the area. This will help you set a price for the property that you hope to sell. You should also talk to the owner of the property. Many owners say they do not want to sell, but they might change their mind when they see an offer that is too good to be true or when they are forced to sell because of a personal or financial situation.

  • Finally, to keep managing the property after it is sold, you establish good relationships with the tenants and vendors. This will make you look like a key part of the property’s success under new ownership.

If you are proactive, you will be able to avoid being one of those unlucky property managers who always seem to get caught off guard. This happens when a property is sold before they have a chance to act.

Part 5

Increase Your Bottom Line by Charging for Maintenance and Project Management

As a property manager, you’re always looking for ways to increase your income. One way to do this is to charge your clients for maintenance work, specialized services, and project management. Doing this can add hundreds or even thousands of dollars to your bottom line each year.

Maintenance work includes tasks like painting, repairing plumbing or electrical problems, and landscaping. Specialized services might include snow removal, security services, or housekeeping. And project management could involve overseeing a remodeling project or coordinating repairs after a major storm.

Now is the time to start if you’re not already charging for these services. Your clients will be happy to pay for the peace of mind that comes with knowing their property is being well-maintained and that they have someone to turn to when problems arise. So start adding these charges to your invoices today and watch your income grow.

What types of maintenance work can you charge for?

Property managers can charge their property owner-clients for two types of maintenance work: preventative and corrective.

Preventative maintenance

Preventative maintenance keeps your property in good condition and can be scheduled in advance. This type of maintenance includes tasks like changing the air filter in your HVAC system, checking the smoke detectors, and inspecting the roof.

Here’s a list of 30 types of preventative maintenance items in residential or commercial real estate that a property manager could charge a property owner for:

1. Replacing air filters in HVAC units

2. Cleaning gutters and downspouts

3. Landscaping and lawn care

4. Pest control

5. Pressure washing exteriors

6. Painting

7. Cleaning or replacing carpets

8. Flooring repairs or replacement

9. Window cleaning

10. Power-washing sidewalks and driveways

11. Snow removal

12. Gutter repair or replacement

13. Roof repairs or replacement

14. Chimney sweeping

15. Fascia and soffit repair or replacement

16. Foundation repairs

17. Caulking and weather-proofing

18. Replacing light bulbs

19. Smoke detector maintenance

20. Carbon monoxide detector maintenance

21. Fire extinguisher maintenance

22. Locksmith services

23. Garage door opener maintenance

24. Appliance repairs or replacement

25. Plumbing repairs or replacement

26. Electrical repairs or replacement

27. Heating and cooling system tune-ups

28. Water heater maintenance or replacement

29. Generator maintenance or replacement

30. Septic system pumping or maintenance

And this list is just for starters! You can probably think of more if you own a rental home or have worked in property management for a while.

Corrective maintenance

Corrective maintenance is repairs that need to be made after something has broken or stopped working properly. For example, if a pipe bursts in one of your rental units, you would need to hire a plumber to fix it.

Now let’s go through the same exercise again. Here are 30 potential corrective maintenance tasks in residential or commercial real estate that a property manager could charge a property owner for:

1. Fixing a broken window

2. Unclogging a sink or toilet

3. Repairing a hole in the wall

4. Replacing a light fixture

5. Fixing a dripping faucet

6. Tightening loose doorknobs or cabinet handles

7. Repairing a stuck door

8. Adjusting or repairing a door that doesn’t close properly

9. Repairing or replacing damaged flooring

10. Fixing a squeaky floorboard

11. Silencing a creaky staircase

12. Caulking cracks around windows or doors

13. Adding weather stripping around doors

14. Draft-proofing windows

15. Replacing burned-out light bulbs

16. Cleaning or replacing dirty air filters

17. Fixing a leaking roof

18. Repairing gutters or downspouts

19. Clearing clogged drains

20. Pressure washing the exterior of a building

21. Touching up chipped paint

22. Refinishing damaged woodwork

23. Mending a broken fence

24. Resurfacing a cracked driveway or sidewalk

25. Snow removal

26. Landscaping and lawn care

27. Pest control

28. Pool maintenance

29. Elevator repair

30. Garage door repair or replacement

How to charge for maintenance work

It’s important to understand that there is no one-size-fits-all answer to how a property manager should charge for maintenance work. The answer will vary based on several factors, including what is customary in the marketplace and the terms and conditions of the property management agreement between the property manager and the owner.

With that said, there are a few different ways a property manager could charge for maintenance work they do on a property. One option is to charge an hourly rate for all maintenance work performed. This could be a flat rate or it could be tiered, with different rates charged for different types of work (e.g., simple tasks like changing lightbulbs could be charged at a lower rate than more complex tasks like fixing a plumbing issue).

Another option is to charge a flat monthly fee for all maintenance work performed. This could be a set dollar amount or it could be a percentage of the total rent collected from tenants.

Finally, some property managers choose to include the cost of routine maintenance in the monthly management fee they charge to owners. This means that owners would not be charged separately for any routine maintenance work that needs to be done on their property.

The best way to determine how to charge for maintenance work is to talk to other property managers in your area and see what is standard in the marketplace. You should also review your property management agreement with the owner to see if there are any specific provisions related to charging for maintenance work.

With all of that said, here are a few general tips to keep in mind when charging for maintenance work:

  • Be upfront about your fees: Make sure you are clear about your fees before agreeing to do any work on a property. This way, there will be no surprises for the owner later on.

  • Keep good records: Be sure to keep detailed records of all the work you do on a property, including what was done, when it was done, and how much it cost. This will help you justify your charges if there is ever any question from the owner.

  • Get permission first: If the owner has not given you permission to do a particular job, do not do it! This could come back to bite you later on if the owner is not happy with the work or feels like you overcharged them.

By following these tips, you can ensure that you are charging property owners fairly for the maintenance work you do on their behalf.

Types of specialized services you can offer

A specialized service in property management is a service that is specifically designed to address the needs of a particular type of property. This could be a residential or commercial property, and the services provided would be tailored to meet the specific needs of that type of property.

Specialized services are different from preventative and corrective maintenance in that they focus on addressing specific issues that may arise in the management of a property, rather than simply maintaining the property or repairing any damage that has already been done.

Some examples of specialized services a property manager could provide include:

1. Rent collection services – A property manager can help to collect rent from tenants on behalf of the owner and deposit it into their account. They can also handle any late payments or other issues that may come up.

2. Tenant screening and selection services – A property manager can help to screen potential tenants and choose the best ones for the property, based on criteria set by the owner.

3. Lease agreement services – A property manager can help to create and manage lease agreements between the owner and tenants. This includes tasks such as drafting the agreement, collecting signatures, and keeping track of renewals or changes.

4. Move-in/move-out services – A property manager can coordinate with tenants when moving in or out of the property, including scheduling inspections, handling keys, and more.

5. Utility management services – A property manager can help to set up and manage utilities for the property, such as electricity, water, trash, and more. This can involve tasks such as setting up accounts, paying bills, and dealing with any issues that may come up.

6. Financial reporting services – A property manager can provide regular financial reports to the owner, detailing income and expenses for the property. This can help the owner to stay on top of their finances and make informed decisions about the property.

7. Insurance management services – A property manager can help set up and manage property insurance, including required policies and any additional coverage that the owner may want.

8. Tax management services – A property manager can help to file taxes for the property on behalf of the owner, including local, state, and federal taxes. They can also help to manage any tax-related issues that may come up.

9. Marketing and advertising services – A property manager can help market and advertise the property online and offline to potential tenants. This can involve tasks such as creating listings, placing ads, and more.

10. Customer service – A property manager can provide customer service to tenants, handling any questions or concerns they may have about the property.

11. Emergency services – A property manager can coordinate with emergency services if there is ever an issue at the property, such as a fire, flood, or break-in.

12. Security services – A property manager can help to set up and manage security for the property, including alarms, cameras, and more.

13. Landscaping services – A property manager can help to maintain the landscaping at the property, including tasks such as mowing the lawn, trimming bushes, and more.

14. Pool and spa services – If the property has a pool or spa, a property manager can help maintain it, including cleaning, making repairs, and more.

15. Storage services – A property manager can help to manage storage for the property, both on-site and off-site. This can involve renting storage units, coordinating with movers, and more.

16. Event planning services – A property manager can help plan and coordinate property events, such as parties, meetings, and more.

