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Property Management

Property Management and Insurance Go Hand in Hand

Who manages your investment properties is important to your insurance company. One of the first questions any real estate investor should be able to answer is, “How am I going to manage my property(ies)?” The answer is important for many reasons. It’s also important to someone you may not have thought of: your insurance company. Some investors handle their own property management and others hire a third-party company. The important thing is to make sure whatever property management strategy you use allows you to maximize your yield and minimize your risk. Entity Separation If you do decide to handle your own property management, it is often recommended that you set up the property management services as a separate entity from the entity(ies) in which you hold your assets. The former is considered the “operational entity,” and the latter is the “asset-holding entity.” Separating the two will help maximize your protection and may add additional layers of insurance coverage for potential claims. It is always important to protect your asset-holding entity, meaning all the agreements you enter and risk management decisions you make should be done with that in mind. Even though you may own and control both entities, think of them separately, each with its own assets, liabilities risk exposures and insurance policies. When you self-manage, you will wear two hats—that of an investor and that of a property manager. When you are wearing your property-owner hat, maintain the same expectations of your own property management company as you would a third-party company. You would expect a third-party manager, for example, to: Quickly respond to emergency calls.  Use insured subcontractors (meaning your contractors have general liability, workers’ compensation and commercial automobile coverage in place). Handle evictions that follow local, state and federal housing guidelines. If you are unable to handle these basic requirements, then hiring a third-party manager may make the most financial sense for you. Outsourcing property management automatically gives you entity separation and clearly defines expectations and expenses. A good third-party property manager can also help you minimize your insurance claims, especially smaller, nuisance-type claims. Fewer claims can result in lower premiums. What Insurers Look For Next, let’s take a look at good risk practices as it relates to how your properties are managed. This is not only important in helping you protect your assets, but also in helping you reduce and transfer risk. Most insurers will look at whether you are following good risk practices in managing your properties. Here are some of the items they look for when underwriting and pricing insurance for your asset-holding entity. Signed property management agreement. A signed agreement outlines what is expected of both you and the management company as it relates to a variety of services. Even if you self-manage, it is important that you maintain a signed agreement between all your asset-holding entities and your property management entity. In the event of an insurance claim, this agreement may be the difference in which policy responds to a loss. Since insurance policies “follow the contract,” it is very important this contract is in place and enforceable. Signed lease agreement. The term should be for at least 12 months. Make sure the lease is compliant with any local and state laws and ordinances. Tenant screening of all residents over age 18. Proper screening includes a criminal background check, employment/income verification and sex-offender registry verification. Renter’s insurance. Renter’s insurance provides your tenant not only coverage for their belongings but also liability coverage if the tenant unintentionally causes damage to your property. Forty percent of all fires are tenant-caused. If your tenant does cause a claim, a renter’s insurance policy can be the primary policy to respond. This allows you to avoid filing a claim on your policy, paying your deductible and having a claim on your insurance record. A high percentage—43%—of renter’s insurance policies cancel within the first week, meaning tenants often start a policy to satisfy a lease but then quickly cancel coverage. It is important to use good tracking systems to ensure your tenants maintain coverage. Rekeying/Lock Replacement. Make sure your property manager rekeys or changes locks when a tenant moves out or is evicted. Vacant Property Procedures. Many insurance claims that occur do so in a vacant property. There can be multiple reasons for a vacancy, including tenant turnover, renovation or eviction. In fact, 38% of claims filed happen when a home is unoccupied. By putting good controls in place and scheduling regular inspections of a vacant property, you can avoid or reduce your claims exposure. Also consider having your management company install cameras or video surveillance of the vacant property. Make sure any system you install can work off cellular technology in case there is not active Wi-Fi. “Smart” Home Technology. There’s been an explosion of “smart” options for making housing more secure and efficient. There are systems that can provide keyless locks, cameras, smart thermostats, water management, lighting control, sprinkler control and garage control. Although these systems help save residents money and protect the asset while its occupied, they can also help when your property is under renovation or between tenants. For example, they can reveal when a vendor accesses a property to do work, an HVAC system is not performing, a water leak is detected or a real-time photo of a prospective resident doing an unattended showing. These are just a few examples of actions a property manager can take to help contain your risk and minimize your exposure in the litigious world we live in. It is highly recommended that you utilize a reputable, insured property manager as you begin your investment journey. As you continue to scale your operations, you may want to consider vertically integrating your operation; however, be aware that capturing these costs through your own operations entity/property management company may not always be profitable.  

