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More full service.

More than Full Service

What do court testimony, technical writing, seminar instructing, and property shopping have in common? They are four of the numerous alternatives available to real estate management firms wanting to broaden their income base and maximize profitability.

The purpose of this article is to identify as many property management-related spin-off activities as possible and leave it for managers to decide which ones are likely additions to their firm's available services.

It is not suggested that a property management firm seriously consider any more than a few of the options described in the following paragraphs. Management firms have been known to flounder by straying too far from the business at hand, from becoming too much a jack of all trades and master of none.

So the admonition is to pick and choose carefully. Identify the opportunity areas that appeal to you and for which there is a local market, and then implement them quickly and inexpensively.

Traditional sources

of management income

In general property managers generate income primarily from management fees. A negotiated percent of the gross possible rent, of rents actually collected, or of all monies collected are the three variations of the "percent approach" to property management fee setting. The second alternative, a negotiated percentage of rent collected, is by far the most popular of the fee management arrangements. This approach gives managers incentive to maximize rent collection efficiency and keep rent levels at or slightly ahead of market.

The second category of property management fees is the negotiated set monthly or periodic fee. In this instance, the property owner and fee manager, or in-house property management department, evaluate the management needs of a particular property and decide it can be supervised for a set amount month after month. It has been this writer's experience that set fees are commonly associated with stable properties with high occupancy, located in close proximity to the property management office.

Special management fees take a variety of forms. Supervision fees are negotiated for overseeing new construction (usually a percent of the project's dollar size or an unrelated, negotiated amount), fire restoration or other major repairs, rehab work, work related to an insurance settlement, and utility conversion or upgrade projects. Another common special management fee is for accounting or bookkeeping services - usually at a set rate to cover the firm's labor and overhead.

The third traditional category of property management income is the leasing commission. This obviously serves as an incentive to lease up residential units and commercial space.

Sources of additional property management income may take on many forms. The major categories, however, are consulting services, service work, investment income, brokerage commissions, appraisal work, teaching, court-appointed receiver, and professional writing and publishing.

Acting as a consultant

Researching and preparing long-range management plans is a fairly common consulting service that may be performed by most property management firms. Services of this type are usually billed as a package, much like a conventional real estate appraisal. This type of business is generated by direct contact with property owners, usually those in need of turnaround assistance. Developing a management plan is often a good "foot in the door" for future property business. The IREM 500 course is excellent training for this type of consulting work.

Conducting market or area rental surveys is another common consulting service. Not only are rent and occupancy levels documented, but property features and amenities are listed as well. Do a thorough enough job and repeat business will usually follow. This is an easy specialty in which to earn recognition as an industry expert or key resource. Market survey formats can be found in most basic property management texts.

Shopping properties is not only a valuable service to apartment, cooperative, and mobile home park owners, but can be enjoyable as well. If a manager likes to travel, have many unique experiences, and be an armchair detective, undercovering operational or leasing problems may be exciting.

Shoppers services are usually billed on a sliding scale, with the fee dependent on how many like properties are shopped the same day for a client and how much travel time is involved. It is a good idea to have a Polaroid camera along on shopping trips, to record deferred maintenance and rule violations. Preprinted shopping reports are a good idea to ensure standardization.

How about locator services? If not already available in a market area, this is another helpful service for a property management firm to provide. An apartment locator service is an especially good extra duty for a capable, motivated secretary or administrative assistant. Just start with the comprehensive market survey mentioned above, and charge apartment communities or rental prospects for referrals.

Recruiting, screening, hiring, and training on-site leasing and maintenance staffs for property owners is another category of consulting service property management firms may provide. Property managers are generally knowledgeable about sources of qualified management professionals, what to look for during the selection process, and how to train and monitor new hires. This service is commonly billed on a time and materials (e.g., newspaper ads) basis.

Conducting all or part of the due diligence inspections pursuant to major real estate transactions is a common task for some property management firms. Often this series of inspections is preliminary to the management firm taking over a new income property management account. The firm needs to be very careful, however, not to take on more than it can realistically deliver. For example, when a detailed engineering review of the utility system is in order, this job should be subcontracted to a qualified civil engineering firm.