17. Janitorial services – A property manager can help coordinate janitorial services for the property, including hiring cleaners, scheduling cleanings, and more.

18. Commercial cleaning services – A property manager can help to coordinate commercial cleaning services for the property, including tasks such as hiring cleaners, scheduling cleanings, and more.

19. Carpet cleaning services – A property manager can help to coordinate carpet cleaning services for the property, including tasks such as hiring cleaners, scheduling cleanings, and more.

20. Window cleaning services – A property manager can help coordinate the property’s window cleaning services, including hiring cleaners, scheduling cleanings, and more.

21. Painting services – A property manager can help to coordinate painting services for the property, including tasks such as hiring painters, scheduling work, and more.

22. Snow removal services – A property manager can help coordinate the property’s snow removal services, including hiring workers, scheduling work, and more.

23. Eviction services – In the event that a tenant needs to be evicted from the property, a property manager can help to coordinate the process, including tasks such as filing paperwork, serving notices, and more.

These are just some specialized services a property manager can provide. In most cases, the property manager will work with the owner or Board of Directors of a property to tailor their services to meet the specific needs of that particular property.

How to charge for specialized services

One important factor to consider when determining how to charge a property owner for specialized services is what is customary in the marketplace. This can vary depending on the property’s location and the type of services being provided. For example, suppose you are providing concierge services at a luxury condominium complex in New York City. In that case, the going rate for this type of service is likely higher than it would be in other parts of the country.

Another factor to consider is the terms and conditions of the property management agreement between the property manager and the owner. This agreement should outline any fees that will be charged for specialized services. If there are no specific provisions regarding fees for specialized services, then the property manager may have some flexibility in how they charge for these services.

There are several different ways a property manager could charge a property owner for specialized services. One option is to bill the owner every month for the services provided. This could be done by itemizing the services rendered and charging a set fee for each service.

Another option is to charge the owner a percentage of the total cost of the services provided. For example, if the total cost of concierge services provided by the property manager was $1,000, the manager could charge an additional 10% of this amount, or $100, to the owner. The property manager could also charge an hourly rate for their time spent providing specialized services. This option would benefit owners who only require occasional assistance with specific tasks.

No matter how a property manager chooses to charge for specialized services, it is important to be clear about the fees being charged and to get the owner’s approval before providing any services. This will help ensure that there are no surprises and that the property owner is happy with the final bill.

How to project manage and what that entails

Project management is the process of organizing, monitoring, and controlling a project from start to finish. A property manager’s project management services differ from preventative maintenance, corrective maintenance, and specialized services in several ways.

Preventative maintenance is planned and scheduled upkeep that is designed to prevent problems before they occur. Corrective maintenance is unplanned repair work that is carried out after something has gone wrong. Specialized services are one-time tasks or jobs that are outside the scope of normal operations.

A property manager’s project management services can include all of these things, but their focus is on coordinating and overseeing the entire project from start to finish. This includes developing a plan, setting timelines, assigning tasks, tracking progress, and ensuring that the project is completed on time and within budget.

Project management services offered by a property manager are an important part of keeping any property running smoothly. By coordinating all of the different aspects of a project, a property manager can save time and money, and avoid potential problems down the road.

Some project management services a property manager could provide to an owner of a residential or commercial property include:

1. Developing a project plan

2. Setting timelines

3. Assigning tasks

4. Tracking progress

5. Completing the project on time and within budget

6. Reviewing the scope of work

7. Inspecting the work site

8. Ordering materials

9. Hiring and coordinating subcontractors

10. Resolving issues that arise during the project

11. Ensuring health and safety standards are met

12. Keeping the property owner updated on progress

13. Ensuring that the project meets the property owner’s expectations

14. Getting necessary permits and approvals

15. Coordinating move-in or occupancy dates

16. Punch list management

17. Warranty follow-up

18. Post-project evaluation

19. Project closeout documentation

20. Archiving project files

How much should you charge for project management?

When it comes to project management services, you’re generally going to be looking at a higher fee than other types of services. This is because project management requires more knowledge and skill to be successful. As a rule of thumb, project management services typically require a higher fee because they are more complex and require more knowledge and skill to successfully complete.

Charging a property owner for project management services can vary based on a number of factors, including what is customary in the marketplace and the terms and conditions of the property management agreement between the property manager and the owner.

A property manager could charge a property owner for project management services in a few different ways. One way is to charge a flat fee for the entire project. Another way is to charge an hourly rate for the time spent working on the project. And yet another way is to charge a percentage of the total project cost.

The method used will often depend on the project being managed and the property manager’s agreement with the property owner.

Other ways property managers can increase their income

Charging a property management fee, charging an owner for maintenance and repair work, and specialized services and project management are four ways a property manager can increase their income. However, there are other ways a property manager could also increase their income.

Here are 20 creative ways that property managers of residential or commercial real estate can increase their income (or reduce their expenses) with current clients and tenants, or to attract new clients to a property management business:

1. Offer payment plan options to owners for their monthly management fees.

2. Provide value-added services such as a quarterly e-newsletter or blog post highlighting recent market trends affecting the property’s value.

3. Develop a referral program for owners who refer new clients and offer a discount on the management fee for each new client referred.

4. Leverage technology to provide owners with real-time updates on the status of their property via a mobile app or online portal.

5. Implement a self-service option for owners who wish to perform some of the tasks typically handled by the property manager, such as scheduling showings or handling minor repairs and maintenance.

6. Offer discounts on the management fee for owners who sign a longer-term contract.

7. Add additional services that can be provided to owners for an additional fee, such as preparing and filing insurance claims or arranging for special assessments.

8. Develop a loyalty program for owners who continue to use the property management services over time, offering rewards such as a free month of management services for every year of service.

9. Expand the services offered to include property development and construction management, allowing for a percentage of the overall project cost to be charged as a management fee.

10. Create a menu of à la carte services that owners can choose from, with pricing based on the complexity and frequency of the requested service.

11. Offer discounts on the management fee for owner-occupied properties.

12. Bundle the management fee with other services such as accounting, legal, or marketing services.

13. Offer a lower management fee for properties that are leased out to tenants on a month-to-month basis.

14. Negotiate a higher management fee for properties that are sold within a certain time frame after the property manager is retained.

15. Participate in industry-sponsored research studies or customer satisfaction surveys on behalf of the property owner and receive a commission for each completed survey.

16. Provide concierge services to owners and their guests, including making restaurant reservations, arranging transportation, and planning event itineraries.

17. Arrange for bulk discounts on services such as landscaping, janitorial, or security services and pass the savings on to the property owner.

18. Offer a loyalty program for tenants who renew their lease or refer new tenants, such as a rent discount or a free month of rent.

19. Implement a green initiatives program and offer discounts on the management fee for owners who participate in energy-saving or water-conservation measures.

20. Manage multiple properties for an owner and offer a discounted rate for each additional property under management.

When it makes sense to outsource certain tasks

Outsourcing is often the best option for property managers when it comes to tasks that are either time-consuming, require specialized knowledge or skills, or are outside the scope of what a property manager can do. Here are 20 tasks that property managers could consider outsourcing:

1. Lawn care and landscaping

2. Pest control

3. Cleaning and janitorial services

4. HVAC maintenance and repairs

5. Plumbing repairs

6. Electrical repairs

7. Appliance repairs

8. Window cleaning and pressure washing

9. Roofing repairs and maintenance

10. Snow removal and ice control

11. Security services

12. Event planning and coordination

13. Accounting and bookkeeping

14. Payroll processing

15. Insurance billing and claims processing

16. Legal services

17. Marketing and advertising

18. Website design and maintenance

19. Tenant screening and background checks

20. Property inspections

Even if you outsource a task, you may still be able to charge your client an additional fee for the service. There are a few justifications for this:

  • You may need to hire someone specifically to do the job, which costs money.

  • Spend extra time managing the person they’ve outsourced to, which takes time away from other tasks they could be doing.

  • Provide materials or supplies needed to complete the task.

Overall, it’s important to remember that you are still responsible for your client’s property, even if you outsource tasks. You need to ensure the job gets done correctly and in a timely manner, which often comes at an additional cost.

The pros and cons of increasing your rates

A property management company that charges for extra services must be careful that their rates are not competitive compared to other management companies. Here are five pros and five cons for a property manager to consider before increasing their rates:

1. Pro: A property management company that charges for extra services can increase its revenues.

2. Con: A property management company that charges for extra services may lose clients to competitors who don’t charge for similar services.

