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Set Ground Rules Early with Owners and Tenants

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL

I’ve always had a lot of respect for professionals who truly learn from their mistakes.  Many of the top companies and executives in the world admit that they have made plenty of them over the years.  What sets theThe Rule Book successful companies apart from the unsuccessful ones is the ability to immediately make adjustments and avoid making the same mistake twice.  It can be costly to make an error on the job but it can be devastating to repeatedly make the same mistake over and over again.  That’s why I sat down last week to reflect upon a recent string of lost property management accounts.

Those of us who manage properties owned by others all have our steady, long-term clients.  These are the ones that we can count on.  We depend on them to provide the residual revenue that drives our business and allows us to operate on a monthly basis.  These owners generally defer to our decisions, believe in our process, and most importantly trust us to manage an important part of their investment portfolio.  In our experience we have found a common theme that runs along with most of these clients.  Ground rules and expectations were properly set at the beginning of those business relationships.  Although there are always ups and downs involved in managing any relationship when you are playing with someone else’s money, those hurdles can often be overcome if guidelines were properly established at the beginning of the relationship.  If those guidelines are not set up properly and early we are asking for trouble.  If we wait until a problem arises to set up those expectations the business relationship is ultimately doomed.

Property management is a high churn business by nature so there are a certain number of accounts that are going to be lost and replaced every month.  Property owners sell their properties, they get foreclosed upon, or they let their hard-on-his-luck brother move in.  We are used to this, but those transitions are generally friendly ones with property owners thanking us for our service and moving on.  What prompted this post was the fact that we began losing a few accounts that were not for these reasons.  We had three accounts last month choose to self-manage their properties rather than continue with our services.  I began to consider where things went wrong and why those owners no longer saw value in our services.  Once I asked a few questions and gave some thought to how things transpired I realized that it was not WHERE things went wrong that mattered.  It was WHEN things went wrong.  Every one of those property owners were signed and set up by a previous employee who was not terribly thorough during the setup process.  We failed as a company to compensate for that shortfall and allowed the relationships to begin and continue without setting up those ground rules.  As we faced typical challenges throughout the two years with these clients we were always butting heads with them about very minor issues.  The fact is that this conflict could have been avoided by properly establishing the program from the beginning.  Once we had already run into issues it was simply too late.

This doesn’t only go for the owner/manager relationship.  The same dynamics exist when we are dealing with our tenants.  There’s a reason why it is so much easier to deal with tenants that we have placed ourselves as opposed to inheriting a tenant placed by a property owner or another agent/management company.  When we place them ourselves we have control of that critical initial period where we can properly set expectations regarding rental payment, collections, maintenance, service calls, etc.  Once a tenant has had a bad experience with a previous agent or have become accustomed to poor payment habits it is extremely difficult to turn them around.

Some of the more important items to establish:

When managing the manager/owner relationship
- Clearly explain the service call process.  Walk them through a typical call from the tenant call-in all the way through paying the vendor for that service.  We will often go through this twice just to be clear.
- Explain spending guidelines, limits, and approvals in detail.
- Make it absolutely clear who the owner contact is within your organization.  Our firm typically has 2 contacts for each owner but we try to clearly explain when the owner should contact each of their contacts.
- Make sure owners understand how the money flows through your system.  They should be clear about how security deposits are held, how the tenants pay, how expenses are assessed and paid, when they get their money, and how they receive it.  Avoid the “where’s my money” call at all costs.  A quick tutorial regarding their Buildium online owner account is a great idea at this time.

When managing the manager/tenant relationship
- Explain rent payment options, terms, and most importantly the ramifications if rent is not paid on time.  Many managers are afraid to discuss late fees, 5-day notices, evictions, and judgments at this time.  There is no better time to set up these expectations.
-Make the maintenance request process crystal clear.  Provide appropriate phone numbers.  Let them know step-by-step what will happen when they call.  Will they leave a message or speak to a live person?  Should they expect a call in 5 minutes or 5 hours?  By setting the expectations properly you will avoid repeat calls and many complaints.
-Walk the tenant through the move-in process in detail.  They should know who will be contacting them and when.  They need to know what will happen during their move-in walk through, what they need to bring at the time of possession (rent, deposits, etc), and what is expected during their move-out walk through.

These are the basics that we establish for every account.  Every property and market are going to have their own particular set of rules that need to be addressed but the important thing to remember is that WHEN is the most important variable as you set the expectations for owners and tenants. Your best bet is to always act early.

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