Is The Property Management Business For You? Mini Guide For Real Estate Investors - Part 1

This mini guide for real estate investors is written to help entrepreneurs like you with the mystery of property management career. The investment risks are higher when decisions are made without enough information. By now you know that you want to invest profitably in real estate or already started the process. All the motivation is coming from your desire for financial independence. I know that, because I am with you right on the very same goal.

Assume you have just purchased your investment property. It does not matter whether it is a 10--unit apartment building, a small office building or a single--family home. It is an attractive rental property and you are asking a fair market value rent.

You should have no problem attracting tenants and maintaining a high level of occupancy. What happens with the tenants once they move in is going to depend on you.

The problems with property management are not caused by the business itself, as much as by a lack of education. The property management is the most misunderstood parts of real estate investing. If you do not have good property management, then you will have high management costs, bad tenant relationships, high vacancies and that will be the end of your business.

You would consider these ideas in making your managing investment decision; I did it when I started:

1. The money you save, by doing property management, may mean the difference between a positive or a negative cash flow for your rental business.
2. Managing your own properties, at least in the beginning and learning the management business is something to consider. After you become familiar with the manager responsibilities and acquire more properties, you will be able to do a better job of managing professional managers.
3. More management and investment resources are available at my website.

How I start my property management? I went to school to gain my knowledge before facing the real life competition. I start my property management from the bottom up. My previous experience with real estate renting was being a good tenant for about five years in two different places.

Eight years ago I passed the real estate agent state examination and I worked for two brokers and managed properties on the side to build experience. I got my associate broker license in real estate about four years ago.

We resettled in the U. S. A. coming from communist collapsing East Europe, in 1990. Our assets at that time were intangible, mechanical engineering education and big hopes.

We did not have this game of "getting rich with properties" in the socialist economies. Actually, it was forbidden to even think about owning properties. It took me five years to comprehend there is a less risky way of investing by using real estate properties and rentals.

For $50 and about one hour conversation with our previous property manager -- a very nice lady -- I was in business. The management forms I received helped me to build my forms and gave me enough confidence before the closing on my first apartment building. I was on my way, investing in real estate and managing my own properties for profit. This is how I started my property management career. Now, I appreciate a property management career or a job in property management a lot more.

I am not preaching here to manage your rentals yourself forever. For us, property management is part of getting the necessary life experience to succeed in this new country.

Dealing with people and their needs gets messy if you do not use a system. Qualifying the potential applicant over the telephone saves time and money. Renting real estate is the toughest part of the property management job. Here is how my qualifying filter system is working:

The local newspaper classified ads bring most of my renting real estate applicants. I call them Potential Applicants (PA) before submitting the rental application. I give to potential applicants enough info in the newspaper, so they may drive by and talk with our tenants. The prospect applicant should come ready, wanting to rent the apartments from us, because we take good care of the tenants and the apartments.

This is what I want with my ads.

"My town, clean 1 bedroom apt. $500 plus deposit, utilities included, A/C, coin laundry available, 123 Main Street, (222) 333-4444"

They have the address for the location, that the utilities are free and my cell phone number. Here are examples of first conversations over the phone with the potential applicants (PA).

PA: Hello, is the apartment available? Me: Yes, when you want to move in? My name is Ernest. PA: Thanks, my name is Mary. It is for my son John; He is planning to move soon. Me: Sorry, is it a strong reason way your son can't call himself?

(My experience tells me I may stop here and deal with the real party later, the relatives or friends have a different agenda sometime. In reality, I continue giving information about renting.)

The son is calling me later.

PA: Where is this apartment located?

Me: At the corner of Main and Grand, next to the gas station, across the Seven Eleven. Look for apartment no.30. You can drive by and get from "Take One" box, an application with info printed the other side. PA: Do you accept pets?

Me: What do you have in mind as pet? (Reptiles, rodents, dangerous dogs, etc are not on my list, I ask because the applicant will talk and I can mind his/her personality).

PA: It was my aunt' cat and she is 10 years old, etc. Me: Yes, we accept a qualified cat with a "Pet agreement". The no refundable fee is $175. Do you have some pay stubs from your job? That will help us to check your employment; or

PA: No, I receive social security checks, I am on disability.

(To assume when renting real estate that all tenants on assistance or seniors will be bad is wrong. Some may get a co-signer.)

Me: Sorry we only take applications if the total monthly documented net income is 3 times the rent. The no refundable application fee is only $20 and we do a credit report request and pay a different company for that service. (Some applicants just gives up after this phrase.); or

PA: Yes I work two jobs: manager at Mac Donald and telephone marketing at night. My girlfriend is working as telephone marketer. Together we make $1400 a month.

(This is a border line situation, they may pay for a few months and something is happening and girl/boy friend is gone. He/she no longer qualifies by income requirements. In this cases if the vacancy is hurting me and I cannot wait for a better applicant, I might take them, but the lease will have a clause: "If he or she intends to leave any time, they both must leave at the same time"); or:

PA: Yes, I work part-time at "Printing Nice" and I am full-time student. It is my fist time out of home; my mom may co-sign the lease.