3. Pro: A property management company that charges for extra services can use the additional revenue to improve its services.

4. Con: A property management company that charges for extra services may find it difficult to justify the charges to its clients.

5. Pro: A property management company that charges for extra services can use the additional revenue to invest in new technology or hire additional staff.

6. Con: A property management company that charges for extra services may price itself out of the market.

7. Pro: A property management company that charges for extra services can use the additional revenue to improve its marketing efforts.

8. Con: A property management company that charges for extra services may find it difficult to compete with companies that don’t charge for similar services.

9. Pro: A property management company that charges for extra services can use the additional revenue to improve its customer service.

10. Con: A property management company that charges for extra services may find it difficult to retain customers who are unhappy with the charges.

Tips for making sure your rates and fees are competitive

It’s important for a property management company to have competitive rates and fees in the local market because it helps them attract and retain customers. By having competitive rates, property management companies can offer their services at a lower cost, which makes them more attractive to potential customers.

Additionally, by having competitive rates, property management companies can stay afloat in the event of a rate increase from their competitors. Finally, remaining competitive keeps pressure on other property management companies to keep their own rates in check, ensuring that the industry as a whole remains affordable for everyone involved.

There are a few best practices you can follow to ensure your rates remain competitive:

1. Research the competition. Know what other property managers in your area are charging for their services. This will help you determine if your rates are in line with the market or if you need to adjust them.

2. Offer discounts. Many property owners are looking for ways to save money, so offer them discounts for signing a long-term contract or paying upfront.

3. Be flexible with your payment options. Some property owners may not have the budget for weekly or monthly payments, so offer alternatives like bi-weekly or quarterly payments.

4. Offer value-added services. In addition to traditional property management services, offer additional services that will add value for your clients. This could include things like marketing and leasing assistance, rent collection, or maintenance and repair coordination.

Following these best practices ensures your rates remain competitive and attract new property owners to your business.

How to communicate rate increases to your clients

The best way to communicate a rate increase to your client is to be upfront and honest about why the rates are increasing. It is also important to be clear about what the new rates will be and how they compare to the old rates. Finally, explaining how the new rates will benefit the property owner is important.

Here are some negotiating tactics you can use to persuade your property owner that your rates and fees are fair and reasonable:

1. Show them how your fees compare to other property management companies.

One way to demonstrate the fairness of your fees is to show your property owner how they compare to other companies in the industry. Pull together some data on the average rates charged by other property management companies in your area. This will help your property owner see that your rates are in line with (or even below) the industry average.

2. Explain the value you provide for your fees.

Another way to demonstrate the fairness of your fees is to simply explain the value you provide for them. Remind your property owner of all the services you provide, and how those services help keep their property well-maintained and rented out. When they see all the work you do on their behalf, they’ll be more likely to see the value in your fees.

3. Offer a discount for signing a long-term contract.

If your property owner is hesitant to commit to a long-term contract, offer them a discount on your fees. This will show them that you’re confident in the value you provide, and that you’re willing to make a commitment to them in return.

4. Offer a trial period.

If your property owner is really unsure about whether they want to use your services, offer them a trial period. This will give them a chance to experience the value you provide firsthand without committing to a long-term contract. After the trial period is up, they can decide if they want to continue working with you – and if they do, they’ll be more likely to see the fairness of your fees.

5. Be open to negotiation.

Of course, sometimes the best way to demonstrate the fairness of your fees is simply to be open to negotiation. If your property owner wants to negotiate your fees, be willing to sit down and talk about it. You may be able to come to an agreement that works for both of you.

By using these negotiating tactics, you can persuade your property owner that your rates and fees are fair and reasonable. This will help you keep them as a client, and keep your property management business thriving.

Closing thoughts

As a property manager, you’re always looking for ways to increase your bottom line. One way to do this is by charging for preventative maintenance, corrective maintenance, specialized services, and project management:

  • Preventative maintenance is key to keeping your properties in top shape and avoiding costly repairs down the road. By performing regular inspections and preventive upkeep, you can identify potential problems early and take steps to fix them before they become major issues.

  • Corrective maintenance is necessary when problems do arise. By responding quickly and efficiently to repair needs, you can minimize the damage and keep your tenants happy.

  • Specialized services such as painting or carpet cleaning can also be performed on a fee-for-service basis. These services add value to your property and can be a great revenue stream.

  • Finally, project management services can save you time and money by handling all aspects of larger repairs or renovations. By working with a professional team, you can be sure that the job is done right and on schedule.

By offering these services, you can increase your bottom line while providing valuable benefits to your tenants. Keep these things in mind when considering how to best serve your tenants and maximize your profits.

You’ve done your research and you know that offering preventative maintenance, corrective maintenance, specialized services, and project management is a great way to increase your bottom line. But how can you tell if a prospective client is worth your time?

In the next part of this book, we’ll take an in-depth look at factors to help you determine whether or not a prospective client is worth your time. By keeping these things in mind when evaluating potential clients, you’ll be sure to find the ones that are most profitable for you and your property management business.

Part 6

How to Know if a Prospective Client is Worth Your Time

At some point in your career as a property manager, you’re going to face the decision of whether or not to work with a particular client. This can be a difficult choice, especially if you’re new to property management and are still trying to build your client base. So, how do you know if a prospective client is worth your time?

Here are a few things to keep in mind when deciding whether or not to work with someone:

  1. What is their budget?

  2. What are their priorities?

  3. How much time and energy can you spare?

  4. What is your availability?

  5. Are they reputable and do they have good references?

  6. How does this project fit into your long-term goals?

By asking yourself these questions, you’ll be able to make an informed decision about whether or not a particular prospect is worth your effort. In this section, we will discuss how to know if a prospective client is worth your time. We will also provide tips on how to decline potential clients who may not be a good fit for you and your business.

What to look for when choosing a property management client

As a property manager, you are likely to receive requests from all types of people looking for assistance managing their properties. It is important to be selective when choosing which clients to work with, as not every client is the right fit for your business. Here are a few things you should look for when considering a new client.

1. Look for a property management client who is organized and has a clear understanding of what they want from a property manager. Communication is key in any relationship, but especially when it comes to business dealings. Make sure that you and your potential client are on the same page from the beginning to avoid any misunderstandings down the road.

2. Consider the size of the property and the number of units involved. A smaller property with fewer units will obviously require less work than a large complex with many units. However, keep in mind that larger properties often come with larger budgets, which can be beneficial for your bottom line.

3. Take into account the location of the property. Properties located in high-crime areas or areas prone to natural disasters may require more work and attention than those in more stable neighborhoods.

4. Review the property’s condition. Is the property well-maintained or in need of significant repairs? Obviously, a property that needs a lot of work will take more time and money to bring up to par, but it can be a worthwhile investment if done right.

5. Examine the financial stability of the potential client. Can they afford to pay you what you’re worth? Are they likely to default on payments? It’s important to know whether or not a prospective client is financially stable before entering into any agreements.

6. Determine the expectations of the client. What level of service are they expecting? Are they looking for someone to simply handle the day-to-day tasks or do they want someone who will be more involved in the property’s operations? It’s important to know what your potential client is looking for so you can decide if it’s a good fit.

7. Consider the length of the contract. Are you looking for a long-term relationship or a short-term gig? This is an important factor to consider, as it will likely dictate how much time and effort you need to put into the property.

8. Review the terms of the contract. What are the cancellation policies? Are there any clauses that you’re not comfortable with? It’s important to understand all of the terms of the contract before signing on the dotted line.

9. Meet with the potential client in person. This is an important step in getting to know them and understanding their needs. It also allows you to get a feel for their personality and see if you’ll be compatible working together.

10. Trust your gut. After considering all of the factors above, it’s important to go with your gut feeling. If something doesn’t feel right, it probably isn’t. Trusting your instincts can help you avoid any potential problems down the road.

How to find the best clients for your property management business

When it comes to property management, one of the most important things you can do is find the best clients for your business. But what exactly makes a client “best”? And how can you go about finding them?

Here are 8 ways to find the best clients for your property management business:

1. Referrals

Referrals are always a great way to find new clients. Ask your current clients if they know anyone who is looking for a property manager. You can also ask other businesses in the real estate industry if they have any referrals for you.

2. Online directories

There are many online directories that list property managers, such as Zillow, Trulia, and Realtor.com. These are great places to start when you’re looking for new clients.