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4 Ways to Grow Your Rental Property’s Value

How to work with your property manager on an “asset management” approach that drives overall value Entrusting the management of your investment portfolio to a property management company should take only a little work on your part, especially if you are looking for traditional basic services. Traditionally, a property manager focuses on maintaining the property, managing the terms of the lease, handling tenant issues and collecting the rent. Most investors and property managers, however, do not take an “asset management” approach to improving the overall value of your property.  Here are four simple things all investors should challenge their third-party managers to do in order to drive net operating income (NOI), which increases the value of your property. Set Budget Goals You do not need to talk to your property manager all the time, especially when you set expectations by establishing a budget for each property. Talk with them about your NOI goals by establishing market rents and estimated expenses.  Once both parties agree to the budget, you can take the Ronco. tagline of “Set it and forget it.”  That said, adding a budget-to-actual report to your monthly batch of owner statements is a good idea. That report helps to ensure you are on track to hit your NOI goal.  Also consider doing a quarterly proactive review of the financials and budget with your property manager. Market Valuation  Ask your property manager to provide you with a comprehensive market analysis when you lease your property and again when it is time to renew leases. Reassessing the rental market value of the property every 9 to 12 months will help ensure you are capturing rent growth opportunities and staying competitive in the rental market. This information is helpful to appraise the current and future value of the property and to make financial decisions with your entire portfolio in mind. If your property is experiencing frequent delinquencies or below-market rents, it may be time to replace the tenant and get some serious rent growth on the books. That leads right to #3—your Renewal Strategy. Renewal Strategy  Keep in mind that retaining existing tenants is the ideal plan to maintain consistent cash flow and reduce additional expenses that are incurred with turning over the property and vacancy loss.  Re-leasing can be costly, and your property manager should advocate to retain good quality tenants for you by contacting the tenants 90 days before their lease expires.  Possibly incentivize your property manager to keep the property leased and negotiate renewals with rent increases instead of having to locate a new tenant. Ensure that your property managers are proactive, and set a calendar reminder to renew that lease before the tenants even think about moving. Leverage In-House Maintenance  The No. 1 variable cost and cap rate killer is high turnover and maintenance expenses. It is better to have a property manager that has in-house maintenance where their staffing is less expensive than professional handymen or third-party vendors. In-house maintenance can be scheduled ahead of time and can expedite the work so you have less vacancy loss. Some third-party vendors are scheduled out up to 30 days before they can get to a turnover.   A good property manager should feel more like a partner and less like a service provider.  They literally hold the keys to your retirement, your children’s education, the food on the table or a rainy day. Challenge them not only to take care of the day-to-day maintenance and tenant needs but also to take care of your value growth by using the tips above. If you do that, you should have more money in your pocket and more free time to spend it.  

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Partner with Your PM Before Acquiring Property

