Buildium Blog

Rent Roll Buying and Selling – More Than Meets the Eye

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

Recently, I have been involved in the sale and purchase of a rent roll. I had the rare opportunity of consulting for both the buyer and purchaser. Let me say, this was the smoothest and least stressful rent roll transfer I have ever witnessed!

Now some might say there is a conflict of interest by consulting to both the seller and the purchaser, and yes, I would agree! I definitely had my reservations about consulting and advising to both of them, but I discussed my dilemma with both parties. They both agreed they would retain me as the consultant and adviser through the negotiation, transfer, settlement, transition and retention period. In fact, I even conducted the inspection and overview on the selling rent-roll, and prepared the due diligence report.

This was a tremendous lesson for all concerned (including me)! The offer and settlement process lasted for several months. The buying agency is now in the midst of the four-month retention period. The selling agency must continue to cooperate to ensure all clients (both property owners and tenants) are happy with the new managing agent. Both agencies must not become complacent or lulled into a false sense of security until they are clear of this retention period.

For all intents and purposes the first goal of the buying agent is retention! The second goal is to build on the managements that they have invested in to encourage the investor to buy more property and recommend their services. That’s how a business owner should focus their attention to build on their investment. Principals need to understand and monitor their ROI (Return on Investment).

The amount invested alone should be kept at the forefront of the mind. The managements that transferred with the rent roll should be tracked with the historical information. Performance should also be logged and recorded. This ensures that not only the investment was solid and worthwhile, but also that future investments in purchasing rent rolls are made with factual historical data.

It’s important to understand the impact the previous purchase had on your business, good or bad – and that is just the financial investment! What about the investment of time, the years the principal has invested in developing, growing, and nurturing their own brand, and their personal and professional reputations?

Too many principals purchase a rent roll and never have any way to track the performance and ROI of the investment. Too many principals that decide to sell their rent roll believe once the contract has been agreed and is unconditional that their job is all over. They believe it’s just a matter of transferring the files over on transfer (settlement) day. Nothing could be further from the truth! Some principals even make sure the new managing agent employs their current team to continue managing the properties. They believe property owners will feel more secure with the management continuity and familiarity, therefore have a greater chance of retention. Once more, nothing could be further from the truth!

So, before you decide on buying a rent roll or selling your rent roll, please ensure you are informed. It’s not just a matter of signing a contract and employing a team. Oh no, there is so much more than meets the eye. More thoughts on this over the next few blogs!

The Circle of (A Property's) Life

By Linda Day Harrison, Manager Labs, Chicago, IL

There are business models in all shapes and sizes. There are retail stores, medical and legal practices, cleaning companies, general contractors, grocery stores, etc. So when you think about a business, how many business models do you know of where the business owner outsources the entire business to another party? For instance, if you visit your local grocery store, is it managed by a grocery management company? How about a retail store management company? So what makes the residential real estate investment business any different? Why are there so many property management companies and outsourced service providers to the property industry?

According to a colleague of mine, the answer is quite simple, “It is not easy, there is so much at stake, and there are many moving parts.” Also, when you think about properties as

investments, there are often multiple partners and joint venture groups who own the assets. In those cases, the managing partner realizes they do not have enough time or expertise to do all of the functions required of them to maximize the value of the asset. That is what outsourcing offers.

As a property manager outsourced by these partnerships, the responsibility of managing that asset is crucial in so many ways. First of all you have been selected by the partner on the management of the asset. All of the actions you take as the manager or management company directly reflect onto the reputation of that partner or company that made the decision to hire you.

Next you have the individual people that make up the partnership. In each case, the goal of the investment with each partner is diverse. Whether there is one partner or 100, each one has their own individual investment objective. For instance, one partner may be investing because they have young children and the investment is intended to be a college fund. Another partner may be saving for their retirement. The point is that in managing the property there are many significant outcomes to decisions and actions of the property manager.

Remember, the actions you take need to be considered as part of a global picture. Each action impacts the value of the property. Now enter the customers. The actions of the property customers (aka tenants) also play a pivotal role in the value of the asset as well. For instance, if a tenant does not pay rent, the cash flow of the property is impacted. This is a business and the business must be financially healthy to exist. There are services and debts that the business is obligated to support as well. So if the rent is not collected in a timely fashion, there may be consequences to the service providers looking to be paid. The service providers are outsourced too. Those service providers need to be respected and considered as they are a vital resource to the property ecosystem and the operations.

The entire ecosystem of the property needs to flow in a healthy and respectful manner. If there are members of the ecosystem that do not respect the life cycle of the asset, there is imbalance. An imbalance is what causes tremendous pressure on the other members of the ecosystem. For instance, if a tenant does not pay, there is not enough cash flow to pay the electric bill. If the electric bill is late, there is a penalty. When a penalty occurs, it further erodes the income. When the income becomes eroded, other service providers suffer since the invoices cannot get paid on time. It is necessary to understand how all the actions of the parties involved will affect each other.

