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by: Cassandra Miller

RealEstatePropertyManagementWeek1.pdf FCPM 235

Marketplace > Ball State University > FCPM 235 > RealEstatePropertyManagementWeek1 pdf
Cassandra Miller
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Notes of chapter 1, 2 and 14. Also over the article and powerpoints for week 1.
Introduction to Residential Property Management
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This 7 page Class Notes was uploaded by Cassandra Miller on Monday January 18, 2016. The Class Notes belongs to FCPM 235 at Ball State University taught by in Winter 2016. Since its upload, it has received 31 views.


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Date Created: 01/18/16
Introduction to Real Estate Property Management Sunday, January 17, 2016 3:06 PM Traditional View of Property Management Mom and Pop business She did the book keeping He did the maintenance Knew people on a first name basis Today the average size of apartment buildings has 250 or more apts Now owned by groups of investors Responsibilities of Residential Property Manager  Show and lease vacant apartments  Collect rent  Handle resident complaints  Evict residents  Make repairs  Create advertising  Retain current residents  Develop budgets  Make reports  Purchase supplies  Advise owner on renovations Now a profession Most are in charge of a team New Terms to use for this class Tenant Residents Landlord Community Manager Apartment Complex Apartment Community Unit Apartment Home Work order Service Request Types of properties  Low-rise (1-4 stories)  Mid-rise (5-9 stories)  High-rise (10+ stories) Chapter 1 - Ownership Primarily individuals Sole-Owner - individual person Partnership - two or more entities investing in real estate  The risks are reduced  Larger purchases can be made Limited partnership (lp) -invest capital but are passive investors Limited Liability Company (llc) - more flexible organization and partnership structure Multiple classes of ownership who all share limited liability Joint venture - one party furnishes the investment capital and another provides services and the know- how Ex, Builders, developers and investors Corporate ownership - privately held or publicly traded, for-profit or not-for-profit, can have C- corporation or S-Corporation tax status Insurance companies and lending institutions - common in the US  Can be a result of a for-closure where a financial institution is forced to take ownership  Invest in high end properties that will appreciate  In it for the capital gains  Tend to be demanding in how the property is managed Real estate investment trusts(REITs) - popular investment vehicle, many have produced large returns  Pool funds to maximize investment capital  Give small investors the profit opportunities and advantages that come from large-scale real estate ownership  17% Residential, 19% office and 26% retail  Management is done by a team in-house Common interest Real Estate or Common Interest Reality Association (CIRA)- condominiums, co-ops, townhouses and zero-lot-line housing  Mutual benefit for owners and not-for-profit  Contains a elected board and committees Foreign Ownership - mostly centered on hotel, commercial and industrial properties  Currently increasing due to the decline in the value of the U.S. dollar Ownership Goals  Periodic income o Monthly, quarterly, annually  Appreciation in value  Control of investment o Unlike investing in stocks and bonds, real estate can be manipulated to increase return o Ex. Apartments can be updated to provide features lacking in the market  Pride of ownership  For use by owner o Landlord is his own tenant in an office building or apartment complex  Financing leverage o Borrow money to make money o Works best when the interest rate is less than or close to the earning rate of the property  Income tax shelter o Popular after WW2 o Now is limited by legislation  Hedge on inflation o Real estate is one of the most popular and tangible collectibles during a period of inflation Ownership disadvantages  Wrong decision may wipe out the investment  It is said rental properties are "hard to find, hard to operate and hard to sell"  Changing market conditions as well as local laws and ordinances can negatively affect the investment o Ex. Rent control, safety requirements  Lack of liquidity  Can result in business management problems nonexistent in stock and other types of investment  Bricks and mortar do not last forever Chapter 2 - Management Net operating income - collections less operating expenses  Rents and expenses are controlled to create the highest possible Cash flow - NOI less debt service (mortgage payment) Information needed for successful property management  Info about property and location The market area   Operating expenses  Maintenance techniques  Reporting procedures A capable manage contains skills of  Common sense  Resourcefulness  Organization  Willingness to work hard Types of managers Site manager or community manager - front-line operator of a property Responsibilities include  Day-to-day dealings with residents  Rent collections  Staff coordination and supervision  Maintenance performance  Budget control Compensation is a base salary Property manager - operating officer or administer Responsibilities include  Fiscal planning  setting rents  establishing marketing and maintenance procedures  supervising site managers  Reporting to and maintaining liaison with owners and superiors Compensated with a salary and potentially bonuses Executive Property Manager - supervisor over other property managers in the field who are handling the day-to-day operations Concerned with running a business that manages properties rather than actually operating the properties May be the owner of the company Compensated with a salary and possibly bonuses Asset Manager - long-range planning and preparation of business plan Must have skills in the planning, analysis and financial tracking of real estate investment Responsibilities include  Capital improvements, cash management  Market analysis  Rent structuring  Budget tracking  Short and long range goal attainment The management agreement - outlines the responsibilities and duties of an employee in a management company  Serves as an employee contract  Establishes a relationship giving the managing agent the right to act on the owner's behalf  Lists rights, responsibilities and limitations  Stipulates compensation  Provides for the agreement's termination A managing agent acts for the owner and therefore has the same powers and the owner would have Power to hire, fire and supervise personnel The managing agent must also pay