property management class for CE

1. Pr esent
s:
Property Management
By: D. Scott Smith, CCIM
443.691.8153.
www.commericalrealestateclasses.com

2. Today We Will:
• Pt. 1 The How and Why of Land lording
• Pt. 2 How to Lease a Property
• Pt. 3 Management of Rentals
• Pt. 4 Tools
• Pt. 5 Taxation
• Pt.6 Forms and Review

3. Class Room Rules
• You must sign in and out to get CE (show
ID)
• No eating, sleeping, or using electronics
• You must be on time
• Raise your hand to ask questions
• Be polite
• Breaks will be administered

4. Part 1
Why and How of Land Lording

5. Famous Land Lords

6. Famous Land Lords

7. Famous Tenants

8. Famous Tenants

9. Why be a Land Lord?
• Self Management vs. Professional Team
• Wealth Accumulation
• Provide Consumers with Product
• Not Boring
• Builds Investment Experience
• People Pleaser
• Overcoming Objectives

10. Types of Land Lords
• ACCIDENTIAL Land Lords
Inherited Property, Distress Market
• Long Term Land Lords
Leverage Time, Leverage Investments
• Corporate Land Lords
REITS, Asset Class Land Lords,
Industry Specific

11. Land Lords Team
• Maintenance Engineer
• Accountant
• Legal Professional
• Business Planner
(NOTE: It is important to treat each property
as it’s own separate business. )

12. Types of Properties
Tenants – Commercial
Renters – Residential
• Single Family
• Multi Unit
• Multi Family
• Complexes

13. Each Property Needs A Plan
Management Plan includes
• Preparing the property (warm vanilla shell)
• Pricing the property (mortg. Vs. rent )
• Price per unit
• Price per sqft
• Lease Types
• Ammenties

14. Plan (cont.)
• Security Deposits
• Commission amounts ( how to calculate )
• Marketing Plan
• Negotiation Strategies
• Tenant Selection Process
• Legal Docs
• Accounting and Collections procedures

15. Questions
On a scrap piece of paper, without using
words:
• What would be some of your personal
Pro’s and Con’s of Self Land Lording?
• What would be some of your personal
Pro’s and Con’s of Professional Land
Lording?

16. Self Management
Pro’s Vs. Con’s
• Save Money • Loss Tax Break
• Save • Full Time Job
Maintenance $ • Loss of Control
• Control

17. Professional Management
Pro’s Vs. Con’s
• Experts • Not cost
• Contacts Effective
• Lower Loss Ratio • May mark up
expenses
• Unknown
internal
Systems

18. Why hire a property manager?
http://youtu.be/MUseCJ7PhLQ

19. Professional Management
• Enforcement of Property Rules and Reg’s
• Performance of rental market cost settings
• Preparation, Marketing, Showing units
• Preparation of ongoing repairs
• Inspections
• Collections
• HR

20. How to hire a professional
• Check references
• Match manager with property type
• Copies of license
• Are they credited and bonded
• Copies of Insurance

21. Questions you should ask
• See handouts (pg.41)

22. How Much? And When?
• % of collected
• Flat Fee
Conditions
• Amount of time
• Size of Property
• Market Characteristics
• Expense Ratios

23. The Management Agreement
• Legal Consequences
• In writing (see example)
• Set Milestones w/ incentives
• Lawyers Clauses

24. What if it’s existing?
• Existing Tenants and / or Management
• Get copies of all Leases
• Escrow accounts
• Payment History
• Expense reports
• All license
• All services

25. Cont.
• Interview tenants
• Walk through each unit
• Write new leases if possible
• Evaluate market and contract rents
• Lease buy out
or
Buy vacant and lease up!

26. Part 2.
How to Lease a Property

27. Understanding Vacancy Ratio’s
Determine an expected percentage of loss due to
vacancy and non-payment by checking that of
comparable properties and the recent loss
experienced by the subject property.
Last year's vacancy and credit loss from the
subject property may have been 3% of net
operating income. Other comparable properties
experienced an average of 4%. Choose a value
in the mix, let's say 3.60%.

