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Operational Due Diligence - Investigate Your Critical Factors

Due diligence being conducted prior to your offer to purchase a rent roll By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia I’m sure you are beginning to understand the vital importance of an operational due diligence being conducted prior to your offer to purchase a rent roll becoming unconditional. Once that contract is unconditional you are bound to proceed with the purchase regardless of how inferior the business is that you are purchasing. Yes, I understand that in most purchases there is a retention period, usually three months (again, this is a time period I do not agree with) whereby you have the opportunity to not pay for any managements that you may lose in this period. But, under normal rent roll contracts it’s fairly standard that a percentage of the purchase amount is usually withheld in a solicitor’s trust account and is released when the retention period has expired. Some agents believe this period is their safe guard. Well, I’m here to tell you that you must not be lulled into a false sense of security and, with that said, I feel another article is worthy of this subject. This post focuses on what I refer to as the “critical factors” that need to be investigated when conducting an operational due diligence. These critical factors are: Average management fee Average distance to property ratio Average weekly rent Management splits (percentage of houses and apartments) Number of owners against properties under management and how many are multi owners (including details of each owner’s actual number of properties) Percentage of fixed term leases Monthly disbursement methods......
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Help! My Tenant Needs to Break Their Lease

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA It was just a few months ago when the tenants were in the office signing the one year lease agreement. The leasing agent followed the office procedures and made sure to review the lease terms and obligations prior to asking for binding signatures. Then with the swipe of a pen the property was considered off the market and occupied for the year. So, it can be somewhat frustrating when two months later you receive the dreaded call from the tenants stating that for some unforeseen reason they need to move out of the property earlier than expected, consequently breaking their lease agreement. As a property management expert, and owner of San Diego Premier Property Management, I’ve had the opportunity to prepare, execute, and negotiate lease agreements for the better part of a decade, and I can say with all honesty that this scenario happens on a regular basis to the most qualified of tenants. Whether the breach occurs one month or six months into the one year lease agreement it is important to understand that the lease agreement, and the terms agreed upon and signed by both parties constitute a legally binding contract that when breached can carry monetary and legal consequences toward the tenant. With that said, the situation doesn’t have to escalate to a legal issue since it can be mitigated to the benefit of both parties. If the lease has an opt out clause then advise the......
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How to Use Due Diligence to Expose Business Landmines!

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia Sadly, when carrying out due diligences many agents buying a rent roll are not sure what they are looking for. This lack of understanding means most pay a hasty glance over files and computer reports. On the surface they all look fine, but it’s a bit like an iceberg, we need to understand what looms below. We are all in the industry because we are good sales people. Ultimately, isn't this industry all about our ability to sell? Yes, we promote the best features and benefits of our products and services, but as selling specialists we also need to understand that whilst it looks good on the surface, there may be landmines below. I’m not saying don’t buy rent rolls, just be aware of what it is you are purchasing. So, the first thing is to understand due diligence. There are two kinds of due diligence – financial and operational. When purchasing rent rolls, financial due diligence is undertaken by a valuer. In many instances, the valuer is engaged by the bank to conduct an evaluation of the business prior to lending. If you are not borrowing for the business, I recommend a financial due diligence be conducted nonetheless. Operational due diligence is the second type. This is just as critical as the financial due diligence. Not having an operational due diligence prepared would be like buying shares in a company that is on the verge of bankruptcy and hoping a healthy bottom line......
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Can Your Rental Property Become a Day Care?

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA In a recent notice received by our legal counsel addressing this very issue, apparently if you own rental property in California the scary answer is yes! The great state of California is widely known as a pro-tenant state when it comes to tenant-landlord related issues. Many cities such as San Francisco and Los Angeles are saddled with pockets of rent controlled areas making investment opportunities less attractive. They also have unfavorable statewide eviction laws that allow deadbeat tenants to continue residing in properties months after defaulting on rental payments. So this should come as no surprise that according to state law if the tenant is licensed by the California State Department of Social Services (DSS) it only takes a thirty day written notice of their intent to legally start and operate a day care center without the permission of the landlord if the total number of children under care, including the children of the tenant, is limited to six. In fact, permission from the landlord is only necessary if the tenant chooses to increase the total number of children under care to eight. The licensed provider does need to have adequate insurance or be bonded. They must simply provide each parent, in writing, a notice that states the landlord’s insurance will not cover any issues should they arise – how reassuring. In fact, the landlord’s only recourse is that they can require the tenant to increase the security deposit to......
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How To Handle An Abandoned Property

By Carla Toebe, New Century Realty, Kennewick, WA They say that abandonment is a landlord’s or property manager's worst nightmare when dealing with a tenant. How do you know it is really abandonment? Sometimes it’s obvious when everything is gone, the place seems perfectly empty, and the tenant's keys are lying on the counter. But what if the place is full of furniture, the food is still in the cupboard, and you can't get a hold of them? They haven't paid their rent, they haven't returned your phone calls, no one has seen them, and you can't get a hold of anyone on the emergency contact form you had them complete when they moved in. Surely this means they must have abandoned the place. So you change the locks, and uh-oh! There they are coming back claiming you have now burglarized their place. Oh no! This can't be, they clearly abandoned the place and you took all the steps you had to take that were required by law. Maybe it isn't that clear cut. Maybe a tenant still has some rights. Now you are facing penalties, a criminal investigation, and a whole slew of troubles you never knew you had. Let's back up and figure out how to determine that this is really abandonment and you have the right to take possession of your unit. You spelled out what abandonment was with your tenant and you had it written in the lease, right? Good, well at least you tried to get......
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Rent Roll Buying and Selling – More Than Meets the Eye