3. Social media

Social media is another great way to find new clients. Use platforms like Twitter, LinkedIn, and Facebook to connect with potential clients. You can also use social media to promote your business and build your brand.

4. Networking events

There are many networking events specifically for property managers and real estate professionals. Attend these events and get to know other people in the industry. You never know who you might meet!

5. Online advertising

Online advertising is a great way to reach a large number of people quickly and easily. You can use platforms like Google AdWords or Facebook Ads to create targeted ad campaigns.

6. Offline advertising

Don’t forget about offline advertising! You can promote your property management business in local newspapers, magazines, or even on billboards.

7. Cold calling

Cold calling can be a great way to find new clients, but it’s not for everyone. If you’re comfortable making phone calls, give it a try! You may be surprised at how many people are interested in your services.

8. Personal contact

Last but not least, don’t forget about the power of personal contact. Get out there and meet people! Attend local events, introduce yourself to your neighbors, and get involved in your community. You never know who you might meet and how they could help you grow your business.

These are just a few of the many ways you can find the best clients for your property management business. By using a combination of these strategies, you’re sure to find success.

4 steps to take when you first start working with a new client

As a property manager, you’re always looking for new business opportunities. When you find a potential owner who is interested in having their property managed, it’s important to follow some best practices in order to ensure a smooth transition and a successful relationship.

1. Get organized. Before you even start the sign-up process, make sure you have all of your ducks in a row. This means having all of the necessary paperwork organized and easily accessible. You should also have a good understanding of your state’s laws regarding property management so that you can answer any questions the owner may have.

2. Be prepared to explain your services. Once you’ve gathered all of the necessary paperwork, take some time to sit down with the potential owner and explain exactly what your services entail. This is your chance to sell them on the idea of having their property managed, so be sure to emphasize all of the positive aspects of working with you.

3. Draft a contract. Once the owner has decided that they would like to use your services, it’s time to draft a contract. This document should outline all of the terms of your agreement, including your fees and any other important details. Be sure to have the owner read and sign the contract before proceeding.

4. Get started. Once you’ve completed all of the necessary steps, it’s time to get started managing the property. Be sure to keep open communication with the owner so that they are always aware of what is going on with their property.

Last but definitely not least, deliver results! Ultimately, your goal is to help your client achieve their objectives for their property. By meeting or exceeding their expectations, you will ensure a long-term relationship built on mutual success.

Tips for spotting a bad client: 10 warning signs

Property managers are responsible for the upkeep and management of a property owner’s investment. This includes everything from finding and screening tenants to maintaining the property and handling repairs. While most property owners are easy to work with and have realistic expectations, there are some who can be difficult to please and may end up being bad clients.

There are a few potential problems a property manager could face when working with a bad property investor client. The first is that the investor may be unrealistic in their expectations of rental income and occupancy rates. They may also be uncooperative when it comes to repairs or improvements that need to be made on the property. Additionally, they may constantly be changing their mind about what they want done with the property, which can make it difficult to manage.

There are a few warning signs a property manager should look for with a prospective property owner whose property the manager is considering managing. One red flag is if the investor seems to be in a hurry to rent out the property and is not willing to wait for quality tenants. Another is if the investor is constantly changing their mind about what they want done with the property or making last-minute requests. Additionally, if the investor is not cooperative when it comes to repairs or improvements that need to be made, this could be a sign that they will be difficult to work with in the future.

Here are 10 warning signs that a property management client may be more trouble than they are worth:

1. They’re always late on account funding: This is a big red flag. If they’re constantly behind on funding their account, it’s likely that they’ll have difficulty keeping up with other financial obligations related to their property, such as repairs and maintenance.

2. They don’t keep up with repairs and maintenance: Another warning sign is if the property owner doesn’t keep up with necessary repairs and maintenance. This can end up costing the property manager more in the long run, as they’ll likely have to deal with bigger issues down the road.

3. They’re constantly changing rental prices: If the property owner is constantly changing the rental price, it’s an indication that they’re not really sure what they want or need from a tenant. This can lead to a lot of back-and-forth and frustration for both the property manager and the tenant.

4. They’re constantly complaining: If the property owner is always complaining about something, it’s likely that they’re not going to be happy no matter what you do. It’s important to try and avoid problem tenants from the get-go.

5. They have a history of changing management companies: This is a major warning sign. If the property owner has a history of hiring a new property manager every year, it’s likely that they’re not going to be good at working with you, no matter how good you are. This can cause a lot of headaches for the property manager down the road.

6. They don’t follow through on their promises: Another warning sign is if the property owner doesn’t follow through on their promises. This can be anything from not making repairs that they said they would to not funding an account on time. Either way, it’s not a good sign.

7. They’re constantly asking for favors: If the property owner is always asking for favors, it’s likely that they’re not going to be easy to work with. It’s important to try and avoid these types of property owners.

8. They’re not respectful of your time: Yet another warning sign is if the property owner isn’t respectful of your time. This can manifest itself in many different ways, such as showing up late for appointments or not returning phone calls in a timely manner.

9. They’re difficult to communicate with: This is a big one. If the property owner is difficult to communicate with, it’s likely that there will be a lot of miscommunication down the road. This can lead to misunderstandings and frustration on both sides.

10. They have unrealistic expectations: The final warning sign is if the property owner has unrealistic expectations. This can be anything from expecting the property to be in perfect condition at all times to wanting you to do things that are outside of your scope of work. Either way, it’s important to try and avoid these types of tenants.

It’s important for property managers to be aware of these potential problems and warning signs so they can make an informed decision about whether or not to take on a particular client. By doing so, they can avoid potential headaches and stressful situations down the road.

Weeding out bad clients before they become a problem

As a property manager, you likely have a good idea of what kind of owner-clients you want to work with. But sometimes, despite the best efforts, a bad owner-client can slip through the cracks. So, how can you weed out bad owner-clients before they become a major problem?

Here are some tips:

1. Get to know them: Take the time to get to know your potential clients before you sign a contract. This includes meeting them in person, if possible, and asking questions about their expectations and goals for the property.

2. Do your research: In addition to getting to know your potential clients, it’s also important to do your research on the property itself. This includes things like checking out the condition of the property and seeing if there are any outstanding liens or code violations.

3. Be clear about your expectations: Once you’ve done your research and you’re ready to sign a contract, be sure to be clear about your expectations. This includes outlining what services you will and will not provide, as well as setting clear boundaries.

4. Have a contract: Speaking of contracts, it’s important to have one in place before you begin working with an owner-client. This will help protect both parties involved and can provide a way to resolve disagreements down the line.

5. Communicate regularly: After you’ve signed a contract and begun working with an owner-client, it’s important to communicate regularly. This includes giving updates on the status of the property, as well as addressing any concerns or issues that may arise.

If, despite your best efforts, you find yourself working with a bad owner-client, there are some things you can do to make it easier to fire them:

  • Have a written contract: As we mentioned before, having a written contract in place is important. If you find yourself in a situation where you need to fire an owner-client, this contract can provide protection for both parties involved.

  • Give notice: Once you’ve decided to fire an owner-client, it’s important to give them notice in accordance with the terms of your contract. This notice should be in writing and should outline the reasons for the termination.

  • Return the keys: Once you’ve given notice, it’s important to return the keys to the property as soon as possible. This will help prevent any further damage to the property and will also give the new owner-client peace of mind.

  • Be professional: Even though you’re terminating the relationship, it’s important to remain professional throughout the process. This means avoiding any type of confrontation or argument, and instead focusing on being respectful and courteous.

  • Follow the contract: Finally, be sure to follow the terms of your contract to the letter. This includes things like returning any security deposits or prepaying any fees that may be due.

By following these tips, you can help weed out bad owner-clients before they become a major problem. And if you find yourself in a situation where you need to fire an owner-client, these tips can make the process go smoothly.

How to keep good clients happy and keep them coming back

It’s not enough to just acquire new clients – you also need to keep the ones you have happy. Here are a few ways to make sure your clients stay satisfied and keep coming back for more.

1. Property owners want to free up their time.

By hiring a property management company, property owners can delegate the day-to-day tasks of running a rental property. This includes tasks such as finding and screening tenants, collecting rent, handling maintenance and repair requests, and responding to tenant concerns. This way, property owners can focus on other priorities in their lives and leave the management of their rental property in the hands of professionals.

