Property Management
An often overlooked issue relating to investment strategies is professional property management. With all due respect to investors, young and old, a part of successful investment strategy should include a strong professional property manager or property management company.
In an attempt to define what constitutes a professional manager in one sentence, I offer the following: a professional manager can be defined as a person(s) or organization skilled in directing and controlling a real estate asset, who oversees resources and expenditures; and, has extensive education in construction, design, site planning, ADA, materials, law, insurance, government regulations, tenant relations, tenant retention, crisis planning, negotiating, inspections, termites, mold, lead paint, asbestos abatement, BOMA standards, zoning regulations, fire codes, building codes, re-imaging, retrofitting, energy conservation,....
Okay, maybe one sentence was unrealistic.
But there are people out there who can do all of those things, and do them well. And, we're darn proud of it.
The bottom line: Professional property managers can save a lot of time, frustration and expense, which can lead to increased profitability, better health, and return on investment. Professional managers will let you take the credit, along with your increased profits.
Contact an AMO (Accredited Management Organization), A CPM (Certified Property Manager) or CSM (Certified Shopping Center Manager). Most who seek these designations have committed to educating themselves and have elected to pursue a career in this vocation.
Comments (2)
Thanks for your comments John. I didn't realize the magnitude of your observation until I got a fairly good night's sleep, and considered your proposition. I actually did an outline last night, jotting down thoughts and examples that I felt would provide you with a reason to use the word "should." What follows is probably a result of four or five hours of contemplation. I don't think that my response will necessarily end the discussion; and, that makes me happy to some degree. I'm also a very big fan of respectful disagreements. I believe two heads are better than one. I appreciate your question because your query has opened up a myriad of topics for future blogs. Thanks again. I find myself faced with two tasks here. 1. defend my choice of words, (i.e. "should" vs. "should consider"); and, discuss examples where considering wrongly can lead to disaster (financial loss, foreclosure, etc.) or gain (financial or otherwise). An additional consideration should include whether my thesis has, in fact, started a consideration. Since I'm relatively new to BP and blogging, I'm assuming that this response will get to you in a timely manner. I keep hitting "enter" and things seem to get where intended. I didn't know if anyone had actually read my blog. Actually, I said: "..a part of successful investment strategy should include a strong professional property manager or..." That is still my opinion. But, I also like your word "consider," and I'll speak to that later. But, I'll use myself and some other antidotes to support my premise. Please keep in mind that I'm primarily in Commercial real estate. After considerable consideration, I'm also ready to apply my thoughts to SFR investors, wholesalers, flippers, and newbies. People seek knowledge in many ways. BP is full of people looking for answers through mentors, and others that share their passion or investment strategies. Scale doesn't seem to effect my premise. Twelve years ago, I sat in on lease negotiations between an owner/investor of a large shopping center, his broker and the proverbial 800 lb. gorilla. The Gorilla wanted to lease 35,000 sq. ft. of Mr. Investor's shopping center. As they muddled through 50+ pages of lease documents, they passed up, unceremoniously, a standard, but rigid, use restriction that the Gorilla always included in their lease. Without being cruel to the broker, who was a good broker, nor to the client, who is very smart and well versed and very successful in investments, I interrupted the "negotiations" and returned focus to the passed over provision relating to restricting the use of a 27,000 square foot space some 490 feet away that was occupied by Circuit City. I pointed out that the center was over-parked, and that any of the normal uses they were afraid of couldn't impact them if Circuit City were to move, or go out of business. The provision was modified to exclude the 27,000 sq. ft. space, again with little fanfare. As a licensed agent in Arizona, empowered to prepare real estate legal documents in the State, I authored the language to all of the revisions to the lease document on behalf of my client and personally drew the exhibits relating to the control areas. If one counts pennies, I saved a lot of time and money there; but that's chicken feed. The broker got immediate gratification via a large commission. I didn't; but, I had done something that didn't even enter the broker's or Owner's minds. To make a great long story short, the space was ultimately vacated, sat vacant for five or six years, and was recently leased to a national fitness center. About a month ago, the Gorilla's attorney wrote a nasty letter to the Owner demanding that the owner cancel the new lease immediately, and remove the new tenant, quoting "chapter and verse" on restrictive uses from the Gorilla's lease. As the owner was telling me this, I smiled. He smiled too; and, showed me the letter that his attorney had written back. In it, were the words I had negotiated and penned: "except for that portion of the shopping center per exhibit "g" of the lease. The Gorilla lost. 10 year lease, with bumps, 27,252, sq. ft, plus NNN's is approximately 3.54 million dollars over the term of the lease. There's no guarantee that "exercise" will remain in vogue or that this tenant can't fail; but, I watched out for my client and looked far ahead. As a "newbie" property manager some 25 years ago, I helped value engineer numerous projects for malls around the United States resulting in major cost savings for the development company where I worked. Maybe my superiors had "considered" my experience, made the right decisions based upon their experiences and put me to the tasks. The fact is, they did not have my experiences; but, they had the foresight to understand that I was better suited to the task than they were. I also argued for a procedure that I knew would help reduce the asking rents $.01/ft. The immediate response from my supervisor was "with rents going up 5% per year, I wouldn't worry about it." Three years later, during my first real estate down cycle, the President of the company told me "I wish I had that penny now." Another time, I argued a ruling from a municipality regarding a "sinkhole" on a 39 acre mixed use site. The "sinkhole" basically rendered 3 acres unusable due to retention requirements. As the vice president of construction for a large developer, I was responsible for the design coordination, and placement of infrastructure. My singular curiosity led to the discovery of aerial photographs showing that the "sinkhole" was actually an abandoned stock tank that had been dug in the 1940's. That 3 acres is now, and has been, supporting 100,000 sq. ft. of retail space for the last 24 years. No one in the organization had the curiosity, or time for that matter to do what I saw needing to be done; but they did acknowledge the impact that the ultimate recapturing of 3 acres had on immediate construction savings and future value. I also applaud your request to "provide an example..." You may have noticed that I've provided more than one. The truth is, I could provide hundreds, if not thousands, of examples.. I've cheated in a way by providing examples that have saved millions of dollars. I have many examples that have saved only thousands, hundreds, and tens. But, the tens and twenties and hundreds accumulate. My trained employees also have hundreds of examples. And, to be honest, they, and I, have made some mistakes. That's why I provide E & O insurance to my clients. Having been through 4 major down cycles in real estate...I, and many of my employees, have been exposed to many issues affecting investors today. Day in, and day out. Saturdays and Sundays included. Believe me, I'm not trying to brag. I'm just passionate about the people that I work with; and, I'm just as passionate about the developers, investors, architects, engineers, contractors, tenants, etc. that I've worked with for over 49 years. The names of those people are impressive, some because of stature in the industry, some because of character, some because of their knowledge and success, some because of their failures, and some because of all of these reasons. I'm just thankful that I've been able to work with them and experience all that I've experienced. While investors invest, and while broker's broker, we manage. We solve a lot of problems, because that is our job, and a good manager, within a good management company should not be happy until they come with long term solutions and cost saving ideas. "Consider" versus "Should:" "Consider: v. To think carefully about, esp in order to make a decision; contemplate; ponder." "Should: pt of shall. Used to indicate duty, propriety, or expediency." I manage my own SFR investments. I considered "considering" utilizing the services of a professional SFR manager; but, felt that I had the expertise to find tenants, interact with them, make my own repairs, handle vendors, etc. I've been fortunate, because it's been a landlord's market. I, because of my experiences, know that someday, during a SFR rental down-cycle, I might say: "I wish I had sought the help of a SFR management company." "Pride goeth before the fall." I wish someone with experience in SFH would had argued for "should." I missed a lot of SFR investment opportunities because I wanted, and loved, to do it all. In fact, many issues I deal with daily as a third party property manager interfered with a logical, careful, contemplative, consideration. I should use a professional SFR management company; but, I don't. I, personally, did most of the renovations including demolition, forming, steel tying, concrete work, framing, sheetrock, painting, minor electrical (I hate the thought of frying myself), tile work, plumbing, cabinet modifications, trim work; and, in hindsight, shouldn't have. I figured I saved over $30,000 in the process. By doing so, I missed a couple of opportunities in the market because I was distracted. Consider this: A strong manager is trained to look for problems that brokers, investors, and weak management companies can miss. A strong commercial manager has probably worked with mom and pops, institutional clients, and everyone in-between. A strong SFR management company has probably worked with many similar to yourself in size and scope. Chances are, they've picked up a few good habits, taking care of many bad decisions. If they don't fit your investment strategy, that's fine. I happen to think that they should.
Paul Falbo, about 11 years ago
You've stated that investors should use professional prperty managers, and I would respectfully disagree. Many may find that a professional property manager meets their investment goals, but all investors should not use propert managers simply for the reasons you've stated. Maybe all investors should consider the potential benefits of a professional property manger. Please share with us an example of how you have increased he success of an investor as a property manager...maybe that would help me get past "should."
John McCombs, about 11 years ago