TITLEDate Speaker

Are You Ready for 2010?Avoid the Top 10 management pitfalls that

reduce profit and increase liability

Introduction Daniel Bornstein, Esq.

• Real estate attorney and founding partner at the Law Offices of Bornstein and Bornstein

• Proprietor of Legal One Property Management• Real estate investor

Today’s Focus Identify 10 areas of property management

vulnerability. Provide solutions to insulate against these mistakes. Highlight best practices for property management

companies.

OutlineI. Inception of the Property Management Relationship

II.Legal Knowledge and Education

III.Staffing

IV.Client and Tenant Relationships

V.Bookkeeping and Operations

VI.Conclusion

#1: Inception of the Property Management Relationship

Pitfall #1Failure to draft and execute outstanding property management agreements at the inception of the relationship.

#1: Inception of the Property Management Relationship: Best Practices

An excellent property management agreement:• Sets expectations and boundaries• Delineates and monetizes responsibilities beyond rent

collection and tenant selection commission

Example:

NOT COVERED BY THE MANAGEMENT FEE 

Owner understands that the following services rendered by the Authorized Agent to Owner shall be reimbursed for their time at the agreed upon rate of $95.00 per hour, with a one (1) hour minimum.  A full accounting of billable hours shall be provided to the Owner(s). These services include but are not limited to: . . .

#1: Inception of the Property Management Relationship: Best Practices An excellent property management

agreement:• Contains a broad indemnity provision

Example:

SAVE HARMLESS 

Owner shall indemnify, defend and save Agent harmless from all loss, damage, cost, expense  (including attorneys' fees), liability, or claims for personal injury or property damage incurred or occurring in, on, or about the Premises. 

• Provides a clear method for termination upon non-compliance

#1: Inception of the Property Management Relationship: Best Practices

Are you still using the CAR form agreement?

Compare with a more aggressive agreement:◦ Scope of CAR agreement is limited and not thorough◦ Does not provide you with adequate protection

#1: Inception of the Property Management Relationship: Best Practices

Two More Relationship Inception Best Practices

• Of course, visit and inspect the property before accepting responsibility for it.

• Make sure that property manager is a named beneficiary on property owner’s insurance policy.

#2: Legal Knowledge and Education

Pitfall #2Lack of formal training and knowledge of the law

#2: Legal Knowledge and Education

Discrimination / Fair housing regulations Americans with Disability Act (ADA) Contract law, leasing Security deposit accounting rules Employment law (resident manager’s compensation,

workers compensation)

#2: Legal Knowledge and Education: Best Practices

Maintain a program for education:

• Participate in Trade groups• Attend Seminars • Maintain a Close relationship with law firm• Online education – www.PropertyManager.com

#3: Staffing

Pitfall #3Employees have little background in real estate and are often unfamiliar with landlord tenant laws.

Example – Rent control Law

#3: Staffing: Best Practices

Hire experienced people in the industry who demonstrate prior knowledge

Enlist employees in education programs and trade groups

#4 & #5: Still Staffing!

Pitfall #4Significant employee attrition due to compensation dissatisfaction

Pitfall #5Through employee attrition, losing historical knowledge of landlord and tenants.

#4 & #5: More Staffing Best Practices

Identify outstanding employees

Groom outstanding employees to positions of authority….gradually so they are committed to your business Example – A talented administrative assistant –

pay for training for their real estate license

#4 & #5: More Staffing Best Practices

Set employee retention as a goal in your compensation policies

Compensation based on both traditional salary and satisfying key metrics

Offer intermittent bonuses and or incentive programs

#6: Client Relationships

Pitfall #6Failure to be aggressive in terminating toxic relationships with difficult property owners.

The “80/20” rule

Consider your opportunity costs

#7: Tenant Relationships

Pitfall #7Failure to proactively address failed tenant relationships.

Immediate communication with both owner & tenant

Nonpayment of rent

Understanding time & cost of eviction

#7: Property Manager / Tenant Relationships: Best Practices

Communicating with tenants: Understanding the 5 tenant personality profiles

A. The Political Tenant

B. The Silent Tenant

C. The Dysfunctional Tenant

D. The Passive Aggressive Tenant

E. The Perfect Tenant

#7: Property Manager / Tenant Relationships: Best Practices

Employ a systematic approach to addressing failed tenant obligations Set up schedule to make clear when rent is due and when

payment is late.

Develop a database of templates for tenant communication

Have your law firm ready to act if necessary

#8 & #9: Bookkeeping and Operations

Pitfall #8Failure to document, disorganized filing.

Pitfall #9Failure to properly manage or oversee bookkeeping, trust accounts, and comply with DRE rules and regulations

#8 & #9: Bookkeeping and Operations: Best Practices

Use information technology to organize and automate bookkeeping and management tasks. Example:

#8 & #9: Bookkeeping and Operations: Best Practices

AppFolio Features: • Complete general ledger accounting, customizable

reports.

• Tools to manage tenants, vacancies and vendors.

• Track maintenance requests online and email work orders.

• Generate batch email owner statements.

#10: Bookkeeping and Operations

Pitfall #10

Failure to properly retain, monitor and oversee construction tradesmen, handy man, and independent contractors

Examples: • Not checking if contractors have valid license.• Not checking if permits are required for construction

project.• Hiring handy men to do work beyond their ability.• Not reporting an injury.

#10: Bookkeeping and Operations: Best Practices

Your client’s willingness to do unpermitted work will not always insulate you from liability.

• You can still be liable for authorizing unpermitted work even if you are just complying with your client’s wishes.

• Ethical conundrum: Duty as your client’s fiduciary vs. subjecting yourself to potential liability.

#10: Bookkeeping and Operations: Best Practices

What to do?

Document, document, document

Include a proper indemnity agreement in the property management agreement. (Remember pitfall #1?)

Conclusion

Putting it all together:

Property management is part communication, part bookkeeping, and part landlord-tenant coordination

Questions? Additional Resources

Additional Resources: Property Management Education:

www.PropertyManager.com

Local SF Associations: SFAA.org, PPMA

Web-based Property Management Software – www.AppFolio.com

Contact InformationDaniel Bornstein

The Law Offices of Bornstein and Bornstein507 Polk Street, Suite 320San Francisco, CA 94102-3339Telephone: (415) 409-7611Facsimile: (415) 409-9345Email: Daniel@bornsteinandbornstein.com

TITLEDate SpeakerThank You!