Property managers may have local knowledge that can help you with your acquisition decisions. Many investors, especially new ones, are woefully unprepared for the road ahead of them once they purchase a property. And that’s almost always due to bad information. Where is this bad information coming from? Why are these investors taking bad advice over and over again? This bad information, more often than not, comes from out-of-area single-family residential (SFR) “experts.” The 1% “Rule” Have you ever heard of the 1% rule? If you haven’t, here’s a quick explanation. The 1% rule is a “rule of thumb” for SFR real estate investors to determine whether or not a property is a good buy. It is often used in place of cap rates as a quick and dirty determination for expected income on a property. For instance, if you purchase a property for $90,000 and its market rent is $900 a month, then it fits the 1% rule. You’ve found an excellent deal! Not so fast. Any real estate investor who’s been in the SFR space for any serious period of time can attest that these deals often are not as good as they sound. Many green investors have high expectations, thinking they just purchased some golden goose, holy grail of a property that will be the first of many to come. Or, they’ve heard about a great “supplier” that is selling homes at 1% all over the market. They are ecstatic they can finally turn their “part-time dream” into a real business. Unfortunately, many of their dreams (and their wallets!) are shattered when they learn the true costs of what they have just purchased. Local Knowledge Matters When an investor buys a home based on the expectations of the seller, it doesn’t take a rocket scientist to find the problem. And, even when investors use their own representation, lack of local expert knowledge can end in disappointment. This is, in a nutshell, why a consultant with local expertise matters. Without getting too much into the weeds of local market data, let’s take a look at three different (hypothetical, but typical) properties. One is listed at $60,000 and needs new systems, possibly a roof, perhaps some paint, so the total investment should be around $80,000. Market data shows the market rent should be around $800 once it has been fully turned “rent ready.” Property 2 is listed for sale as a “rent-ready” property and is listed for only $75,000. Pictures show some dated walls and stained carpet, but it looks livable. The market looks like it is bearing $950 in this area, so it looks very promising. Property 3 also looks “rent ready” and has tons of pictures showing a great interior rehab. It is listed for only $65,000, and market rents are around $750. We’ll assume these are all cash purchases, so we don’t have to worry about mortgage rates and so forth. So, all three properties look great and meet the 1% rule, right? Property 2 tops the list with 1.26%, followed by property 3 at 1.15% and, finally, property 1 with a solid but outclassed 1%. These three properties are based on typical properties in three separate areas of the Birmingham, Alabama market. There are amazing local realtors who know these markets well and can help even green investors make money. It would be likely that all three of these hypothetical properties would make money, but which one is a better buy and why? Here are some things to consider. If property 2 does rent for $950, that doesn’t mean $11,400 per year, or even $10,260 (derived by subtracting 10% management fees). Why? Property 2 was in “rent-ready” condition only in that it was livable. The $950 rent rate is based on averages. This property is below the average in terms of desirability. The stark reality is a C-class home has a higher maintenance cost, higher vacancy rate and a generally lower appreciation over the long haul. Many municipalities even have fees associated with being a landlord that your realtor might not be aware of. In the case of property 2, the grim reality is that this property will likely only return around $3,500 in the first year. Even when you calculate out a 3-year proforma, the profit is only $15,633. The variables taken into consideration by a property manager will include valuable data that many others do not track. Based on the same variables modified to fit property 1, the first year returns $4,377, and after three years the total builds to $16,519. The difference is only an increase in $886 in rent, but the additional factor that may be hiding is resale appreciation. These three hypothetical properties are based on three very real markets. Property 1 has seen not only a 4% increase in rental value each year for the last six years but also a 13% increase in home value. Property 2 has seen a steady 2% increase in rental rate, and only 6% increase in sales value. Property 3 is the most deceptive as neither the rental value nor sales value have any significant increases in years. This market also has one of the highest delinquency rates and maintenance costs of any market in the area. The key factors that set any realtor apart is data and the ability to analyze it. The data a local expert can provide makes the difference between consulting and just another sales pitch. Property managers and realtors can make excellent teams of consultants. Always use your network to find experts in fields that you lack. One of the best networks for anyone looking to find excellent in-depth local knowledge is the National Association of Residential Property Managers (NARPM). You can check them out for a local property manager in any area of the U.S. Knowledge can be as valuable as any deal you may stumble upon—and sometimes much, much more.  

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Don’t Reinvent the Property Management Wheel

