Trevor Henson's Blog

A question that we – as a property management firm – are constantly asked by prospective new clients is “How do you reconcile the trust account against all the checks and bills that come in and out of your office each month? How can we be sure that our money is being properly accounted for?”

 To us, the answer seems very simple:  each new client is set up with two new trust accounts once they sign a property management agreement:  An Operating and a Reserve account.  Security deposit monies that are collected from residents at move in are deposited into the Reserve account and not touched until that resident moves out again.  Monies that are collected as rent are deposited into the Operating Account and used to pay bills, vendors, owner distributions, etc.  At the end of each month, each account is examined and reconciled.  True, this adds a bit more work for our book keepers, but the reconciliations at the end of each month end up being very precise. 

In California it is legal keep every client’s rental and deposit monies in one single trust account – but to me that seems like an accounting nightmare.  One account would save on bank fees and back end set up time, but that seem like a small price for being able to show our clients a bank statement at the end of the month with their specific account and accounting info.  If we employed the single-trust fund method, our clients would never – in my understanding - be able to see such an account statement due to the fact that  funds from 100 other properties would also be represented in this account.

Increase apartment rental rates in a recession? Preposterous, you say! Yes, it is - IF you have not been keeping up with the maintenance needs of your tenants and over all customer service. If your property management company has not been responding to the everyday ebb and flow of maintenance and upkeep of your investment property, than you can rest assured that when you post that 30 or 60 day "Change of Rental Terms" notice, that a series of "30 Day Notices" from your tenants will soon follow.

What is the answer to raising rents in a tough apartment market such as Los Angeles? Responding to maintenance requests. The residents of your investment properties will always appreciate quick turn around of their maintenance requests and will remember such service when the it comes time to keep rents up to market. I am not talking about a super significant raise here folks - just a gentle increase to help you, the landlord, keep your NOI through these trying time. In my experience here at First Light Property Light Property Management, Los Angeles, a resident seldom moves out of a building for a subtle increase of 3% to 5%. Early on we did, however, find that if we as a property management team happened to have overlooked a resident's maintenance request, that this overlooked request was the FIRST thing they brought up when the rate increase letters went out. The outstanding issue was promptly resolved, but it would have been much easier on to have handled it within the first 24 hours and exceeded the expectations of the renter.

Is it good business practice to raise rents in a bad economy? My opinion is yes, but only if your property management has kept a very tight ship with customer service to tenants and have kept up with their maintenance needs. If your investment is providing superior service to your tenants then it deserves to be compensated. What do you guys think: raise or sustain? What are you doing in your communities?

A friend of mine recently bought an apartment building here in Los Angeles and asked me "How do I know when/if I need property manager?"  To which I told him there were several reasons to hire - or at least consult with - a management company.  I then proceeded to rattled off my top ten list of "you know you need a property manager when:"

1) If you find yourself taking calls at 1am to fix a broken water pipe in your building - you might need a property manager.

2) If you don't remember the last time that really nice guy in unit #108 paid rent - then maybe you need a property manager.

1. Exterior Power Wash

This is by far the most cost effective way to give your apartment complex that freshly painted look. Here is a link to a company that we use locally: www.hydro-kleen.com. The process is generally a 1-day deal for about an 1/8th of the cost of paint the entire structure. And yes, they do windows!

Keep in mind, however, that the power wash only works if the current paint job is decent shape, other wise the high pressure water will blast the paint right off. But if the paint is being shot off by water - it is probably time to repaint anyway.

The interesting point to note here is not my answer - but the fact that the prospect actually asked such a question - and straight out of the gate! The question was to the point and he cared very little about the various other benefits we would provide. He simply wanted to know what we - as a company - thought of ourselves. The prospect was not looking for a company to collect checks and handle complaints - he needed someone to shed insight on and provide guidance for his $10 million asset.

This appears to be an example of the shift in the way owners are approaching property management companies. Not only do owners need quality service, quick turnovers and fair management rates - they need a management company to take the reigns and drive the multifamily investment towards a profitable goal. This need (in my opinion), when fulfilled, establishes the property management industry as bottom line advocates, working for the betterment of the investment as a whole.

 Thoughts...?

As the economy keeps doing what it is doing (no need for explanation here, I am quite sure), relationships and trust within business circles become more and more critical. Investors need - more than ever - to be able trust in their broker's ability to navigate them through the daunting world of short sales, REOs, broken condo auctions, etc. Investors with access to hard cash have the upper hand and have become very adept to shopping their interests across multiple agencies to get the best "deal". Brokers, in turn, have had to step up their marketing and monitoring of existing relationships in efforts to keep long time clients from listing with the lowest bidder. And what better way keep up with an investor than by using the people with whom they talk with the most?

As residential property managers, we have contact with the Owner or Managing Partner(s) on a weekly (sometimes daily) basis. We discuss options in regards budgets, market rents, evictions, vacancies, repairs, upgrades - you name it - and we talk bout it. In doing so, property managers are able to gain some useful insight as to what the Owner is thinking in regards to his/her property. More often than not, the property management company is the first to know that an Owner is thinking about selling, refinancing or converting their multi family investment. We know this because they ask us to begin substantial curbside improvements; or ask us to meet with an appraiser at the property; or maybe tell us raise rents across the board...Either way we find out quickly - and at times much faster than the industry will. We are always happy to pass good news on; especially to professionals of whom we have done business with.

The Broker-Property Manager relationship is very easy to initiate. All a broker needs to do is to refer the Owner to a property management company he/she trusts. In return for the referral the property management will company inform the Broker of any updates in the Owners investment strategy. A good property management company will always respect a Broker referral and make sure that the Broker's client is treated exemplary. For us, referrals are 75% of our new business and are always in tune to giving back the referral in kind.

Does anyone have any other experiences with the Broker-Property Manager Relationship? I would love to hear them (good or bad, of course).

Many of us in the property management field are seeing our "For Rent" signs up longer than owners would prefer. In today's economy, we face not only the challenge to fill vacancies, but the challenge to increase and maintain rent values. To continue to watch your revenue increase we suggest the following tips.

1. Increase curbside appeal:

It's easy to make a few minor adjustments and improve the exterior of a rental. Replace dead or dying landscape and fill pot holes in the parking lot or car port. Make sure the outside lighting is up and running, no one likes a dark rental.