All Forum Posts by: Paul Falbo

"Overcharge and Under Deliver."

This is a subject dear to my heart.

Although Mr Carey may be true for unqualified management firms, there are many that would disagree, passionately. I am one of them.

Please see my blog on the subject.

@joelowens is correct in many ways. His opinion is balanced and allows for a fair discussion on what a qualified management firm can do for it's clients.

As to your primary questions, a property management company will not do your taxes, will not prepare K-1's, nor establish, monitor you entity (LLC, etc.).

They will, upon your authorization, set up trust accounts in your entities name, collect rents, establish operating budgets, contract for services, pay bills, handle tenant relations, handle defaults, evictions, tenant improvements or turns, deferred maintenance issues, inspections, financial reporting, coordinate legal issues, leasing (if you so choose), maintenance, design modification, etc.

Your biggest responsibility as an owner is to make the right choice concerning the person and company that is going to handle your asset. Make sure they have the experience and knowledge in your asset category. Make sure they communicate with you at your desired level. Monitor their performance.

If they are "overcharging and under delivering" then you have not done your work. I always include a right to terminate upon 30 days written notice for any reason, and immediately for cause. And I'm a property manager who owns a commercial management company. I provide E & O insurance and employee dishonesty insurance.

Hope this helps. Feel free to ask away on any management issue.

Troy:

Excuse the assumptions; but, I would suggest that if the bank has possession, there may be a receiver in place, or the parties have agreed to the bank taking "control.". Court documents, or a call to the bank's REO department might get you to the person/persons to speak with concerning your interest in purchasing the asset.

You may be able to purchase the note prior to foreclosure, or purchase directly from the bank post foreclosure.

I worked for a California bank back in the RTC days and handled their REO portfolio in AZ. Back then, properties going through the foreclosure process were on a "watch list." Many things can happen prior to the trustee's sale, including a work-out, refinance, note sale, shortsale, white knight, deed in lieu, bankruptcy, etc..; so, I'd make some quick calls to see if the bank is interested in speaking with you about the asset. I'm not an expert on lender liability; but, would hazard a guess that the bank will not take any action that could be construed as detrimental to the mortgagor without foreclosing first.

As to the tenants, I'm sorry to hear that no one has explained what's going on to them. As a receiver, this is the first thing that I would take care of. 95% can easily go to 50% if the tenants do not know what's going on.

My opinion......

Good luck!
Paul

Market Value: "A subjective estimate of what a willing buyer would pay a willing seller for a given asset, assuming both have a reasonable knowledge of the asset's worth...."

Notice the adjectives "willing" and "reasonable." I'm always willing to pay less than it may be worth, and sell for more than it's worth.

Assessed Value: (the following is an educated guess) someone's, in government, best guess at value at some point in time, sometimes arms length, sometimes according to a formula, sometimes actually close to the real value, which is usually multiplied by a tax ratio that will allow the municipality to pay their expenses, pensions and equipment.....please note that both assessed value and tax rate can be changed regularly to effect the desired monies to pay for such expenses.

I have a little trouble with the agent's hypothetical, and scare tactic, that your value would be severely reduced. I like your instinct to not "believe" his statement.

I'd seek the opinion of an independent commercial broker, and an independent residential broker, that don't have any potential vested interests in the game. I'd also phone the California Department of Real Estate to see if the agent's tactics fall within the real estate statutes and ethics of the profession.

My experience has been that larger tracts, obtained by "packaging," invariably have a "hold out" that thinks their tract is necessary for a developer to move forward. This can be true; but, I've seen the value both rise and diminish, depending on the scale of the proposed project.

If you decide to sell, keep in mind that the inquiring agent will undoubtedly expect you to pay the commissions, thus affecting your overall cash to find a larger abode.

As an added note: My daughters survived a small house; and, the wife and I are quite comfortable now and don't need to "downsize."

Interesting proposition.

