Best Practices for Independent Rental Owners â€“ FRBO and Proud
By Lucinda Garland, CPMÂ®, GRIÂ®
FBS Property Management
Many rental properties are owned and operated by independent owners. Though their rentals are subject to evolving market requirements and demands of a new generation of renters some owners manage their real estate under the philosophy that they are in the best position to decide their operating practices. They choose who and how daily management, leasing and maintenance are done. These can be decisions of commission or omission. The question is two-fold: are best practices being employed? How does an independent rental owner identify best practices?
For answers to these questions and more we have asked FBS Vice President, Lucinda Garland, to present a series of articles â€œBest Practices for Independent Rental Ownersâ€ that will be available in various publications from time to time and become a regular feature at Rent Sense.
Lucinda is a Certified Property Manager (CPM) and a Graduate of the Realtor Institute (GRI). Her 25-year distinguished property management career has been refined with earning these internationally recognized professional designations. Ms. Garland is an industry leader currently serving as a board member for the local chapters of two of the most influential national trade organizations within the real estate industry; the National Apartment Association and the Institute of Real Estate Management. She is an expert on â€œbest practicesâ€ and therefore an indispensable resource to our independent real estate investors. RentSenseBlog.com
Second in the Series
In evaluating the operations of your investment property, you might have stumbled upon a thought â€“ â€œWait a minute! If I have to spend all this time deciding what I want and telling someone else what to do, why am I just not doing it myself?! I am smart! I run a company/teach school/have a college degree/am a real estate agent/have been doing this by myself for years! I can do this better than anyone else! Why am I paying someone else to do this?â€
â€¢ â€œWait a minute!â€ â€“ Yes, indeed, wait a minute! Take a deep breath and really think about where you are going with this thought! The decision about who is to run your investment business is a big one â€“ not to be taken lightly. So â€“ wait a minute!
â€¢ â€œIf I have to spend all this time deciding what I want and telling someone else what to doâ€¦..â€ Letâ€™s be serious â€“ as the owner of a business, you will need to consistently evaluate your goals and objectives for the business and review operations to see where you stand. This is best accomplished when you keep yourself separated from daily operations.
â€¢ â€œWhy am I just not doing it myself?!â€ As the owner of investment property, you are highly motivated to run the rental business but being motivated is no substitute for fulltime, experienced property management that is a cost effective buffer to your ownership risk having a market reputation to protect and a contract to lose. This is real motivation when it comes down to optimizing business operations while minimizing business risk.
â€¢ â€œI am smart!â€ Of course you are! Sadly, smart does not necessarily mean you are educated in a changing industry that is substantially more demanding and litigious than just a few years ago. And while you may know what to do today, there are occurrences that arise that stretch even the most experienced management staff to limits. Property management professionals CHOOSE to manage property as a full time commitment. Property management professionals effectively handle the things that an owner may not want to deal with on an everyday basis.
â€¢ â€œI run a company/teach school/have a college degreeâ€ If you have dedicated time to a career, then that is what you have chosen. There are professionals in the property management industry who have spent countless hours managing people and property for others and have experienced situations that are unimaginable to others. These professionals daily practice a desire to provide service to others, a keen attention to detail, the ability to analyze problems and affect solutions in a timely and logical manner, and the capacity to understand the effect income and expense has to the value of an asset. Add to that a strong commitment to ethics and the ability to act within the laws that govern our industry and you have a picture of success.
â€¢ â€œI am a real estate agentâ€ â€“ Indeed, the management of other peoplesâ€™ property requires a state license issued by the Department of Real Estate. However, having a license that is primarily designed for real estate sales does not prepare you for the constant routines essential to balance fair housing, landlord/tenant law, habitability, unlawful detainers, marketing, 24 hour emergency services, closing leases with full disclosure and documentation, income and expense management and addressing resident issues. Focused attention to detail, timing of all events and quality performance in property management is a learned skill set.
â€¢ â€œI have been doing this by myself for years.â€ Everyone used to work on their own car but not so much today. Perhaps doing some things yourself need re-evaluation from time to time. Is it possible you have short changed yourself over the years by not raising rents? Have you allowed your renters to stay in the apartments at a lower rate of rent on a month to month to month tenancy because it was easier than trying to handle a vacancy? Have you failed to realize the tax benefits of rental property ownership due to poor record keeping? Are you tired of getting emergency calls in the middle of the night?
â€¢ â€œWhy am I paying someone else to do this?â€ The services provided by a (PM) professional management company are extensive and far surpass collecting rent to earn a management fee.
o PM manages the financial aspects of owning investment property: rent collection, debt service, insurance and property tax payments, recurring service invoices, and non-recurring costs associated with the management of your asset. PM services include convenient Electronic financial reports to clients, access to an online Owner Portal storing archived reports, and direct deposit of Owner proceeds.
o PM manages the operational aspects of owning investment property: routine and special property inspections, quality control through monitoring of occupancy, collections, maintenance trends and response, and leasing.
o PM advertises upcoming and current vacancies daily on multiple websites giving owners the most exposure possible to fill their vacancy even faster! Effectively incorporate video tours, online applications and a secure â€œtenant portalâ€ for ongoing rent collection.
Continually analyze the effects of marketing efforts and change direction as the market demands. Utilize trend analysis and personal feedback to identify best practiced progressive activities to attract qualified renters.
o PM attract and screen for qualified renters and hold each resident to a high standard. Policies and procedures are clearly defined so residents know what to expect and owners can have peace of mind that they will be enforced.
o PM adheres to all Federal and State Fair Housing Laws and operates with best practices understanding Landlord-Tenant Laws that affect our industry. Staff is provided ongoing education and training to assure client protection from unnecessary liability most owners donâ€™t even know can affect their investment.
o PM understand the need to reduce overall costs at the investment property and are large enough to create economic advantages for owners such as reduced pricing for maintenance items and services.
o PM focus on supporting the on-site and off-site management teams through scheduled property visits, education, direction, and assuring the team is empowered with the knowledge of the clientâ€™s goals and objectives
Perhaps you noticed a recent financial story that Warren Buffet has allocated over a billion dollars to purchase single homes, individual condos and small apartment properties; to operate them as rentals with professional property management. Give yourself credit for being considered in the same class with the smartest investor on the planet. Strategic investors acquire, own and operate real estate as a rental business satisfying the primary priorities of financial independence: safety of capital, inflation hedge and tax-favored income. The rental owner business can be the surest method to build wealth and reliable cash flow for their retirement. They like the security and flexibility of being an independent real estate owner though like any smart business owner they utilize comprehensive advisory and complete management services. Strategic investors acquire well located real estate, keep it well maintained and managed, optimize revenue, pay off the loans and retire on tax-advantaged income.