2. Property owners want peace of mind.

When property owners entrust their rental property to a management company, they can rest assured knowing that their investment is in good hands. They no longer have to worry about whether the rent is being collected on time or if the tenants are taking care of the property. Instead, they can relax and enjoy the passive income that their rental property generates.

3. Property owners want to maximize their profits.

A good property management company will work tirelessly to ensure that your rental property is running smoothly and generating as much income as possible. They will implement strategies to minimize vacancy rates, late payments, and damage to the property. In addition, they will keep a close eye on market trends so that you can adjust your rents accordingly and maintain a high occupancy rate.

4. Property owners want to minimize their expenses.

By hiring a property management company, property owners can save money in the long run. A good management company will have negotiating power with vendors and contractors, which can lead to lower prices on repairs and maintenance services. In addition, a management company will be able to take advantage of economies of scale by bundling multiple properties together for discounts on advertising and other services.

5. Property owners want to minimize their liability.

A property management company can help property owners minimize their liability by ensuring that the property is in compliance with all local, state, and federal laws. In addition, a management company will carry insurance that will protect the property owner in the event that something goes wrong on the property. By entrusting the management of your rental property to a professional company, you can rest assured knowing that you are protected against any potential legal issues.

Getting referrals from current clients: the best way to find new business

If you’re looking for ways to find new clients and grow your property management business, look no further than referrals from current clients. Here’s why:

1. Referrals are more likely to convert into paying customers.

People who are referred to your business by a current customer are more likely to become paying customers themselves. Why? Because they already have a positive impression of your business thanks to the referral. They’re also more likely to trust your products or services since they’ve been recommended by someone they know and trust.

2. Referrals can help you reach new markets.

When you get referrals from current clients, you’re not just reaching out to their personal networks. You’re also tapping into their professional networks, which can help you reach new markets and expand your business.

3. Referrals are a form of social proof.

People are more likely to do business with companies that have been recommended by their friends or colleagues. In other words, referrals act as social proof that your business is reputable and trustworthy. This can go a long way in winning over new customers.

4. Referrals can save you money on marketing and advertising.

If you’re able to get referrals from current clients, you’ll save money on marketing and advertising since you won’t have to invest as much in these areas. Instead, you can put that money towards other aspects of your business, such as product development or customer service.

5. Referrals can help you build long-term relationships.

When you get referrals from current clients, you’re not just acquiring new customers. You’re also building long-term relationships with them. These relationships can be beneficial in many ways, such as providing valuable feedback about your products or services and acting as a source of word-of-mouth marketing for your business.

Here are some specific things you can do to provide outstanding service to your current clients that could lead to more referrals than you can handle:

  • Be responsive to their needs. Return their calls promptly, answer their emails quickly, and resolve any issues they have promptly.

  • Keep them informed. Send them regular updates on what is happening with their property and their investment.

  • Be proactive. Don’t wait for them to ask you for help – offer it before they even know they need it.

  • Be honest. Tell them the truth, even if it isn’t what they want to hear. They will appreciate your honesty and respect your opinion.

  • Be professional. Always conduct yourself in a professional manner and dress appropriately when meeting with them or representing their property.

By following these best practices, you can be sure that you are providing outstanding service to your owner-clients. This will increase the likelihood that they will refer fellow investors to you, and help you grow your property management business.

Closing thoughts

As a property manager, it’s important to know if a prospective property owner is worth your time before taking them on as a client. There are a few key things to look for that can help you make this decision.

First, consider the owner’s financial situation. Do they have the ability to pay their mortgage and other associated costs? Are they current on their payments? You’ll may also want to look at their credit score to get an idea of their financial responsibility.

Second, take into account the condition of the property. Is it well-maintained? Are there any major repairs that need to be made? The condition of the property will give you an idea of how much work you’ll need to do as a property manager.

Finally, consider the owner’s rental history. Have they been a real estate investor for very long? Do they have a history of changing property management companies every year? This information will give you an idea of whether or not the owner is likely to be a good client.

If you’re considering taking on a new property owner as a client, keep these things in mind. By doing your due diligence, you can help ensure that you’re making a wise decision for your business.

Now that you understand a bit more about how to know if a prospective property owner is worth your time, let’s move on to discuss how property managers can stay on top of their accounting.

Part 7

How to Stay on Top of Your Property Management Accounting

So far in this book, we’ve discussed ways to increase your revenues to make more money managing real estate. However, you can also increase your profits by keeping track of every penny spent and taking every deduction you are legally entitled to when tax time rolls around.

When I started my property management business years ago, the best advice I received was to report my income and expenses as much as I legally could. This is important because it ensures that you are not under-reporting your income, which can lead to problems with the IRS. Additionally, it allows you to track your expenses so you can deduct them from your taxes.

As you read, note that the purpose of this section is not to give specific advice on financial accounting. There are many resources available that can help you with this. Instead, I want to emphasize the importance of being accurate and honest when reporting your income and expenses. This will help you avoid problems down the road and ensure that your business is running smoothly.

The different types of accounting methods used by property management companies

There are two types of accounting methods: accrual accounting and cash accounting.

Accrual accounting is when businesses record transactions as soon as they occur, regardless of when the money is actually exchanged. So, if you sell a product on credit, you would still record the sale on that day, even though you wouldn’t receive payment until later. This method provides a more accurate picture of a business’s financial position, since all revenue and expenses are recorded promptly. However, keeping track of all the different transactions can be more complicated.

For example, say a landlord charges a tenant first and last month’s rent upon move-in. In accrual accounting, the landlord would record this as income on the day the tenant moves in, even though they won’t receive the payment until later.

Cash accounting is simpler because businesses only record transactions when they involve an exchange of cash. So, if you sell a product on credit, you wouldn’t record the sale until you actually receive payment. This method doesn’t provide as accurate a picture of a business’s financial position, but it is easier to track.

For example, a landlord who uses cash accounting would only record rent payments as income when they are actually received. So, if a tenant pays rent on the 1st of the month, but the landlord doesn’t receive the payment until the 5th, they would only record it as income on the 5th.

There is no one-size-fits-all answer to this question, as the best accounting method for a business will depend on a number of factors. However, some general tips that property management businesses can follow include:

  • Consider your business type: If your business is relatively simple, with few transactions and a limited financial position, cash accounting may be sufficient. However, if your business is more complex, with a lot of different transactions and a more complicated financial position, accrual accounting may be necessary.

  • Think about your needs: What information do you need from your accounting records? Accrual accounting may be better if you need detailed and up-to-date information about your financial position. However, cash accounting may be sufficient if you just need a general overview of your finances.

  • Consider your resources: Do you have the time and resources to keep track of all the different transactions that occur in your business? If not, cash accounting may be a better option.

  • Talk to an accountant: Get professional advice from an accountant to see which accounting method would be best for your business.

Remember, there is no one “right” accounting method for all businesses. The best method for a particular business depends on its specific needs and circumstances. However, accrual accounting provides a more accurate picture of a business’s financial position, while cash accounting is simpler and easier to track. Whatever method you choose, be consistent in using it so that your financial statements are accurate and comparable over time.

Basics of double-entry bookkeeping for property management companies

Double-entry bookkeeping is a system of bookkeeping where every transaction is recorded in at least two accounts. The double entry has its origins in medieval Italy, and was first introduced in the accounting work of Luca Pacioli in 1494.

In double-entry bookkeeping, each transaction is recorded in at least two accounts. For example, if you buy a new roof for $20,000, you would record a debit to your “Asset” account for $20,000, and a credit to your “Cash” account for $20,000.

The total of all the debits must equal the total of all the credits in order for the books to balance. This ensures that every transaction is recorded, and that the books always balance.

Double-entry bookkeeping is used by businesses of all sizes, from sole proprietorships to large corporations. It is the most accurate and reliable method of bookkeeping, and is required for financial reporting in most jurisdictions.

Here are five examples of double-entry bookkeeping entries that a real estate investor or property management company would use:

1. When an investment property is purchased, the asset account for that property is debited and the cash or accounts receivable account is credited.

2. When repairs or improvements are made to an investment property, the asset account for that property is debited and the cash or accounts payable account is credited.

3. When rent is collected from tenants, the cash account is debited and the rental income account receivable is credited.