28. Vacancy Ratio’s
• Adjust your net operating income for next
year by any anticipated rent increases. If
you are anticipating a 5% increase in rent,
and net operating income this year is
$44,000, then:
$44,000 X 1.05 = $46,200

29. Vacancy Ratio’s
• Calculate the expected monetary loss for
next year due to vacancy and credit
losses:$46,200(net operating income) X .
0360 (3.6%) loss estimate =
$1663.20.

30. Should you renovate?
• Some renovations will not recoup
investment
• Dollar Cost Averaging
• $3,500 renovations in kitchen
• Increase on average. $50 a month

31. Should you renovate?
• Minor Kitchen Remodel costs $19,685 with a
Resale Value $19,770 Cost Recoup 100.4%
• Bathroom Remodel costs $15,051 with a Resale
Value of $14,474 Cost Recoup 96.2%
The costs and recoup chart below shows the
National Averages for the Job Cost, the Resale
Value and the Percentage of Cost the Owners
Recouped on their initial outlay. The figures to
the right of that chart are for the entire Pacific
Region for the same items.

32. Question
You have a several vacant units in your 10
unit building (18%) and you are wondering
if renovating the vacant units bathrooms
will decrease the vacancy.
What items should you consider and should
you renovate? How long will it take in a
stable market to recoup the investment?

33. Physical Attributes
• Curb Appeal is the biggest investment
• Standardize all units
• Check out competition
• Don’t Preshow

34. Inspection Check List
• General Cleaning
• Major Repairs
• Vanilla Shell
• Roof and Basement inspections
• Carpet / Flooring schedules

35. Safety Issues
• Well lit areas
• Fire Escapes and Exit Signs
• Emergency Exits and Evacuation Plans
• Fire and Sprinkler Systems
• Smoke detectors

36. Setting the Rents
• Rent Comps
• Rent Concessions
• ProForma (see excel)

37. Security Deposits
• Legal limits
• First and Last months rent
• Bond, Securitized
• Co-Signer
• Interest Barring Account

38. HB 917/HB 284/SB 429/SB 669
• HB 917/HB 284/SB 429/SB 669 – Real
Property – Residential Leases – Interest on
Security Deposits
STATUS: NOT PASSED
Many bills were introduced to address this issue,
but HB 917 was the only one of the bills to
advance. It would have required landlords to
return deposits with an interest rate of 1.5% or a
rate equal to the U.S. Treasury Daily Yield Curve
Rate whichever is higher. Although HB 917 was
passed by the House, the Senate did not take
action on the bill.

39. Rental Contracts
• Standardized Application form
• Additional Documents May be needed
Business Plan, Application
• Lease Agreement written by an attorney
• Different agreements for different property
and lease types
• TI Allowance and other clauses
• Commission Agreement

40. Marketing Your Rental
• Have a Full Blown Marketing Plan
• Digital Marketing Package
• Have a Social Strategy

41. Cont.
• Other Tenants in the Building
• Local Employers
• See Ways to Market Doc. In hand outs.

42. Fair Housing Issues
• See Hand Out
Fair Housing Amendment Act of 1988

43. Property Disclosures
• Lead Paint Hand Outs
• Asbestos
• Radon
• Sexual Offenders (Megan’s Law)
• Other known material facts

44. Tenant Screening
• Prev. Land Lord Interviews
• Financial History
• Co-Signers
• Application
• Credit Report

45. Tenant Mix
• Synergy
• Deed Restrictions
• Credit Vs. Non-Credit
• Parking Issues
• Utility Consumption

46. Pacific Heights
Trailer
http://youtu.be/PrVtU25MSqQ
Full Movie
http://youtu.be/y3o0Ucl4zVI

47. Part 3
The Lease

48. Lease
• Specific Lease Clauses and Languages
need to be drafted
• Company Policy and Procedures
• Use and Occupancy
• Payment Enforcement

