Managing Small Properties.

Small properties can be big business if managed correctly. About half of all rentals in the U.S. are considered small properties. Though there may be some disagreement on the number of units that would qualify as small, most agree that it ranges anywhere from a single unit to about 100. Can the property carry the costs of on-site, full-service management and maintain a healthy bottom line? The country has a great stake in these homes because many of them are considered affordable housing.

Plenty of small properties command top rents and run at a healthy profit for property management companies. However, the amenities probably don't include the swimming pool, exercise room, or computer center that are found in new high-end or even moderate developments. Instead, these amenities might feature: older buildings with high ceilings, fireplaces, or classic architecture. There's a certain culture to these buildings, even though some might not have dishwashers and will have laundry rooms rather than washers and dryers in each apartment home.

But what about the other end of the market? How these properties are managed, maintained and marketed is important. These properties are often in older communities that are deteriorating. Many are called "Mom and Pop" operations. Many are owned by non-profit organizations. Some are self-managed, some contract out parts of their responsibilities, such as bookkeeping, rent collection, or marketing, and some contract full management to professional companies. These property management companies can be organizations that specialize in small properties, or even those that primarily deal with large developments. Although some property management companies don't like to manage smaller properties, some companies have mixed portfolios and specialize in small properties. For example, Bozzuto Management Company, an NAA member, which operates in the suburban Washington, D.C. area, began managing a small property because it was within close proximity of one of their larger developments.

The small property is approximately 200 units. Managing this property allowed Bozzuto Management to share staff, storage of materials handled through the larger property, bookkeeping, and other tasks operating out of Bozzuto's office. The larger property is a luxury building. The smaller property serves low-income households and demands income certifications, different marketing techniques, required inspections, and other requirements. The staff is trained to deal with residents from both properties.

What makes management of small properties work?

Sometimes "Mom and Pop" property owners who are in close proximity, join forces and undertake activities of mutual interest. In some instances, they can form an alliance that is attractive to a professional management company.

Joe Borger, CPM, and executive vice president of Borger Management, Inc., in Washington D.C., an NAA member that manages properties that range in size from 25 units to 900 units says, "If I take on an 80-unit development, it costs the same or more per unit than the larger apartment building. I try to group the properties." Barbara Holland, president of H & L Realty and Management in Las Vegas, Nev., has a portfolio of 6,000 units, including large and small properties. She calls her grouping of sites "zones of operation," and says it takes at least 30 units to constitute a zone. She will hire a few people to manage that size portfolio and, when feasible, will organize the property owners around areas of common interest. When the properties are clustered, she'll establish an association to take care of common space. Holland has written a book, "Managing Single Family Homes," that covers other small properties. It is available through the Institute of Real Estate Management (IREM).

Large and small are different

Small properties are more labor-intensive. The on-site resident services team will, "wear a bigger hat," says Borger. They must know the residents and handle more day-to-day issues than do larger properties, where often the resident services team has specialized training and specific assignments. Holland says 80 percent of leases come from "drive-by" activity, so on smaller properties, the on-site person, who may not have a marketing background, could be dealing with a future resident. An interested resident may even drop by and find no staff on-site. If the community is managed by a larger property management company with a building nearby, the future resident might make the effort to find the leasing center.

Holland says half of all multi-family housing residents live on smaller properties and, in some case, own these properties. They may have gone into the business because of dreams of profit or through an inheritance, but some of these property owners are not trained for the job.

Training the small property owner: Help is at hand

A considerable amount of activity is happening to remedy the training issue. Neighbors and the local government don't want to see these properties go downhill because they want to preserve the affordable housing stock. NAA's Independent Rental Owners Committee (IROC) is active at many local affiliates. IROC was established to meet the needs of all independent property owners. IROC meetings can include topics such as: energy efficiency, local laws, leasing, staff training, employee benefits, resident relations, lead-based paint, and asbestos. The IROC will also be working with the NAA Education Department to market their new training program, Rental Owners Course (ROC). ROC is presented in conjunction with the Greater Cincinnati Northern Kentucky Apartment Association and will be offered by NAA affiliates nationwide. NAA IROC Chair Richard Cheek, himself an independent owner in Little Rock, Ark., believes the ROC course is outstanding. "The NAA ROC course will have a strong and positive impact on independent owners' operations nationwide."

The Enterprise Foundation is partnering with the Local Initiative Support Corporation (LISC) and Neighborhood Reinvestment to form a program called, the Consortium for Housing and Asset Management (CHAM), which can be reached at 800/624-4298 or through their website at www.cham.org. CHAM's mission is "to coordinate, develop and deliver timely information on property and asset management and training for managers working in the affordable and non-profit industry." CHAM has organized the country into five regions and formed a certification program and courses in such areas as: administration, resident relations, asset management, and physical management etc. Announcements of the courses are on the website.