Make sure you’re aware of all the resources available for property management. In an industry with an estimated 70% of investment property owners managing their own properties, and 36% of Americans living in rental properties, property management is here to stay. This industry, however, is not for the faint of heart. Although many resources are available for the DIY property manager, any investor considering the self-managed strategy needs to assess the benefits of hiring a property manager versus self-managing. Here are a few things to consider. Financial Savings A common misconception is that you’ll save money if you do it yourself. The most time consuming and costly part of property management is maintenance. Third-party property managers have relationships with maintenance vendors who will provide lower pricing and reliable services. They will have software and programs to build efficiencies in processes, which will save you hours per week. What is your time worth? Relationships Matter A survey of investment property owners revealed the following service attributes ranked among the Top 4 in a list of eight: Effective communication Accurate accounting Honesty and integrity Availability of the property manager Interestingly, price ranked last. Owners want to do business with companies they can communicate well with, who can competently manage the accounting aspects, who they can trust and who have local boots on the ground. Selecting the right property management company is less about being the lowest price, and more about building a long-term relationship. Diversified Portfolios What makes a stable property management company? Age? Experience? A diversified portfolio typically points to a strong property management company. When it comes to your financial investments, you invest in many different stocks and opportunities, not just one. This applies to property management as well. Strong property management businesses will provide services not only for long-term residential management but also for commercial and short-term rental management, and community/association management. A diversified portfolio allows property management companies to weather just about any storm. During the COVID-19 pandemic, long-term residential management saw very little change in rent collected. Through the months of April, May and June, 95% of rent was collected compared to 98% during non-pandemic months. Community and association management held steady during the pandemic because many investors weren’t making any changes to their management companies. In some markets, there was a dramatic decline in short-term rental management due to state mandates to close. But as we emerge and start to reopen, travelers are changing their travel behavior. Instead of flying and traveling internationally, they are traveling locally, to more rural destinations, for longer periods of time. They are driving instead of flying. And, with schools and offices offering remote working options, bookings for a short-term rental for 30+ days in not uncommon. Through the pandemic, most businesses with diversified portfolios were able to weather the storm fairly unscathed. Trends in Property Management  More and more often, we are seeing property management companies convert their business to a brand name to help them grow and take their business to the next level. We hear regularly that they’ve gone as far as they can on their own and would like to tap into the brand’s additional resources. Here are the top 10 reasons property management companies convert to a brand: 1)  Tried-and-true tested systems and processes for everything from accounting to marketing. Most property managers say they don’t have time to develop and document their processes, so having them available allows property managers to scale their business. 2)  Access to systems and processes to build a diversified portfolio through all four pillars of property management. These include short term, long term, commercial, and community and association management. 3)  Access to additional revenue streams. 4)  Technology. A brand’s buying power can provide technology and systems not available to a single business owner. 5)  Support. When working with a brand, property managers find that they are in business for themselves, but not by themselves. They enjoy having a network and support team to collaborate with and learn from. 6)  Marketing. There is no better way to increase the value of your business than by partnering with a brand name. National brands will provide a “soup-to-nuts” approach to marketing and building your brand name in your local market as well as nationally. 7)  Exit strategy. Many property manager veterans have worked for years, but they haven’t figured out how to exit their business and benefit from their hard work. When you align yourself with an established brand, you will build long-term equity you can convert to cash when you retire or are ready to start the next adventure in your life. 8)  Competitive advantage. Aligning yourself with a brand name gets you to the front of the classroom when you present to new potential clients. 9)  Ability to stay current with trends. Brands will have their pulse on the industry and will develop new programs and processes to adjust and adapt to these new trends. Whether you’re creating new housekeeping certifications to comply with new post-COVID 19 regulations or adapting to the new travel trends, a national brand will help you pivot as needed. 10)  More manageability. Most property managers quickly become overwhelmed with the little details it takes to make their business work. As a result, they neglect adding new doors and growing their business. They are so busy working in their business that they aren’t able to work on their business. Don’t make that mistake. As you can see, whether you’re a seasoned property manager or new to the industry, you don’t have to reinvent the wheel. There are great resources available through associations like NARPM, CAI, VRMA and social media groups. Know what your customer is looking for and build your marketing message around it. Finally, you will need to determine whether joining an existing property management brand will help you take your business to the next level.   

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7 Tips For Improving Your Lead-to-Lease Conversion