Me: OK, bring your mom when you want to see the apartment.

PA: We want to see it, Saturday morning at 12 noon, it is our time to look for apartments.(PA may put some pressure on you)

Me: OK, see you then, at apartment no.30 second floor, a sign "For Rent" is in the window/door.

The potential applicant interview is very important. You have to see face to face the potential applicant and their pet. Watch their car how clean is outside and inside and get an idea about how much that person care about personal staff.

My "good tenant" definition is: A good tenant is paying always on time, takes care of apartment, is friendly and comprehends "quiet enjoyment" words.

It is better for me to wait for the right applicant and do not rush to make a buck. Also, I discovered that the service to society, the humanity we share is coming after you take care of our business. Otherwise you will not be in this business for very long time.

My next article -- part 2 will be about "Evaluating the renting applications"

Managing The Financial Affairs Of Your Small Business - Part 3

As we continue to investigate exactly how we can manage the financial affairs of our business more effectively, you should start seeing more and more ways to become profitable. There is an old saying in business that states, "businesses don't fail, people do". No statement has ever been truer. Let's examine more ways that will make us profitable.

One of the most important things you can do in your business is to price your products and services in order to make a profit. What happens to people is that in the early stages of their business, they are so desperate to attract new customers and gain new business, that they are willing to set prices way too low. In addition, they are not confident enough to feel that higher prices are worthy of them. This is something that you must master it as quickly as possible because no business can operate at a profit margin that is too low. Another thing you must realize is that it is much harder to raise prices later after you start establishing a customer base.

Another thing that many business owners fail to realize is that their time is the most valuable asset they have. As a result, they tend to undervalue the price of their time. In fact, many of them do not even factor in the time spent into the price of a project. In regards to your time, you also have to learn to spend your time on activities that provide your business the most leverage. Most of the other things can either be delegated or temporarily set aside.

Should your business ever get to the point where you will need additional financing, then you need to ensure that you are financing and asset and not simply debt. Nothing is as crippling to the growth of a young company as applying finance charges to existing debt. In spite of this, thousands of businesses every year continue this practice. And as a result, most of them go bankrupt.

Developing Your Property Management Business Plan - How to Start a Property Management Company

The recent real estate "crisis" has caused a number of beneficial effects on the property management industry. There has never been a better time to consider starting a property management business than right now.

1. Houses are not selling, therefore homeowners that need to move and/or investors are forced to rent their units out; thus increasing the rental property supply chain.
2. Houses are foreclosing by homeowners and being bought by investors that in turn rent the property out. This increases the amount of supply as well.
3. The homeowners that were foreclosed upon will now be renters. Thus increasing the rental pool and increasing demand.

The above items create a perfect storm for the Property Management Business Industry. The purpose of my article is to present and discuss the 6 categories that are paramount in developing your property management business plan:

1. Executive Summary
2. General Company Description
3. Description of Services
4. Marketing Plan
5. Operational Plan
6. Budget

1. Executive Summary - Include everything that you would cover in a five-minute interview. Who are the owners, what is their experience in this industry? Explain the fundamentals of your business. What do you think the future holds for your business and your industry? Make it enthusiastic, professional, complete, and concise.

2. General Company Description - This includes your mission, vision and company commitments, Who is your target market (higher/lower end residential, multi-family, commercial), what price range of properties will you target, what area(s) will you target, who are the prospective tenants and what's the future of your industry? Form of ownership, what factors will make the company succeed? What strengths do you personally bring to the business? Long term: What are your plans for the future of your business? Growth? If so, at what rate and how will you achieve it?

3. Description of Services - Describe in depth your property management service structure. What will you perform on a monthly basis for your property owners? What will be your monthly fee structure? What additional services will you offer such as evictions, project management, maintenance and what will your fee structure and profit center look like?

Much of your service offering will be developed by performing a complete competitive analysis. Your offering needs to be correctly place in the marketplace to make yourself unique. You should know your competitions monthly fee structure, how many properties they manage, number of managers, etc.

4. Marketing Plan - Bottom line: Your plan for how to attract clients. How will you get your company and offer in front of your prospective property owners. How will you utilize the following: (website, SEO (search engine optimization) plan, online marketing, signs, advertisements, associations, relationships, networking, direct mail campaigns, signs, yellow pages, calling for rent by owners, etc.)

By the way, there are methods that are much more effective than others for a start up real estate management company. Be sure to do your proper research before you unnecessarily spend money.

5. Operational Plan - Explain the daily operation of your business; (its location, equipment, people, processes, and surrounding environment.) If you are starting out opening your own prop mgt business, you will want to spend the majority of your free time in marketing techniques.

6. Budget and Financials - Includes your start up expenses, capital expenses and expected monthly recurring expenses. If you are starting out a your business with 0 properties as I did, you will want to start with a minimal budget in mind. Keep your costs as low as possible. What is your expected income based on your predicted growth rate?

Conclusion: Properly developing your property management business plan is the key to your success. Starting a property management business can be very rewarding, however not having the right direction and foresight from the beginning can blind you and your business. Remember; "Failing to properly plan is properly planning to fail."