In Madison, Wis., Eileen Bruskewitz, a former president of the Wisconsin Apartment Association is currently working with Rental Housing Resources, Inc., which is described as a "game show" in a video developed by that organization aimed at helping small property owners. The video was funded by the Wisconsin Association of Housing Authorities (WAHA), the City of Madison, and the U.S. Department of Housing and Urban Development (HUD). Bruskewitz said the video has been positively received by its targeted audience. It costs $19.95 and is available through Rental Housing Resources, 702-N. High Point Road Suite 202, Madison, Wis., 53717.

The Madison Apartment Association also has a program funded through federal block grants which helps property owners in targeted areas. Montgomery County, Md., is establishing a mentoring program where a professional management company will have a "mentee," a small property owner. The two companies will meet regularly and the mentor will be available for guidance. The goal of the program is "to improve the physical condition of small apartment buildings and improve the management techniques of owners of these buildings." The program is a joint venture of The Apartment Owner Buildings Association (AOBA), an NAA affiliate, and the Montgomery Housing Partnership, a non-profit organization which coordinates communication between mentors and mentees and helps AOBA recruit the mentors. They will take advantage of training programs that are provided to staff of some larger companies. For example, Southern Management offers a plumbing course. Mentoring is available only to mentees who don't have any outstanding code violations that threaten the health and safety of residents and who own five to 40-unit buildings. Along with mentoring, some jurisdictions are making low interest loans available to bring properties up to code and are providing courses targeted to these owner's needs.

All properties need good management

Often, smaller property owners will approach large company that have a successful property nearby or find the property manager by word-of-mouth. Occasionally, says Borger, "we may seek out a building because it adds to our area critical mass. But usually, they seek us out. Our fees are typically a percentage of the rent, but generally, it costs more to manage a small property." Most experts agree that it's hard to find qualified firms interested in small properties.

Bruskewitz, like many property managers, says, "whether the properties are large or small, good management is good management." She says smaller property owners often get in over their heads. They may have other full-time jobs, have no idea of what they're getting involved in and don't know how to deal with problems that may arise. But Bruskewitz and other small property owners say it can be a viable business, if you know the basics. She turned to her local apartment association for help. She says her organization is, "trying to provide housing in safe neighborhoods by teaching landlords how to do a good job." NAA offers a number of products for owners concerned about lead-based paint issues, including:

* LeadSmart[TM] Apartment Leasing Video and Training Kit

* LeadSmart[TM] Maintenance and Repair Video and Training Kit

* Lead-based Paint Safety: Manager's General Awareness Kit

* Lead-based Paint Pre-Renovation and Education

These products can be ordered by calling NAA's Education Department at 703/518-6141, x122.

Small property owners need to take steps to be more efficient. Eric Wilson has filled in pools and made them into gardens on his smaller properties in Denver, Colo. He says water and utility costs are higher, on a square-foot-basis, for the smaller properties, so he aggressively seeks out energy conservation tools. The U.S. Department of Energy has a "green lights" program that provides some useful information. Wilson says, for his properties, the boiler is turned off during non-heating months. He is careful about curb appeal. "You lose one or two tenants in a small property and you really feel it," he says. He says small property owners sometimes aren't as well informed as the staff of a large management company and may not want to spend the money that will help the property run more economically.

For example, when a unit becomes vacant in a smaller property, rehab costs can be higher because there's less standardization than in the larger communities. Residents of smaller properties that don't have on-site staff often find that "immediate" problems aren't dealt with immediately. Answering services help and, depending on the clientele, may be most useful if provided as a multi-lingual service.

Working partners

There are many issues that also arise when smaller property owners have contracted out management to a third party. Alice Barrett of Paradigm Management, in the Washington D.C. area, says, "Sometimes we may try to impose our ways on the owner. We need to think like the owner and analyze their needs."

Why would a large firm be interested in the complexities and pitfalls of small property management? It can be profitable if properties can be grouped in close proximity so that staff can easily and productively be shared. You can't have properties so distant from each other that maintenance technicians or leasing consultants are wasting time on travel. Management can develop a real partnership and the job doesn't have to be burdensome and can, in fact, be profitable. There's no magic number that makes it work. The magic is in how the finances can be arranged, the understanding between smaller property owners and the management company, and a flexible attitude.

Joyce B. Siegel Ms. Siegel is a freelance writer based in Bethesda, Md., who has periodically written for Units on due diligence issues.