Our latest “hype-free” Commercial Power Hour Teleclass shows you why your Property Manager is the workhorse of your Due Diligence Team in all phases of the process – Market | Financial | Tenant | Physical. You will dramatically increase the risk in your investment without them on board.

Download your copy for FREE here

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These dangerous contracts are often presented as if they are “standard”… Not True. You get what you negotiate. The last thing you want is to be locked into a contract with a poorly performing Property Manager… and no easy way out… OUCH.

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Contract Red Flags:

• The One Year Contract: The typical version is a Contract with a one full year term and you cannot replace the Property Manager until the year is up. Never sign a contract with anything more than a 30 day dismissal period
• Termination Fee: Are you kidding. You fire your Property Manager and then you owe them money. Heck, if they performed poorly enough to get fired, they should owe you money.
• Lease Signing Bonus paid to the Property Management Company: This is a big conflict of interest. They get paid to do a poor job of Tenant Retention. The higher the turnover, the more fees they make AND the less money you keep.
• Right to Represent the Property at the Sale Or First right of refusal to purchase the Property at the Sale: These are an even bigger conflict of interest. If your Property Manager runs the project into the ground and you are forced to sell because the investment failed… they get to purchase or represent the property when you sell. Please… this is a recipe for disaster.
• Clauses that limit the Manager’s Liability: The Property Manager is at ground level, performing the day-to-day actions of management and maintenance of the Property. They are fully responsible. Your Contract needs to make sure they hold the liability… NOT You.

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What to Always Put Into Your Property Manager Contract:

• 30 Day notice to terminate the Contract: If you want to change Management Companies, you only need to give your current manager a 30 day notice.
• Specific Performance Clauses: If you need to have the 10 fire damaged units in your Apartment Complex rehabbed and ready to rent in 90 days… put that in your Contract with your Property Manager. If they fail to meet this specific performance goal this becomes grounds to get out of your Contract. Ideally you and your Manager jointly developed this Asset Management Plan, so getting them to agree to be held accountable should be relatively easy.

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NOTE: Even if you have one Property Management Company for your entire portfolio of Properties, make sure you have individual contracts for each property with Property specific performance clauses.

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 Remember, negotiations occur in all phases of your Commercial Property Investment… not just with the Seller. Make sure you negotiate a Property Management Contract that protects you and your Investors and makes it relatively easy to change Managers if they do not perform.

Here’s to your investing success.

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Exactly how much difference can a quality Property Manager really make to your bottom line. What is the dollar amount you can expect in return for taking really good care of your renters?

I think I have an answer for you…

Recent research offers a fascinating glimpse into exactly what premium you can expect when tenants believe you are a quality property manager. The results are surprisingly lucrative.

Real Facts is a statistics company that focuses on Multifamily in several larger US markets. They published an opinion survey December of ‘07 from renters in four different U.S. cities.

The purpose of the study was to determine exactly what influenced the renters level of satisfaction with their landlord.

Turns out renter satisfaction comes from the presence of “a sense of community” within the apartment complex.

And a “sense of community” comes from a number of quality Property Management factors… good renter screening, good policies, fixing the apartment units when then need it in a timely manner, etc.

Good data … no surprises and….

Then they did a fascinating thing…

They compared the Average Rent in each market with rents charged by the owner who ranked highest in renter satisfaction in that market. So we are comparing average rents to the rents of the winner of the renter satisfaction survey in four separate markets.

Here is what they found…

• You can expect a monthly Rent Premium of between $40 and $100 per unit, per month in markets such as Las Vegas and Denver from excellent property management

• In San Jose there was a staggering $450 per month difference.

Let’s look at the Bottom Line impact of that kind of a profit premium.

Let’s say on the conservative side you get a $40 a month premium for your quality property management …

In a 100 unit apartment building that is
- $4K per month
- $48K per year
- and at an 8 cap it equals $600K in additional property value when compared to the average quality manager. (assuming this extra income all rolls to the bottom line)

When you purchase a commercial property and leave the Closing Table, you will take with you several different piles of cash you don’t see in a Residential Real Estate Purchase.

They come in the form of

• - Tenant Security Deposits
• - Pro-rations
• - Credits

And in a larger property, these can easily total hundreds of thousands of dollars.

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WARNING:

We know of other commercial property Educators who advise you take this money at the close and use it to purchase additional property. They crow about “Cash Back at the Close” as a major reason to move up to commercial property.

We strongly disagree – and absolutely discourage you from taking cash out of ANY commercial property at the Close!

That is because all of this Money has a dedicated purpose.

If you use this money for anything other than its intended purpose in this property – you are literally Stealing it from the property and your Investors. Taking this money can and will sabotage the success of your investment.

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Always use this cash wisely and Only for its intended purposes.  

 Tenant Security Deposits -

Are to be returned to the Tenants when they move out. Set up an interest bearing account for them and transfer the appropriate amount of money directly from the closing table. This cash is spoken for.

Pro-rations and Credits -

Are money already set aside for operational expenses and need to be kept off to the side until these expenses are actually due.

EXAMPLE #1:

If you buy the property on July 1st you will receive a credit from the Seller for 1/2 the year’s property Taxes. This money is dedicated to paying the taxes when they are due – and if you spend it instead – or use it for ANY other purpose, you have just stolen from the property.

EXAMPLE #2:

If you buy the property in the middle of the month and the Seller has already collected the rent you will get a prorated share of the rent collected. In this case, 1/2 of it. This money has been generated this month to pay next month’s bills, leave it set aside in your operational account for use when the bills come due.

If you siphon off any of these funds for yourself or other investments, you are setting yourself up to run short of operational cash very quickly.

When this occurs your only recourse will be to ask your investors for more money, this is called a Capital Call. AND there is nothing worse for your reputation as a Project Sponsor than a quick Capital Call.

We recommend you open three bank accounts when you take over ownership

1) Operations Account – For the monthly in and out of income and expenses

2) Security Deposit Account – Best if it is interest bearing. Transfer all Security Deposits directly into this account.

3) Reserves Account – Always keep your reserve account topped up (we recommend at least one month of operating expenses). This is your rainy day fund and can be an interest bearing account as well.

We recommend you raise enough money from investors to fill the Reserve Account at the Close of your Purchase. This way you will not need to make a Capital Call if the furnace goes out in the first 6 months of your ownership.

With these accounts set up, simply transfer all Closing Table funds into the appropriate account.

AND whatever you do, don’t steal from your own property!