"A point in every direction is like no point at all." If you are familiar with the term "cash cow;" and, you could find the right cash cow, you could probably leverage into a single well located property (location, location, location) with relatively low deferred maintenance, issues that would give you a very nice return in today's market. Light industrial next to the airport, apartments close to colleges, retail centers on major cross streets, office buildings on "prestigious" streets, would all seemingly meet, individually, or collectively, a dream portfolio.

We have all sorts of formulas for analyzing real estate investments. The basics of a good real estate investment seem unchanged at the core: location, population growth, neighborhood demographics, supply and demand, surrounding amenities, etc. Real estate "cycles" have less influence on properties in well established and stable environments. Las Vegas and Phoenix experienced superb highs and staggering lows.

As discussed in many of BP's discussions, each category demands a different skill set to develop and manage. Each, inherently, has its own set of risks.

I'm a proponent of a singular focus. I've personally developed office condo's, built a couple of my own homes, invested in SFR, worked for large companies that developed industrial parks and built office,retail and mixed use throughout the U.S,, managed them all, including mobile home parks and mini-storage facilities. I think SFR investments make the most sense if you subscribe to minimal risks. If you want the most reward and care to take the risk, develop.

I'd buy 4, 5, or 6, SFH's in a neighborhood(s) with well established HOA's, in a state not bent on taxing the middle class out of existence, good weather, state capital city, and hire a reputable management company with a proven track record.

I agree, it is a very good list.

I would also suggest that you might ask:

Do you carry E&O insurance? Employee theft and dishonesty?
How often do you provide written reports? May I have a copy of a generic report?
Can I review a budget form you use for your clients?
How long has the property manager you plan to utilize on my property been with your firm? Who will serve as backup in the event that the manager is out of town or sick?
Are you licensed? Your employees?
How do you handle maintenance requests? Do you have regular vendors and do you bid out major repairs or capital expenditures?
What associations do you belong to?
Do you pay for your employees' education, or continuing education?
Do you require vendors who provide services on the property to carry their own liability and workman's comp insurances. Do you have a contract you use for such services?
Do you work with a local attorney, and if so, what is the hourly fee?
Do you have in-house maintenance personnel? What is your rate?
How many times a month will you visit the tenant/property?

I would also ask for a couple of houses/properties managed by the firm that you could visit to see if their idea of a good job meets your expectations.

Or you could ask why you should hire them; and, see how many items on your list they include in their response without prompting.....

Some more heavy weights weigh in on Phoenix.

http://www.bizjournals.com/phoenix/news/2013/02/13/another-real-estate-boom-for-phoenix.html?ana=e_du_wknd&s=article_du&ed=2013-02-16&u=lQmEp720OYSChrt7MbQ4NbiNrqo

Land is good. I hear God isn't making any more.

Interesting question.

Deja vu all over again.

I've been in Phoenix for 25 years, primarily in commercial real estate; although, I have served as a receiver for raw land, improved lots, and tract homes in Phoenix and Prescott. I've also invested in some residential REO's and short sales.

Most of the foreclosed developments were quickly sold and "banked" 3 or 4 years ago. As reported, many have changed hands a couple of times since then.

The current "down cycle," as reported in the Republic, has lasted over 6 years. Reports of increased values leading the nation are born out of the fact that values plumetted up to 50% in early 2007-8. Any reported gains may lead the nation; but, that ignores the fact that home values are still down from the highs of 2006 and 2007. As an example, I bought an REO for 285K, which had sold two years prior for 540K. Estimated value today is 400K.

Inventories are currently very low, according to some local residential agents. Well established communities are enjoying notable gains in value.

There is a lot of money chasing all types of product. Those who were players 3-5 years ago are reaping benefits today. Bankers who foreclosed on tracts of developed lots four or five years ago are now lending money to builders ready to go verticle on those same lots.

Phoenix had a 15 year "up cycle" leading to the fall in 2006. Historically, our rises have been like the mythical Phoenix; and our lows, like Hades.

Climate, Cotton, Copper, Construction. We've got all four again. Add "Location, location, location, and you've got an unbeatable chance for success.

It has been a tough 6 years. I've heard many say that 2015 is the magic year for commercial: "Stay alive until '15."

All and all, I cautiously agree with the article...and I'm a realist.