4. When expenses are paid for an investment property, the cash account is debited and the expense account is credited.

5. When a mortgage payment is made, the cash account is debited and the mortgage payable account is credited.

How to record income and expenses in your property management company’s books

A real estate chart of accounts is a list of all the financial transactions that take place in a real estate business. This includes income from rentals, expenses for repairs and maintenance, and any other income or expense items related to the business.

Some of the most common line items on a real estate chart of accounts include:

Income:

  • Rental Income

  • Management Fees

  • Other Income (interest, late fees, etc.)

Expenses:

  • Repairs and Maintenance

  • Utilities

  • Insurance

  • Property Taxes

  • Mortgage Interest Expense

  • Other Expenses (marketing, legal, accounting, etc.)

To record income and expenses from a rental property on the chart of accounts, you will need to create two separate accounts: one for income and one for expenses.

Income from rental properties is recorded in the “Rental Income” account. This account should be used to track all income received from tenants, including rent payments, non-refundable security deposits, and other fees.

Expenses for a rental property are recorded in the “Expenses” account. This account should be used to track all expenses related to the property, including repairs and maintenance, utilities, insurance, and property taxes.

When recording income and expenses in your books, it is important to be consistent in how you classify each transaction. For example, if you receive a rent payment from a tenant, this should always be classified as income. If you pay for a repair to the property, this should always be classified as an expense.

It is also important to keep detailed records of all income and expense transactions. This will make it easier to prepare financial statements and tax returns and help you track your properties’ performance over time.

Here is a list of income items and expense items for residential or commercial real estate:

Income items

1. Rental income from tenants

2. Service income from laundry, vending, or other on-site services

3. Parking fees

4. Late fees

5. Interest on security deposits

6. Application fees

7. Rental commissions

8. Sublease income

9. Sale of property

10. Donations received from tax-deductible organizations

Expense items

1. Advertising and marketing expenses to find new tenants

2. Credit checks and background checks on potential tenants

3. Maintenance and repair costs for the property itself or for common areas shared by multiple tenants

4. Landscaping and snow removal costs

5. Insurance premiums for the property

6. Property taxes

7. Accounting and legal fees associated with the property

8. Licensing fees, if required by the city or state

9. Permits and inspections required by the city or state

10. HOA dues, if applicable

11. Utility bills for water, trash, electricity, or gas

12. Internet and cable bills for common areas

13. Janitorial services for common areas

14. Pest control costs

15. Security costs, such as alarm systems or security guards

16. Taxes on rental income received from tenants

17. Depreciation of the value of the property itself

18. Interest on loans used to purchase or improve the property

19. Losses incurred if the property is sold for less than the amount owed on the mortgage

20. Fees paid to a property management company, if applicable

Financial statements you need to prepare for yourself and your property management clients

Financial statements are used to track the financial performance of a business. They can be used to track income, expenses, profitability, and cash flow. The information on financial statements can be used to improve a property management business or real estate investing business in several ways.

First, by monitoring income and expenses, businesses can ensure they are operating at a profit. If income is not keeping up with expenses, businesses can take steps to cut costs or increase revenue.

Second, by tracking cash flow, businesses can ensure they have the funds available to meet their obligations. This is especially important for businesses that have large amounts of debt. By monitoring cash flow, businesses can ensure they are not at risk of defaulting on their loans.

Third, by monitoring profitability, businesses can make sure that they are making the most efficient use of their resources. If a business is not profitable, it may need to reevaluate its operations in order to improve its bottom line.

Fourth, by regularly reviewing financial statements, businesses can identify trends and adjust accordingly. For example, if a business notices that it is spending more on advertising than it did in the past, it may decide to cut back on advertising expenditures. Or, if a business notices that its income has been declining for several months, it may take steps to boost sales.

Here are some common financial statements used in residential and commercial real estate property management:

Income Statement

Also known as a Profit and Loss (P&L) statement, this reports your rental property’s income and expenses over a given period, typically one year. This is a key financial statement for any rental property owner, as it can show you whether your property is profitable or not.

Balance Sheet

This report provides an overview of your rental property’s assets, liabilities, and equity at a specific point in time. It can help evaluate your property’s financial health and determine whether you have the necessary funds to make improvements or repairs.

Cash Flow Statement

This statement tracks the inflow and outflow of cash for your rental property over a given period of time. It is a key tool in managing your property’s finances, as it can help you identify and plan for any potential cash flow issues.

Operating Statement

This report provides detailed information on your rental property’s income and expenses, including a breakdown of each expense category. This can be helpful in evaluating your property’s overall operating efficiency and determining where improvements can be made.

Rent Roll

The rent roll is a list of all the tenants currently renting your property, along with their contact information and rental amount. This can be a useful tool in managing your property and keeping track of who owes what in rent.

Maintenance Log

The maintenance log is a record of all the repairs and maintenance tasks that have been performed on your rental property. This can be a useful tool in keeping track of your property’s condition and ensuring that all necessary repairs are made in a timely manner.

How to use accounting software to manage your property management company’s finances

Property management companies have a lot of financial responsibilities. They need to track rent payments, manage vendor contracts, pay employee salaries, and more. Accounting software can help property management companies keep track of their finances and make sure they are making sound financial decisions for themselves and their clients.

Accounting software can help property management companies manage their finances in a number of ways. It can help them keep track of income and expenses. This information can be used to create financial reports that show how the company is doing financially. Accounting software can help property management companies budget for future expenses to ensure the company has enough money to cover its expenses.

Property managers can use accounting software to track invoices and payments, and make sure both the company and vendors are paid on time. Accounting software can help property management companies manage their payroll. This information can be used to make sure employees are paid on time and that taxes are withheld correctly.

Tracking employee hours is another benefit of using accounting software. This information can ensure employees are working the number of hours they are supposed to work. Software can help property management companies track customer payments to help ensure tenants are paying their invoices on time.

Property management accounting software can help track project expenses, and to make sure the company is on budget and that projects are completed on time. Software can help property management companies track supplier invoices, make sure the company is paying its suppliers on time, and claim any discounts a vendor may provide.

Finally, accounting software can help property management companies create financial statements. Financial statements can be used to show the company’s financial health to potential investors or lenders.

Accounting software is a valuable tool for any property management company. It can help the company manage its finances, budget for future expenses, track invoices and payments, manage payroll, track employee hours, track customer payments, track inventory levels, track project expenses, track supplier invoices, and create financial statements. All of this information can be used to make sound financial decisions that will help the company succeed.

Here are 10 important features to look for in accounting software for a property management company:

1. Look for accounting software that can track and manage your properties, tenants, and finances all in one place. This will save you time and keep everything organized.

2. Make sure the software can handle multiple properties and units. This is essential for property management companies.

3. Find software that offers comprehensive reports. You should be able to generate reports on finances, properties, and tenants easily and quickly.

4. Choose software with a user-friendly interface. This will make it easy for you and your team to use the system and get the most out of it.

5. Consider software that includes a built-in CRM system. This can be helpful for managing tenant relationships and keeping track of communications.

6. Look for accounting software that integrates with other systems. This will save you time and make it easier to manage your finances.

7. Choose software that offers security features. This is important for protecting your data and keeping it safe.

8. Find software that is affordable and offers a payment plan that fits your budget. This is important for property management companies that need to stay within a certain budget.

9. Consider software that offers customer support. This can be helpful if you have any questions or need help using the system.

10. Look for accounting software that is regularly updated with new features and security patches. This will ensure that you always have the latest software version and that your data is safe.

Closing thoughts

As a property manager, you need to be aware of the best accounting practices to follow in order to maintain your records in an organized and efficient manner. Additionally, reducing expenses and claiming every tax deduction available can help increase your profits.

When it comes to accounting practices, one of the most important things you can do is keep accurate records. This means tracking all income and expenses associated with your properties. This information will come in handy come tax time, or if you ever need to provide proof of income or expenses to a lender or investor.

In order to keep track of your finances, you should create a system that works for you. This could involve using general-purpose accounting software, or property management software specifically designed for the real estate industry. Whichever method you choose, be sure to update your records on a regular basis.

Another important accounting practice is to separate your personal and business expenses. This will make it easier come tax time, as you’ll be able to deduct all of your business-related expenses from your taxable income. Additionally, keeping your finances separate will help you stay organized and prevent any personal liabilities from affecting your business.

Finally, don’t forget to take advantage of all the tax deductions available to you as a property manager. From depreciation to repairs and maintenance, you can take advantage of a number of deductions to reduce your taxable income. Be sure to speak with a tax professional beforehand so that you maximize your deductions and minimize your tax liability.