Hint: It’s all about the tech stack. In the five years leading up to the pandemic, property management firms began to realize the need for the right tech stack to keep their businesses competitive and, ultimately, successful. But in the last few months, in the wake of the COVID-19 crisis, moving processes online has become mandatory. To their surprise, property managers find the transition has not disrupted their businesses. Rather, it has brought positive changes. That includes a better online lead-to-lease experience. Traditionally, leasing real estate has been a face-to-face business. It has been tough for some property managers to see the benefits of moving their lead-to-lease experience online. From office walk-ins to showing properties to lease signing, this, after all, is a people business. It’s also been a business of phone calls and manual processes. But a lot of the day-to-day tasks that keep you busy—tenant screenings, inperson applications and lease signings and unit showings—can be automated with digital tools. So, what is a tech stack? And why is it so crucial to the lead-to-lease cycle? Tech stack is the combination of digital tools you implement that enables your business for increased units, improves revenue and reduces expenses, ultimately enhancing your net operating income. The right combination of tools will enhance conversion rates by streamlining laborious manual processes. Convenient mobile-friendly tools make it easier for prospective tenants to find your website, engage with your business and apply for one of your properties. It’s essential to integrate the tech stack with full ERP or property management systems to get the most out of your lead-to-lease process. Here are seven tips for getting set up. Get the Most Out of Tenant Lead Generation If you were asked what the most common ways to generate leads are, you would probably say signage at your properties, online listings and showings. Listings are still effective for generating leads, and putting them online has become easier with online listing widgets. By using a listing widget, property managers can create branded listings that can then be syndicated to many sites easily. Showings, however, are a little more difficult to manage as we continue social distancing practices. Even before the pandemic struck, some property management companies were already moving toward digital solutions for showing properties. Now, the demand for self-showings and virtual tours is everywhere. In March, Rently, a company that provides self-tours, saw a 30% increase in requests for their service, according to MSNBC. In that same month, Zillow reported a 191% increase in virtual 3D tours. Property managers interested in self-showings can use a solution such as Rently, Showing Hero or Tenant Turner. Social media is another great way to generate leads, particularly if you know your audience. For example, baby boomer and Gen X audiences make up a large percentage of Facebook users. Younger tenants are more likely to use Instagram, Snapchat and TikTok. Don’t just post your listings. Sharing local and real estate news, tips, information relevant to your audience, and even fun memes will attract followers who want to engage with you. Those followers could turn into leads. A platform like Hootsuite can help you set up your posts, schedule them and then collect data to help you make future marketing decisions. Improve the Tenant Application Experience An online application drastically reduces the time it takes to collect and vet informationfrom prospective applicants. Most property managers aren’t allowing walk-ins right now, so emailing out applications that must be printed, filled out, scanned andemailed back is a time-consuming process. A mobile-enabled online portal provides one place for applicants to upload documents and submit all the information needed to apply. They can apply right after they see a property or even in the middle of the night. All of it is then stored digitally for easy access. The right online application portal should allow for self-service. Once applications are submitted, users can check their progress online, rather than call or email for updates. If users do have a question, the portal should allow two-way communication. Property managers can screen tenants automatically and approve or deny applications online. An online application also can help property managers cross-sell properties. If a prospective tenant applies for a property that’s not available at the time of application, or you don’t presently have something that fits the prospect’s needs, you don’t have to lose that lead. An application system with a waitlist feature keeps track of those prospects and alerts them when a property matches their needs. Streamline the Tenant Screening Process Artificial intelligence and machine learning are becoming more popular. Everything from your smart home device to your favorite e-commerce site uses AI to improve user experience. AI and machine learning can be applied to tenant screening too. An AI-enabled full screening package will include the usual credit and criminal background checks as well as evictions and delinquencies. The system will also assess your prospective tenant’s information not only for credit history and debt-to-income ratio but also for the financial behavior of the tenant. It will evaluate how a tenant pays their bills and predict payment behavior in the future as well. It compares that information to adatabase of other applications and assigns the applicant a score, much like a credit score. The score is transferable, which means you can track a tenant’s score over time, pre-screen tenants and upsell them on your properties. The whole process saves you time and increases your ability to accept more applicants without adding more risk, so you can fill vacant units faster. It also saves you money—savings you can pass on to your owners. Make Signing the Lease Painless and Contact-Free With the right tool, everything related to creating and signing the lease can live online. Instead of having tenants come to your office to sign (an unpopular choice while practicing social distancing) or scan, email or (gasp) fax signed leases and other important documents, the whole process can be digitized. An online lease-signing tool will generate a lease automatically

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Maintenance Tips for Navigating the COVID-19 Pandemic