49. Tenant File
• Application
• Verification
• Credit Report
• Copies of Deposits
• Copy of Lease
• Disclosures
• Inspections
• Photos of unit

50. Renewals
• Are there rent increases
• True cost of rent turn over's
• Market vs. Contract rent
• Incentives ( get creative )

51. Collections
• Have a written policy in regards to
collections
• What day is rent due
• Grace Period
• Late Fee
• Returned Check fee
• Certified Letters

52. On Line Systems

53. Collections
• *HB 653/SB 457 – Lawyers – Bar Admission
Requirement – Exception for Rent Escrow
Proceedings
• STATUS: PASSED – Effective October 1,
2011
• Allows non-attorneys to represent landlords or
tenants in rent escrow cases. Occasionally,
property managers representing owners in court
on a summary ejectment proceeding find
themselves also engaged in a rent escrow
action.

54. Rent Court / Evictions
• Where to send legal notices
• Trial Date set, bring Tenant File
• Rebuttal Time Period
• Awarded a judgment
• Notices posted on property
• Different laws for residential and
commercial

55. Expect Problems!
• Cash for Keys
• Bankruptcy
• Hold Over's
• Broken Contracts
• Assignment's
• Domestic Issues

56. Part 4
Tools and Taxes

57. Taxes
Active Income Bracket Vs. Passive Income Bracket
• Income for which services have been performed. This includes
wages, tips, salaries, commissions and income from businesses in
which there is material participation.
Basically the rule is if you actively participate in the business you are
allowed a special allowance to deduct up to 25k passive loss
against ordinary income, subject to phase-out rules.
• It is considered a passive activity (unless real-estate professional)
but you are given an allowance if you actively participate in what
they consider to be a passive activity. If you don't actively participate
(meaning approving new tenants, deciding on rental terms,
approving expenditures, and similar decisions) your loss would only
be deductible against your passive income.

58. • Tax Reform Act of 1986 has limited this tax shelter. All real estate
losses are considered passive losses (losses that are incurred
through an enterprise which the investor is not actively involved).
Passive losses can now only be used to offset passive income. In
other words, if you show a loss on one property of $50,000, it can
offset $50,000 in what would otherwise be taxable income from
another property. The tax law also limits a taxpayer's ability to
shelter active income (income from wages and other activities) with
passive losses.
• For instance, investors with an adjusted gross income (AGI) of less
than $100,000 can use passive real estate losses to shelter up to
$25,000 of income from other sources. For taxpayers with between
$100,000 and $150,000 of adjusted gross income, this shelter has
been phased out. For each two dollars of AGI over $100,000, the
$25,000 limit is reduced by one dollar. Therefore, an investor whose
adjusted gross income is $120,000 would be limited to a $15,000
tax shelter. This investor could still use real estate losses to offset
$15,000 of active income as well as unlimited gains from other
passive real estate investments.

59. • A further limitation imposed by the 1986 Tax
Reform Act is that investors who don't actively
manage their properties can't use their passive
losses to shelter any active income. This means
that investors who purchased shares in
limited partnerships or similar investments can
no longer use these paper losses from
depreciation as a shelter against other income.
•
Read more at
http://www.finweb.com/taxes/real-estate-depreciation

60. Have these internal systems
• Maintenance
• Expenses
• Contractor Lists
• Emergency Response
• On Site Staff
• Security
• Keys
• 100’s of Forms at your fingertips

61. Insurance
• Accidental Insurance Policy
• Renters Insurance Program
• How to handle claims

62. Increasing Your Return
• Budgeting
• Non-Rent Revenue
• Subsidized Programs
• Student / Short Term Housing
• Education on Property Management
• Designations

63. Thank You!
D. Scott Smith, CCIM
443.691.8153
Scott.Smith@PenFedRealty.com
www.CommercialRealEstateClasses.com