When issues arise, keep the ecosystem or big picture in mind. Each move matters and each party to the property ecosystem can make or break the healthy cycle. Hold every member of the ecosystem accountable. Follow up and follow through on everything! Make sure you have an excellent command of the property and your communication to all parties is crystal clear. As with all business habits, be fair and honest about how everyone must work together. If one party falls short of their obligation, be sure to put them on notice. Do not hesitate to follow the letter of the lease or contract or whatever you are obligated to enforce on behalf of the partners who own the property.

Being a property manager is exciting and rewarding, but it does require hard work and the ability to view the business from a holistic perspective. It can be a challenge to maintain the ecosystem, but as long as you’re always looking out for your partners’ (owners, tenants, and service providers) best interests, you will feel gratified about the work being done with the property. Your owners and investors will be pleased that you are increasing their properties’ value, and your tenants will be happy about their living situation.

Technology and the Successful Property Manager

By Phoebe Chongchua, SD Real Estate Help, San Diego, CA

It’s the kind of job that requires a lot of patience, and today being a property manager also requires keeping up with technology. Property managers work with many different personalities, which requires them to have some important skills that help make the job of managing properties a success. But they also need to keep up with where their future tenants are spending their time–online.

Get Social.

Interestingly, social media and technology play a critical new role in the job of property managers. Now, tenants and prospective tenants aren’t just stopping by to see a property; instead they’re on Facebook, Twitter, YouTube and other social media platforms learning about rentals in your area before they have even set foot in the neighborhood.

Through these and other social media sites, not only is information shared but also reviews and feedback aboutproperties are posted. That’s why today many companies are hiring social media people to “actively” listen to the sites. It’s part of online reputation management and it’s good a way to see if and what people are sharing about your properties.

As a multi-media video journalist, I am often asked about how to respond when there is a negative remark about your company, product, or property. Should you roll up your sleeves and “fight back”? No. Often this will cause the person who is negatively commenting to start a full-blown war. The campaign can get very ugly and turn into an over-dramatized sensation.

My suggestion is to counter the attacks by addressing the issues in a positive manner and not necessarily right after the person leaves the comment. How do you do this? Article writing and posting on many sites is a great way to get the information you want out about your properties.

So, for instance, if there’s a negative comment about your property being poorly kept up, writing a post and showcasing with photos the well-manicured property and its unique attributes is a better way to convey your message.

Resist the urge to fire back a comment that sounds defensive. Instead, think of the negative comment as a question: “How well maintained is your property?” Then write your post. Of course, this is assuming that you are keeping your property in good shape!

Give it to them Quick.

Quick Response (QR) codes are showing up everywhere. How important are they to the property manager’s job? Very. These little codes can help carry vital information to prospective tenants, when used appropriately.

QR codes are used by people with smartphones. They download a free app and then scan the code which is linked to a website page. You can create a QR code very easily and for free using online resources; just search for free-sites to create your code.

The QR code is meant to provide information to the user in a quick fashion. In order to be useful, the information must be valuable. So, if you link the QR code to a video that gives good information about your property, that’s useful. If, on the other hand, you embed a faulty link or the link just opens to a generic website, the QR code can be seen as nothing more than advertising–useful to some, but others may feel it was a waste of their time to scan the code.

Placing a QR code on your brochures, business cards, and marketing materials with helpful links to very valuable information such as frequently asked questions, videos of your properties, etc. can be a big help for prospective tenants.

Pay rent online.

With so many people doing online banking, getting your residents to pay their rent online makes sense. There are many advantages such as the ability to schedule payments, automatic monthly debits, no hassling with paper, and being able to pay rent from anywhere instantly.

If you’re finding that your tenants aren’t as hip to signing up for the online rent-pay option, try using sign-up incentives such as a gift card to a local merchant’s shop or do a drawing from a pool of all the tenants who signed up that month.

Technology is nothing more than tools that can help streamline and better brand your business. However, it’s how you use them that determine how successful you’ll be as a property manager.

Form 1099s & Year End Statements

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

For property management companies, the month of January signals a time to prepare and issue year end statements to their clients for tax preparation purposes. Consequently, each January the IRS requires that any taxpayers who have made payments in excess of $600 to workers that are not considered employees must prepare Form 1099 – Miscellaneous Income. Property management companies are also federally required to file Form 1099 for their clients regarding rental income received throughout the year. In addition, copies of this completed form must be provided to the IRS. The IRS compares the payments shown on the information returns with each recipient’s income tax return to determine whether the payments were reported as income and done so properly.

The filing deadline for Form 1099 is January 31, 2012.

The IRS also requires that you file a Form 1096 to identify all of the Form 1099s.

The filing deadline for Form 1096 is February 28, 2012.

Failure to issue a Form 1099 and file Form 1096 results in penalties and potential disallowances of deductions for those amounts paid. Thus it is imperative to comply with these filing requirements. In years past, SDP Management would spend a lot of time and resources preparing large bulky paper laden year end packages to meet these requirements. The packages, which contained printed year end statements and other tax required documents, would detail the properties prior year performance and provide necessary documentation for the client’s CPA or tax preparer. All packages would be carefully prepared prior to the end of January and mailed via snail mail (USPS) at a considerable cost. Well, the industry has advanced and those days are long gone. The advent of cloud computing and advanced property management software, such as Buildium, have allowed property managers to formulate numerous detailed reports and provide them via email in PDF format to clientele at a fraction of the cost and time. These reports also meet state and federal requirements. It has also allowed the tedious and many times misunderstood Form 1099 to be computer generated and scheduled for automated mailing. Not only is this convenient for property management companies, but it also allows clientele to continue forwarding the year end PDF report to their CPA or tax preparer regardless of where they are in the world. Don’t let 1099s and year end reports get you down, use January to focus on the upcoming year and not the past.