attention to the needs of the residents Rentertainment - providing the lifestyle a resident desires There is a FIDUCIARY responsibility of the managing agent to act honestly and in good faith This accounts for accounting of collections and expenditures All expected responsibilities must be outlined in the management agreement to be able to  To establish the manger's authority to execute a lease  To meet internal revenue service requirement for filing employee tax payments  To distribute net proceeds to the owner or owners Independent Contractors - common when contracting with lending institutions Obligations  Ensure that the property achieves maximum occupancy  Collect rents  Pay bills incurred for the property  Submit a report to the owner of collections and disbursements  Make sure that the necessary casualty and liability insurance is maintained  Pay real estate taxes form building funds  File employee payroll tax returns  Maintain the property with building funds  Notify the owner of the property's shortcomings and defects as well as citations  Maintain records Associated Risks Hold harmless - a provision of the management agreement designed to minimize these risks These generally include  Actions stemming from the owner's refusal to advance needed funds  Building code violations  Civil rights lawsuits  Wage and house law claims  Occupational safety and health act (OSHA) claims  Lawsuits in general  Harmful or improper acts of employees Chapter 14 - Types of residents Attributes of good rental neighbors  Social compatibility  Willingness to invest in their home  Financial Stability Types of residents Renters by choice  Empty nesters  Career professional  Senior citizens Renters by circumstance o College students o Young family without enough money to own  Sundowners o Prompted by a sagging economy o Sell house and rent while waiting for social security or pension to kick in  Families with children o The fair housing amendments act of 1988 prohibits discrimination based on familial status  One and two person households o Vast majority of renters  47% single people living along  27% two people living together  Immigrants  Those divorced and divorcing  Students Income groups  Low income o Requires subsidies  Department of Housing and Urban Development (HUD)  Internal revenue services  Local housing authorities o 15% of all housing in the US  Limited income group o Residents are extremely price sensitive  Adequate income group o Fierce competition form developers of for-sale housing such as condos townhouses and coach and manor homes o Residents are willing to pay rent that covers the expenses and debt service as well return a profit to investor  Ample income group o Small percentage of the rental market o Look for location and the meeting of their needs o Often make interior changes to fit their style The Evolution of Residential Property Management Three major impacts  The legal system giving individuals the right to own property  Increased complexity and amount of real property assets  Economic change resulting in professional management of rental properties Historical Renters were seen as less than home owners You had to own land to vote until the 1800s Home owner ship has been encouraged with favorable tax laws and mortgage policies After the depression there was a large influx of people back to the city to work in industrial jobs  Large amounts of rental housing was developed  Because of the large amount of demand, high-end amenities were not readily available o Primarily the property managers just focused on collecting rents  By the beginning of the 20th century states began enacting rental regulations o Regulated safety, sanitation and health From 1909 until WW1  New technology emerged and housing was built better and up instead of out  Over time owners began hiring a resident or other staff member to manage the property 1908 was The National Association of Building Owners and Managers first annual convention  Apartment house section was added in 1913 Interest income began being tax with made real estate investors recall their investments  This further strained the national banks  Unity life insurance companies and building and loan associations emerged as vehicles for real estate development financing  Led to apartment construction book 1926-1927 The Great Depression  Renters moved in with friends  Owners defaulted on their mortgages The real estate management business was born 1933 Institute of Real Estate Management (IREM) formed in Chicago 1939 National Apartment Association (NAA) was incorporated Federal Housing Administration (FHA)  Gives out loans at low interest rates  In 8 years, 25% of all home mortgages were insured by FHA o Initially impacted single-family homes o Over years also impacted multi-family construction World War 2 and Post war Office of Price Administration (OPA) set rent controls National Housing and Rent Act 1947  By 1950 over 465,000 apartment units were built  1954 the program ended Demand was so high that there were hardly ever vacancies Suburbanization 1950s - 1970s Suburbs developed rapidly with single-family homes  Homeownership went from 55 - 61.9% form 1950 to 1960 The garden apartment developed  Three stories with no elevator  Modern kitchens, patios or balconies  Club houses with swimming pools, play areas, enhanced landscaping Role of property manage became complex Residents changed  Baby boomers graduating college  Divorcees  Older adults  Low-income people 1980s Demand went through a series of ups and downs Economic recovery Tax Act (ERTA) 1981  Accelerated depreciation rates  Provided initial expense write-offs  Construction and passive loss write-offs Mid 1980s many thrift institutions were marketing loans Increases in apartment production Resolution Trust Corporation (RTC) took over thrift institution holdings Property Manager evolved to an "emerging professional manager"  They must know about the economic environment and plan to market apartments in a soft market  Authors have called them "sales and marketing manager" 1986 Tax Reform Act (TRA) "sales and marketing manager" must focus on asset preservation and maximization   There were no more tax write-offs so they had to produce income  "income maximizing manager" Mid 1990s Real Estate Investment Trusts (REITs)  Major player in the multifamily rental market Today 1/3 of American's rent In 2001 individuals and couple rented just over half of the rental housing stock (19 million apartment homes) Success is found with consideration of  Location  Design  Financial viability  Excellent management and maintenance "professional Management"


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