By following these accounting practices, you can help ensure that your finances are in order and that you’re taking advantage of all the deductions available to you. This will help you boost your profits and run your property management business more efficiently.

Part 8

Why Some People Love Being a Property Manager . . . And Why Others Hate It

If you’ve made it to the end of this book, you’ve learned about literally dozens of ways to make money in property management: by increasing your revenues, strategically reducing your expenses, and legally minimizing your taxes. But as the saying goes, just because you can do something doesn’t mean you should do something.

Being a property manager can be one of the most rewarding jobs in the world . . . or it can be one of the worst. It all depends on your personality and what you’re looking for in a career. If you love being organized and having control over your surroundings, then property management might be perfect for you. But if you hate dealing with people, then this probably isn’t the right job for you. So before you decide to take the plunge into property management, make sure you know what to expect!

Here are some things to think about to help make sure that property management is the right business for you.

1. You need to be organized.

Property managers are responsible for a lot of paperwork and documentation. You need to be able to stay on top of everything and keep everything in order. If you’re not organized, it will be very difficult to do your job well.

Being organized is one of the most important skills a property manager can have. It benefits them in two main ways: first, by keeping track of all the different aspects of their job; and second, by allowing them to be more efficient in their work.

An organized property manager is able to keep track of all the different tasks they need to do in a day, week, or month. This means that they are less likely to forget something important, or to let a task slip through the cracks. Additionally, an organized property manager is able to prioritize their tasks, so that they can focus on the most important items first. This allows them to be more efficient in their work, and to get more done in a day.

2. You need to have good people skills.

As a property manager, you will be dealing with a lot of different people – tenants, landlords, contractors, etc. It’s important that you have good people skills and can communicate effectively with all types of people.

If you’re a people person, then being a property manager is probably a good fit for you. Good people skills are important in this job, because you’ll be dealing with tenants on a regular basis. You’ll need to be able to communicate effectively with them, and resolve any issues that come up.

Additionally, good people skills will come in handy when you’re marketing your properties to potential tenants. You’ll need to be able to sell them on the idea of living in your building, and answer any questions they have. Finally, if you’re good with people, it will be easier for you to build a good rapport with your employees. This will make them more likely to listen to your instructions and follow your lead.

3. You need to be detail-oriented.

From keeping track of rent payments to ensuring the property is being maintained properly, there are a lot of details that need to be managed as a property manager. You need to be detail-oriented and able to stay on top of everything.

If you’re detail-oriented, you’ll be able to keep track of all the important details that come with managing a property. You’ll know when something needs to be fixed or replaced, and you’ll be able to keep track of your budget easily. This will benefit both you and your tenants, as they’ll be able to rely on you to keep the property in good condition.

4. You need to be able to handle stress.

There is a lot of responsibility that comes with being a property manager. Things can get stressful at times, so you need to be able to handle stress well.

If you’re the type of person who loves a challenge and enjoys being able to problem-solve on the fly, then a career in property management might be perfect for you. While the job can certainly be stressful at times – especially when tenants are involved – those who thrive in this environment often find it to be incredibly rewarding.

Of course, not everyone is cut out for this line of work. If you prefer a more predictable 9-5 job with little to no stress, then property management is probably not going to be a good fit. But if you’re up for a challenge and enjoy working with people, then there’s a good chance you’ll love being a property manager.

5. You need to have good problem-solving skills.

Problems will come up from time to time – tenants might not pay their rent on time, there could be maintenance issues, etc. It’s important that you have good problem-solving skills so that you can effectively deal with whatever problems come up.

If you’re the kind of person who loves a good challenge, then being a property manager might be the perfect job for you. Not only will you be responsible for maintaining the day-to-day operations of your property, but you’ll also need to be quick on your feet when it comes to solving problems.

From dealing with difficult tenants to handling maintenance issues, there’s no shortage of challenges that come with being a property manager. But if you’re good at problem-solving, then you’ll be able to handle anything that comes your way.

So if you’re looking for a job that will keep you on your toes, then consider becoming a property manager. With your problem-solving skills, you’ll be able to handle anything that comes your way.

6. You need to be patient.

Dealing with different people can be challenging, and things might not always go smoothly. It’s important that you have patience and are able to keep a calm demeanor in difficult situations.

If you’re the type of person who gets easily frustrated or impatient, being a property manager may not be the best fit for you. This is because there will be times when tenants will do things that test your patience. For example, they might not pay their rent on time or they might make too much noise and disturb the other tenants.

If you’re patient, however, you’ll be able to deal with these situations in a calm and professional manner. You’ll also be able to build good relationships with your tenants, which is important for keeping them happy and keeping your property occupied.

7. You need to be assertive.

If you’re a property manager, being assertive will benefit you in many situations. For example, if there’s a problem with a tenant, you’ll need to be assertive in order to resolve the issue. If you’re dealing with a difficult handyman or contractor, you’ll need to be assertive in order to get what you want. And if you’re trying to negotiate a better deal for your property, you’ll need to be assertive in order to get the best possible terms.

8. You need to be flexible.

Things will inevitably change – tenants will move in and out, landlords will have different requests, etc. You need to be flexible and able to adapt to whatever changes come your way.

If you’re the type of person who loves a good challenge and thrives under pressure, then a career in property management might be perfect for you. Being a property manager requires a lot of flexibility – after all, you never know when a tenant is going to need your help or when an emergency is going to pop up.

Some people might see this as a negative, but if you’re the type of person who enjoys being able to problem-solve on the fly and always be prepared for anything, then you’ll likely love being a property manager. In fact, many property managers find that they thrive in this fast-paced environment and enjoy the constant challenges that come their way.

9. You need to be able to multitask.

As a property manager, you will often have to juggle multiple tasks at once. You need to be able to multitask and stay on top of everything that’s going on. Here are some reasons why:

  • Property managers often have to juggle multiple tasks at once.

  • Being able to multitask allows them to be more efficient and get more done in a day.

  • It also allows them to better handle emergencies that come up, as they can quickly switch gears and focus on the problem at hand.

  • Multitasking is a necessary skill for property managers because they are often pulled in different directions by tenants, landlords, and other stakeholders.

  • Being able to effectively multitask helps property managers keep everything running smoothly and avoid potential disasters.

10. You need to have good customer service skills.

Customer service is important for property managers because they are often the first point of contact for tenants. They need to be able to effectively communicate with tenants and resolve any issues they may have. Good customer service skills can help to create a positive relationship between the tenant and the property manager, which can lead to a better overall experience for the tenant.

Property managers need to be able to handle difficult situations, such as unhappy tenants or maintenance issues. They need to be able to stay calm and professional in order to find a resolution that will satisfy both parties. Good customer service skills are essential in these situations.

11. You need to be proactive.

It’s important that you’re proactive and always thinking ahead. This will help you avoid potential problems and keep things running smoothly.

There are a few key reasons why being proactive is so important for property managers. First, it allows you to anticipate problems and take steps to prevent them before they happen. This can save you a lot of time and hassle in the long run.

Second, being proactive shows that you’re organized and capable of handling multiple tasks at once. This can give tenants confidence in your abilities and make them more likely to renew their lease. Finally, proactively managing your property can help you build a good relationship with your landlord or homeowners association, which can make it easier to get repairs or upgrades approved.

12. You need to be able to take initiative.

Taking initiative is another important trait for property managers to have because they need to be able to adapt to ever-changing circumstances. For example, if a tenant moves out unexpectedly, the property manager needs to be able to quickly find a new tenant to fill the vacancy.

If there are maintenance issues, the property manager needs to be able to take care of them in a timely manner. Being able to take initiative means being able to think on your feet and handle whatever comes your way.

13. You need to have a good knowledge of the law.

As a property manager, it is important to have a good understanding of the law. This knowledge can benefit you in many ways, including:

  • Helping you to understand your rights and responsibilities.

  • Allowing you to better protect your tenants’ rights.

  • Helping you to resolve disputes quickly and efficiently.

  • Giving you an edge when negotiating contracts or leases.

  • Ultimately, helping you to run your property business more effectively and efficiently.

In short, having a good understanding of the law is an important asset for any property manager. It can help you to avoid problems and to resolve them quickly when they do arise.

14. You need to be honest.

Honesty is important in all aspects of property management. You need to be honest with landlords, tenants, and contractors. This will help build trust and ensure everyone is on the same page.