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia Recently, I have been involved in the sale and purchase of a rent roll. I had the rare opportunity of consulting for both the buyer and purchaser. Let me say, this was the smoothest and least stressful rent roll transfer I have ever witnessed! Now some might say there is a conflict of interest by consulting to both the seller and the purchaser, and yes, I would agree! I definitely had my reservations about consulting and advising to both of them, but I discussed my dilemma with both parties. They both agreed they would retain me as the consultant and adviser through the negotiation, transfer, settlement, transition and retention period. In fact, I even conducted the inspection and overview on the selling rent-roll, and prepared the due diligence report. This was a tremendous lesson for all concerned (including me)! The offer and settlement process lasted for several months. The buying agency is now in the midst of the four-month retention period. The selling agency must continue to cooperate to ensure all clients (both property owners and tenants) are happy with the new managing agent. Both agencies must not become complacent or lulled into a false sense of security until they are clear of this retention period. For all intents and purposes the first goal of the buying agent is retention! The second goal is to build on the managements that they have invested in to encourage the investor to buy more property and recommend......
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A Resident's Expectations

By Steven Van Zile, Total Management, New York, NY Within the past 24 hours, here are the maintenance issues I’ve experienced at the property where I reside: the maintenance person, loyal to this building for 33 years, responds to a clogged toilet by advising us to pour bleach down the toilet. Concurrently, the intercom buzzer is stuck and won’t shut off. And, of course, the elevator renovation that started out as a one week project actually turned into a three week project, providing 6th floor tenants the opportunity to save money by cancelling their gym memberships. It’s always seemed simple to me; as residents, we pay rent, maintenance fees, or mortgage payments and the property management staff provide services for the resident. Building and trust owners hire those property managers based on their abilities to keep churn rates low, vacancy at zero, and tenants happy all at or below a budget designed to re-invest in the property. So what happens when we tenants aren’t happy? Well, in today’s age of instant knowledge and access, a lot of renters turn to rating sites like Yelp or apartmentratings.com to spitefully pen scathing reviews in an attempt warn others. These sites might be seen as a threat, but if you’re really good at your job, more transparency can only help you, and reviews will actually help your business grow. Let’s get back to the problems at hand. In the three examples I highlighted earlier, the correct response would have been to snake the toilet, send......
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Do Short-Term Rentals Make Sense for Property Managers?

Short-term rentalsA guest post by Ashley Halligan, Analyst, Property Management Software Guide Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind. First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. F......
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Should Our On-Site Employees Really Be “Jack of all Trades”?

I hear the “Jack of all Trades” job description a lot regarding our on-site teams, that everybody chips in and works to get the job done.  For many, it is almost a badge of honor to be a Jack of all Trades, as it implies that you can handle anything they throw at you.  And in that respect, I totally agree!  But I also believe it is the model of inefficiency. First of all, I want to be clear that this isn’t a discussion on whether people should step up when the job needs to be done.  For example, if all the leasing consultants are out of the office or otherwise busy, I firmly believe that the community manager has to be ready to take that next prospect on a property tour.  Every person needs to be able to rise to the occasion in order to get the job done.  However, there is a difference between every person doing every job, and every person having a specific job but able to lend a hand when it is needed. Let’s look at leasing consultants specifically.  A leasing consultant has a wide variety of job functions, from leasing, to customer service, to administrative duties, such as preparing a lease.  Sales, customer service, and administrative work are all very different, and often one personality type is rarely fantastic at all three.  Years ago when I called the community office home, I can say that I was great at customer service and administrative work, but......
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Bonuses and Incentives in the Real Estate Industry: Striking Accord

BonusBy Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia Are you in a position to create your own bonus and incentive plan that strategically builds your business, not just your property manager’s pocket? Successful bonus and incentive plans are all about understanding your team at an individual level, your agency’s business plan, and your market area. So, this week, let’s take a look at how understanding these critical factors converts to a bonus and incentive plan where all parties- the team member, property owner and you, the business owner- win now and win in the long-term. What happens if, for instance, the average weekly rent in your market area is $300 and the property manager has a target of five new managements per month? The property manager could in fact reach the target of five new managements, but the five properties average only $200 per week. The problem – the property manager’s focus is on numbers and not quality. What happens if the agency then increases its weekly rent on leased properties to $1000? On management fees of eight percent, this would equate to $80 per week extra income for the agency. If the incentive is a bonus equivalent to one week’s rent for each new management (which seems to be the norm bonus in most businesses), the business owner will pay $1000 as a bonus to the property manager or business development manager. Rewarding the property manager for every management, regardless of the target, only encourages the property manager to secure whatever business th......
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