fiduciary duty

Looking for a Property Manager ? 16 Questions to Ask, Final Installment13-16

When do you typically pay landlords the rents collected?

Why is this important? Remember that the property manager has a fiduciary duty to manage your money. Knowing how long the manager waits between collecting rents and giving them over to you helps with your own business budgeting (because owning rental income properties is a business). Don’t schedule to pay a bill on the 5^th of the month if the collected rents will only be available in your account on the 10^th. Also, beware any manager who holds onto the rents longer than is truly necessary. Typically rents should be paid to you before the 10^th business day of the month.

How do you pay rents collected?

Why is this important? It is infinitely more efficient and faster to have rents direct deposited into your bank account, than it is to have to wait for a check. However, the answer to this question will let you know if the method you wish to conduct your business is even available to you. Some managers may not send out checks, doing everything electronically and you may prefer a check. In addition, some methods of payment may incur a “service fee” which you will need to budget for and which you will definitely want to know, up front when you are still comparing your property manager options.

How do you handle tenant emergencies?

Why is this important? Income property owners need the dependability of long-term tenants in their properties. Each time a property is vacant, that represents lost income for the duration of the vacancy. Property managers who handle tenant emergencies well and who have access to repair people who can make emergency repairs as well as normally occurring ones timely and pleasantly are more likely to attract and keep the types of tenants an income property owner needs. It is important that any property manager you hire knows that there is a correlation between how responsive the manager is to the tenant when there are issues at the property and how likely the tenant is to renew a lease.

What is the eviction process in this state for tenants who don’t pay their rent and how long does it take to evict a non-paying tenant?

Why is this important. No matter how great your property manager is, or even how great you are as an income property owner, evictions will happen. They are greatly minimized with an excellent property manager, but even the best of managers cannot predict life events that sadly may put a tenant into a situation where rental payments are not made. It is good for your business planning to know the eviction process occurs and how long it might take from the date eviction proceedings are started, till the property is returned to you so it can be rented out again. Unfortunately, in some states, the eviction process is very lengthy and a tenant can stay in a property for up to a year, without making a single rent payment. Knowing this, lets you plan for perhaps needing to make mortgage payments and property tax payments from your own funds, instead of rental income funds, for the duration of the eviction process.

Knowing the eviction process and in particular how your property manager handles that process also lets you know if the property manager is willing to both file an unlawful detainer action on your behalf and appear in court on the matter, or if you need to do that. This is particularly important to know if you have an out-of-state income property that is being managed, because if your property manager will not file the matter for you, or appear in court on your behalf, you will need to travel to that state for each hearing. There are often several hearings on an unlawful detainer action after it has been filed.

Photo Credit: Copyright, Michaeljung

Looking for a Property Manager ? 16 Questions to Ask, Cont. 7-9

sas-goodnight-quote-pic 7. Have you or any of your staff been charged with a crime or felony related to the management of other people’s money or any money-related crime? Has any property management company you have owned or work for ever filed for bankruptcy?

Why is this important? The property manager collects your tenant’s rent payments, deducts the management and repair or maintenance fees and must give you the rest. Misappropriation of your money will be devastating. This is an important question to ask and too often it is never asked. If a property manager feels this question is too intrusive, just move on. There are many reputable property managers and in states where licensing is required the licensing process requires fingerprinting and background checking. However, the lag time between licensing and renewals and between the filing of charges and a conviction could mean a person is licensed but has not yet addressed an issue like this with the licensing board. If a property management company has filed for bankruptcy it likely experienced severe business mismanagement and should raise questions for a landlord and should be discussed.

It is also a good idea to ask if and how the property manager vets vendors who do repairs and maintenance on properties. Also ask if the property manager requires them to have a bond and insurance. This is particularly important if repair personnel will be given access to tenant occupied properties, especially when the tenant is not home.

When choosing someone to undertake a repair or maintenance at a property, how many quotes do you obtain for the job?

Why is this important? Some property managers have a contractual (sometimes just a verbal one) or a mutual service agreement with their friends or family in the business. They will only steer the work their way and not open it to competitive bid. You want your work to be competitively bid on to make sure that you are getting the best price for the job. It is, of course, fine for the property manager to secure bids from friends and family, so long as they are properly qualified to undertake the work, have all applicable state and local licenses to do the type of work contracted for, are not overcharging to “kick back” a portion to the property manager for the referral and will guarantee the quality of the repair. This also goes back to the vetting process mentioned above, but competitive bids help you to know the work is being done at a market reasonable cost.

What percentage of the collected rental income do you retain for your management fee?

Why is this important? It is what you are paying for the property manager’s services. In residential management, this number is usually between 8% and 10%. In commercial, it is more often a negotiated percentage based on the total collected rents and the size of the property and it can be as little as 5% and as high as 15%, or more depending on what is negotiated and the extent of the work involved. Whether residential or commercial, you can negotiate this number. It is not a given. Remember to take into account the amount of work involved for the manager and the amount of rents that will be collected. This is a cost of having someone else manage your properties, but it will also decrease your annual income by that amount, so consider it carefully.