When you’re honest with people, they’ll know that they can trust you. This can go a long way in building a good relationship with them. If there’s ever a problem with the property, they’ll be more likely to come to you and work things out.

Being honest also shows that you’re transparent and fair. For example, your tenants will see that you’re not trying to hide anything from them, and that you’re willing to work together to resolve any issues. This can help create a sense of community among your tenants, and make them more likely to recommend your property to others.

15. You need to be reliable.

First and foremost, being reliable will help you build trust with your clients. If they know that they can count on you to be there when you say you will, they will be more likely to continue working with you in the future.

Additionally, being reliable will help you keep your properties in good condition. If you’re always showing up on time and taking care of business, your tenants will be more likely to take care of the property and report any issues right away. Finally, being reliable is simply good for business. It helps build a positive reputation and keeps people coming back.

16. You need to have thick skin.

Not everyone is going to be happy all the time – there will be tenants who are difficult to deal with, landlords who are demanding, etc. It’s important that you have thick skin and can handle criticism without taking it personally.

For a property manager, having thick skin is an important trait to have for several reasons. As a property manager, you will likely deal with many different types of people on a daily basis. This can include angry tenants, uncooperative landlords, and difficult customers. You need to be able to remain calm and level-headed in these situations in order to resolve the issue at hand.

You will also encounter a lot of rejection in this line of work. Not every tenant will want to renew their lease, and not every rental property will sell. You need to be able to brush off the rejections and keep moving forward.

Having thick skin is also important because this is a high-stress job. There will be times when things go wrong, and you need to be able to handle the stress and keep moving forward. If you can’t handle the stress, then this is not the job for you.

17. You need to be able to stay calm under pressure.

As a property manager, there will be times when things get hectic and chaotic, and not going according to plan. It is important to be able to stay calm under pressure and think clearly in order to make the best decisions for your property.

Here are two common situations where staying calm under pressure will benefit a property manager:

  • When dealing with difficult tenants: As a property manager, you will sometimes have to deal with difficult tenants. This can be a very stressful situation, but it is important to stay calm and professional. If you lose your temper, it will only make the situation worse. Instead, try to listen to what the tenant is saying and see if there is anything you can do to resolve the issue.

  • During an emergency: Emergencies can happen at any time, and it is important to be able to stay calm under pressure. If you panic, it will only make the situation worse. Instead, try to assess the situation and see what needs to be done in order to resolve the issue. By staying calm, you will be able to think clearly and make the best decisions for your property.

18. You need to have a positive attitude.

It’s important that you have a positive attitude, even when things are tough. This will help you stay motivated and focused on your goals.

A positive attitude is an important trait for a property manager to have because it sets the tone for the entire property. A positive attitude can be contagious, and it will make everyone around the property feel better. A positive attitude also shows that you are confident in your abilities and that you are excited about your job.

There are many everyday situations where a property manager will benefit by having a positive attitude. For example, if there is a problem with one of the units, a positive attitude will help the property manager stay calm and find a solution quickly.

A positive attitude will also help the property manager build good relationships with the tenants. Good relationships with the tenants are important because they are the ones who will be living in the property and interacting with the property manager on a daily basis.

19. You need to be able to handle conflict.

Conflict is bound to come up from time to time – tenants might not get along, there could be disagreements between landlords, etc. It’s important that you’re able to handle conflict in a diplomatic and professional way.

Conflict resolution skills will benefit a property manager in two situations: when resolving disputes between tenants, and when negotiating with vendors.

When resolving disputes between tenants, a property manager must be able to listen to both sides of the issue, identify the root cause of the problem, and come up with a solution that is fair to both parties. Without conflict resolution skills, it would be easy for a property manager to make one tenant happy at the expense of the other, which could lead to further problems down the road.

When negotiating with vendors, a property manager must be able to stand their ground and get the best possible deal for their clients. Vendors will often try to take advantage of inexperienced or gullible property managers by charging more than they should, or by offering subpar services. However, with conflict resolution skills, a property manager will be able to identify these red flags and negotiate for a fair price that benefits their clients.

20. You need to have a strong work ethic.

A strong work ethic is an important trait for a property manager to have for several reasons. First, it demonstrates to potential employers that you are a reliable and responsible individual. Secondly, it sets you apart from other candidates who may not be as dedicated to their work. Finally, a strong work ethic shows that you are willing to put in the extra effort to get the job done right.

The benefits of having a strong work ethic as a property manager are numerous. You will be more likely to get hired and promoted within your company. You will also earn the respect of your colleagues and tenants. Last but certainly not least, you will be able to take pride in your work knowing that you are doing your best to uphold the standards of your profession.

21. You need to be able to think on your feet.

Things will inevitably come up that you didn’t plan for. You need to be able to think on your feet and come up with solutions quickly.

As a property manager, you are constantly faced with situations that require quick thinking and decisive action. From handling difficult tenants to dealing with unexpected maintenance issues, being able to think on your feet is an essential trait for success in this job.

There are many situation where a property manager can benefit from being able to think on their feet. For example, if a tenant calls with a complaint, you need to be able to quickly assess the situation and come up with a solution that will satisfy the tenant. If there is an emergency repair that needs to be made, you need to be able to make decisions quickly in order to get the problem fixed as soon as possible.

Being able to think on your feet is an important skill for property managers because it allows them to effectively handle whatever situation comes their way. By being able to quickly assess a problem and come up with a solution, property managers can keep their tenants happy and their property in top condition.

22. You need to have good communication skills.

As a property manager, you will be responsible for communicating with a variety of different people on a daily basis. From tenants to landlords to vendors and contractors, it is important that you have strong communication skills in order to effectively manage your properties.

Good communication skills are important for a number of reasons. First, when you are able to communicate effectively, it helps build trust and rapport with those you are working with. Tenants will be more likely to want to work with a property manager who they feel they can communicate with and who they feel understands their needs. Likewise, landlords will be more likely to want to do business with a property manager who they feel they can easily communicate with.

Second, good communication skills help prevent misunderstandings. Misunderstandings can lead to serious problems, such as a tenant not paying rent on time or a vendor not completing work as expected. By communicating clearly and effectively, you can help avoid these kinds of problems.

Third, good communication skills will help you resolve disputes. Whether it is a dispute between a tenant and landlord or a disagreement between two vendors, being able to effectively communicate can help you reach a resolution that everyone is happy with.

Overall, having strong communication skills is an important trait for any property manager to have. Good communication can help build trust and rapport, prevent misunderstandings, and resolve disputes. By honing your communication skills, you will be better equipped to successfully manage your properties.

The Bottom Line: Property Management is Profitable

If you’re thinking about a career in property management, congratulations – you’re onto a good thing! Property management can be very profitable, and with the right approach it can be a great way to build long-term wealth.

There are a few key things to keep in mind if you want to make money in property management:

1. Location is key – focus on areas where there is strong demand for rental properties.

2. Build a comprehensive marketing strategy – remember that tenants will be looking for properties online, so make sure your listings are visible.

3. Focus on providing an excellent service – happy tenants are more likely to stay longer, and will also provide valuable word-of-mouth marketing for your business.

4. Build a strong team – you’ll need reliable staff to help you with everything from marketing to maintenance.

5. Keep your costs under control – remember that every dollar you save on expenses is a dollar more in your pocket.

If you’re looking for more tips, tools, and techniques for managing residential rental property and commercial real estate, be sure to visit the Basic Property Management blog at https://basicpropertymanagement.com/. There you’ll find everything you need to know to run a successful property management business.

Thanks for reading!

About The Author

Jeff Rohde began his career in real estate nearly 30 years ago by investing in his own portfolio. He has helped people buy and sell millions of dollars worth of real estate for over two decades, including retail, office, industrial, single-family and multi-family residential properties and raw land.

In 2005, he founded a private real estate brokerage focusing on residential and commercial investment real estate and property management. Jeff earned the Certified Commercial Investment Member (CCIM) designation, held by only a few people worldwide and the highest professional certification in commercial investment real estate.

Jeff Rohde is also the founder of J. Scott Digital – a company providing freelance copywriting and content creation services to real estate, property management, insurance, and accounting businesses – and publisher of the Basic Property Management blog.

Subscribe to J. Scott Digital
Receive new entries directly to your inbox.
Collectors
View
#1
#2
#3
View collectors
This entry has been permanently stored on-chain and signed by its creator.