A Resident's Expecations

By Steven Van Zile, Total Management, New York, NY

Within the past 24 hours, here are the maintenance issues I’ve experienced at the property where I reside: the maintenance person, loyal to this building for 33 years, responds to a clogged toilet by advising us to pour bleach down the toilet. Concurrently, the intercom buzzer is stuck and won’t shut off. And, of course, the elevator renovation that started out as a one week project actually turned into a three week project, providing 6^th floor tenants the opportunity to save money by cancelling their gym memberships.

It’s always seemed simple to me; as residents, we pay rent, maintenance fees, or mortgage payments and the property management staff provide services for the resident. Building and trust owners hire those property managers based on their abilities to keep churn rates low, vacancy at zero, and tenants happy all at or below a budget designed to re-invest in the property. So what happens when we tenants aren’t happy? Well, in today’s age of instant knowledge and access, a lot of renters turn to rating sites like Yelp or apartmentratings.com to spitefully pen scathing reviews in an attempt warn others. These sites might be seen as a threat, but if you’re really good at your job, more transparency can only help you, and
reviews will actually help your business grow.

Let’s get back to the problems at hand. In the three examples I highlighted earlier, the correct response would have been to snake the toilet, send the on-call maintenance tech to repair the intercom, and hire a vendor that can deliver what they promise. Hiring a sub-par vendor can hurt your reputation as a problem solver, and at the end of the day, most renters see their property managers as just that.

One of the best things a property manager can do to avoid many of these issues is to do some vendor research before the hire. The property manager’s goal should be to minimize risk and liability when it comes to contracting with vendors. While making these minimizations it is also the property manager’s responsibility to hire a vendor that is legitimate and legally allowed to perform the work. A few ways to ensure that these requirements are met is by signing up for vendor review, screening, and compliance websites (e.g. servicemagic.com, vendorcompliance.com, angieslist.com). It can take a little extra time to have all potential vendors verified through an extensive search process, but the benefits of providing quality service to the tenants greatly outweigh the negatives.

Still worried about those rating sites? Instead of fearing them, use them to your advantage. Track down some of your happy tenants and ask them to post a positive review. Do you have really happy tenants? Ask them to write a testimonial letter to the building owner and include it in your next monthly report. Anecdotally, the point that I’m making is that as a renter, the most important thing is customer service. If you can take care of that, everything else will follow.

If you list out the responsibilities of a property manager, and prioritize that list, ‘provide customer satisfaction through exceptional service’ should always be at the top. If you can ensure that quality of service, above all else, your services will always be in demand.

New Year, Same Excuses

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

As we look forward to 2012 and say goodbye to last year, many new real estate investors will forgo using a property manager in lieu of becoming landlords themselves for the first time. It may even be one of their yearly goals to acquire an income producing rental property. The fast and lucrative lifestyle known as real estate investing, a dream which yields hoards of money overnight and comes with a fully loaded German-engineered luxury vehicle, is just a two bedroom rental condo away from reality.

To some that may be true and I’m not knocking the idea of a PM business starting small. I have personally witnessed the power of real estate investing, but with all kidding aside most new real estate investors who plunge into managing their own rentals find themselves at a disadvantage early and often when it comes to entering the game know as landlord versus tenant.

The rules of the game are fairly simple and most of the time both parties play by them. Overly simplified, the landlord’s duty is to supply a safe and temporary inhabitance for the tenant, who in turn pays an agreed upon rental rate for the right to occupy the dwelling for a contracted amount of time. The objective of the landlord is to bank or reinvest the cash flow (amount in excess of the mortgage payment and operating expenses) from the rental unit(s) each month and build wealth. The disadvantage begins when the new landlord places a tenant who doesn’t play by the rules of the game, throwing a monkey wrench in the whole building wealth formula.

The battle scarred and seasoned tenant alters the game to their advantage with rule changes that may go something like this; initially the rent is a couple of days late, then a week late, and then a request to change the rent due date because “They get paid later in the month”, then a phone call stating that their hours have been cut or that they will be a little short this month and can only pay a portion of the rent, then finally no return calls and nothing but silence.

News flash: if it gets to this point in the game you may have already lost. Though truthfully, you have been losing the whole time. At this point you are owed a couple months’ rent and need to start the eviction process while hoping that your property isn’t totally destroyed. There is no guarantee that having a professional property management in place would have stopped this from occurring but odds are an experienced property manager who is familiar with these trends would take fast action to limit the downside risk in these situations.

In property management it’s not if these issues will occur but how you deal with them when they do that makes you successful. Start the New Year off right and let one of your real estate resolutions be to add a professional property manager to your team.