A willingness to adapt processes, communicate clearly and seek opportunities are keys to remaining successful in the age of COVID-19. Investing in rental property is a great way to diversify your portfolio and build wealth. But, real estate investing is not for the faint of heart. This is especially true right now as we navigate the COVID pandemic. What has the pandemic changed about rental property management? One major area of property management that has seen significant change is maintenance. This is probably the most common issue that keeps owners up at night and the No. 1 reason why residents opt not to renew their lease.  Handling Maintenance The pandemic only adds to the importance of handling any maintenance request—whether routine, urgent or an emergency—quickly, efficiently and safely. Have you outlined a process and communicated it to your team, tenants and vendors? Here is some key information you should be adding to your work orders: Asking vendors and residents (or anyone in their home) to adviseif they are symptomatic or have come in contact with anyone who has been exposed to the virus. If so, the work needs to be rescheduled or reassigned. Recommending that residents and vendors wear face coverings whenever possible during their appointment. Communication is key and is critical. Essential Repair Requests Under “normal” circumstances, repair requests are submitted, evaluated and scheduled to be completed. In our current environment, not all repair requests are created equal. Today, when a repair request is submitted, what steps are you taking to determine whether the request can be delayed for a period or if it is time sensitive? Determining this goes beyond simply deciding what is a maintenance emergency. Having a checklist of questions you can ask the resident about the repair is critical to determining the level of urgency. Your team should be equipped with this list when communicating with residents to ensure all repair requests are being handled in the same manner. Sharing the list with residents is beneficial as well. Communication and clarity are key at any time, but they become even more critical during times of uncertainty. Communicating with residents about how your maintenance process has changed can help alleviate their frustration, minimize additional work for you and your team, and reduce stress for all involved. Asking residents to provide photos or a video of the issue can also help you diagnose the repair. Adding this step may help reduce the number of times someone needs to access the home, which can result in more trip charge costs and inconvenience to the resident. Tracking Delayed Maintenance Delays in maintenance create yet another process you must manage. Remember, delayed maintenance does not mean it isn’t necessary. Rather it’s an issue that can wait for a period of time without causing additional damage to the property or harm to the resident. You can strengthen whatever method you use to create, dispatch and track work orders if you add a process that signifies the priority level (emergency, urgent, essential, delayed) of the repair request. This gives you the ability to monitor repair requests and their status through completion. Make sure the method you use to track submitted repairs includes procedures for delayed repairs so they don’t get overlooked. That will only frustrate the resident and cause the repair to become more substantial and costly. Property Inspections Inspections are an essential part of rental property management, whether they are move-in, move-out, interim (or mid-lease), lease renewal, quality control (after major maintenance repairs or turns). These inspections are necessary for a variety of reasons. Property inspection operations have typically been handled in person with both the resident and a representative of the homeowner present. Updating your inspections to follow a no-contact process is a great way to ensure you are still protecting the property and the resident while adjusting to the current environment. No-contact inspections are fairly easy to achieve with properties that are vacant. For example, as you complete a move-in inspection, provide a copy to the resident and allow for a short window of time (perhaps 48 hours) after the lease start date to allow them to report any issues not noted on the inspection. Please note, this does not mean you are in agreement that the issue was there and missed, but it does give the resident an opportunity to be a part of the move-in process, which helps them protect their security deposit later. Similarly, when a tenant moves out, be sure to provide move-out instructions/guidance on ways they can help ensure the return of their security deposit. These instructions can include the expectations of property condition upon move out; instructions for the return of keys, amenity access items, garage remotes, etc.; and a way to report the property condition back to you upon vacating the home. This does not eliminate a move-out inspection being completed on behalf of the homeowner, but again, it allows the tenant an opportunity to help ensure refund of their security deposit. To avoid delays with occupied inspections or skipping occupied inspections altogether, create a process where the resident completes the inspection. This process can include steps as simple as requesting various photos of the home to providing an inspection form for the resident to complete and return. As with anything else, communication and consistency are critical. Letting residents know that you are changing your process to help ensure their safety will put their mind at ease and help ensure cooperation. Provide the resident with the details of your request and a reasonable amount of time for the return of the information. There is no doubt the COVID pandemic has been very stressful for homeowners, residents and property managers alike. However, in any crisis situation, there is also opportunity. The pandemic has been an incredible learning experience, teaching us that we need to be nimble and willing to change as needed. Believe it or not, there is plenty of opportunity surrounding property management right now if you are paying attention. There

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