Stay tuned for Questions 10-12, up next…

Why Renters Should Consider Renter’s Insurance

By: Eveline Brownstein (c)

Tenants should know what a landlord is not responsible for, and should act accordingly.

Local regulations differ widely nationwide, but there are some basic requirements of a landlord and there are some areas that leave a tenant vulnerable. Tenants should plan for, and cover themselves, for those things a landlord will not be responsible for, or they risk having losses that they will have to pay for out of their own funds.

1. Theft of a vehicle. A recent article on Heraldnet.com covers one such instance. A landlord is not responsible for a car stolen from the property. As a driver, you are required to carry insurance to cover accidents. In most states it is not necessary to carry vehicle loss insurance. However, if you do not cover your vehicle for theft and it is stolen from the property, you are personally responsible for that loss. Such a theft loss is not the responsibility of the landlord.

2. Theft of personal property inside the home. A landlord is not responsible for a tenant’s personal property, stolen from the home. Renters are wisely advised to purchase a renter’s policy to cover a theft of personal property. These policies are, generally speaking, affordable and they will give a tenant peace of mind. One of my properties has an alarm system that I installed when I was living there. I have had a number of subsequent tenants in that property, all of whom have elected not to activate the alarm system. While this is clearly a choice my tenants make voluntarily, since I have provided access to an alarm and it has not been activated by a tenant, my responsibility for any thefts at the home is greatly diminished. Tenants should especially consider purchasing renter’s insurance that includes valuables, if the renter intends to keep jewelry or collectibles on the premises. A landlord will only be responsible for a theft loss if the landlord is directly responsible for the theft, for example: When giving workers access to the property for repairs and failure to lock the door when leaving the property.

3. Flood damage of personal contents. A landlord is not responsible for damage caused by a flood to the personal contents of a tenant. This means that even if the landlord carries content coverage on a flood policy, that coverage will not cover a tenant’s possessions, should those be lost in a flood. Renters who purchase renter’s insurance will also be able to purchase flood damage coverage to cover their personal belongings, should there be a flood in the home.

4. A guest who experiences a personal injury. While most landlords carry personal liability coverage that covers losses in the case of the personal injury of a tenant or a guest at the property, this does not eliminate the liability of a tenant from being also named in a lawsuit or a claim for personal injury, especially if it can be shown that the tenant negligently contributed to the injury. For example, if the tenant personally places a large rock in a pathway where it can be tripped over. Renters should exercise caution when inviting guests to the home, but should also cover themselves in the event that a guest is injured on the property as a result of an act of theirs and not the landlord’s. Sadly, we currently live in a litigious society and forethought and protection from money judgments and lawsuits must be a part of what we consider when we make decisions about what we need.

These are just four reasons why a renter should consider purchasing renter’s insurance when renting a property. A landlord’s policy will simply not cover areas that a landlord is not responsible for and a renter must decide what losses he or she can comfortably afford and what losses to protect against.

Who is my client? A timely reminder for Property Managers

The property owner is, of course. It is the responsibility of the Property Management Company to always make decisions in the best interest of the owner of the managed property. A critical part of this is to ensure that the property is legally compliant with all local tenant/landlord laws. Tenants have rights and property managers must protect their property owners by ensuring that they comply with those legal rights at all times. A property manager should engage in ongoing real estate education to keep up to date with changing legislation.

A good property management company will be helpful to the tenants wherever it can, but it must beware of letting go of its business goals in favor of its manager/tenant relationship. Renters are not your customers. Renters are the customers of the property owner and you are obligated to secure good tenant-customers for your owner-customers. Sometimes, in an admirable effort to reduce vacancies and keep tenants happy, property managers inadvertently closely guard their friendly relationship with a tenant and become hesitant to protect the property owner. On those occasions these undesirable situations may occur:

Violations of lease provisions (sometimes because the manager mistakenly believes it is minor in a bigger picture)
Delaying rent collection
Delaying enforcing lease provisions relating to tenant upkeep of the property
Delaying beginning a necessary eviction process
Overspending on repairs
Undertaking unnecessary repairs or items of a merely cosmetic nature
Permitting a tenant to choose a repair professional
Permitting a tenant to undertake repairs to the property
Trusting a prospective tenant’s statements about their background or credit, over proper checks of their credit and background

Property managers owe a legal and fiduciary duty to their property owner clients. Property owners owe a legal obligation to their tenants. Property managers are the agents entrusted with that legal obligation, and if they are diligent in their legal and fiduciary duty to their property owners, they will also be effective in helping to manage their owners’ legal obligations to the tenants.

Owners should hire well-qualified property managers so as to minimize their legal exposure. Property managers should always know and follow local regulations and laws regarding tenants, and regarding their legal, fiduciary duty to their property owners. Owners are paying property managers for their services. Therefore, property owners are the clients of the property manager. Tenants are paying the owners. Therefore, tenants are the clients of the property owner.