At one time or another, most property managers will spend time in a courtroom as plaintiff or defendant. Why not make money doing so? There are opportunities, though relatively infrequent, to serve as a paid expert witness. This is an especially common practice where condemnation proceedings are concerned and an income property's valuation is being challenged, or when property is being rezoned for new development. Management professionals generally charge a per-diem rate, plus expenses for this service. A helpful text on the subject is How to Be an Expert Witness by Peter Dorram.

Rezoning research and public presentation is a wide open area. Many managers get involved in this as a matter of course if they work for a developer. It is a natural next step to perform a similar service for private customers or other firms who need such expertise. Better have a thick skin, though, as this is one area where one can almost always expect remonstrators to make life difficult. But if you are good at it, there is certainly money to be made, researching, packaging, and presenting proposals.

Real estate tax review and appeal work is one of the simpler extra income areas. Though there are usually only infrequent opportunities (i.e., at tax reassessment time), it is another opportunity to boost revenues. Practice on your own portfolio first, and then market tax review consulting services to other property owners in the area. Most firms charge a percentage of the tax revenues saved.

And finally, there is general property management consulting. While this can take the form of any of the previously described areas, there are a number of variations which have not been mentioned. Literally, anything a property manager does in the normal course of business is potentially a service or specialty he or she can market to potential clients. For example, I have even been hired to terminate the employment of resident managers working for another property management firm.

Providing services

The next major area of additional property management income has to do with service work. This area generally covers the grounds, maintenance, painting, and various cleaning tasks associated with residential and commercial income properties.

Service work can be performed by in-house staff at particular properties or subcontracted. Property management firms generally find that they can provide these services at competitive rates and with more consistency than if they relied entirely on subcontractors or even in-house employees.

Of course, a major concern here is the potential for real and perceived conflicts of interest. The management firm has to be very careful to discuss the service work alternatives with the property owner before the fact and, once permission has been granted to proceed, to perform in an above-board fashion.

When properly marketed and supervised, service work can be a significant profit center for a property management firm. Some companies make this a separate department while others start up completely separate service companies to pursue this type of work.

Property management professionals are also often in the ideal position to spot and take advantage of desirable investment opportunities. Lending institutions in particular will sometimes have income properties in foreclosure. When these properties come on the market, property management firms can purchase these outright, buying them on favorable terms from the lending institutions or from a limited or general partnership.

Real estate sales brokerage commissions are another common extra income area. These manifest themselves as finder's fees for putting the right contacts (i.e., buyers and sellers) together or outright marketing of properties for one's clients or property owners at large. Just make sure qualified, licensed individuals are on staff to ensure this area is handled properly.

Real estate appraisal is a sensitive area at this time. Like property management per se, this area is best pursued by trained, certified professionals. However, there is a definite role for property managers, especially those who have developed personal specialty areas, e.g., condominiums or mobile home park management. In these instances, property management firms can maintain up-to-date list of "comps" (comparable properties recently sold) and act as a consultant to real estate appraisers in need of their expertise.

Bankruptcy courts frequently use the services of property management firms to supervise assets and properties put into court receivership. Just make it a point to have your firm foremost in the thoughts of various judges and be able to take over rapidly when given the opportunity. Being a court-appointed receiver allows the property management firm to take a good inside look at a property and decide whether to acquire it at some future time.

Teaching others

Like to teach or be a public speaker? The seminar or real estate course circuit may be for you. There are plenty of paid opportunities for individuals and firms to participate in this area. Property management firms can present one- and two-day training programs for local leasing or maintenance personnel. Property managers can find numerous opportunities to teach property management and related subjects at local colleges, for local Boards of REALTORS(R), and for various trade associations. This is a great opportunity to hone one's speaking skills, broaden one's network of contacts, and gain exposure as a property management professional.

The final area of generating additional income for property management firms involves the broad area of professional writing and publishing. If someone on staff is capable, experienced, and motivated to write, they should be encouraged to do so. Articles can be sold to various publications or provided free. Article reprints may be sold or distributed free, to expand the influence of the property management firm.

If the property management firm has developed a particular specialty area, this can be an emphasis area for the staff writers as well, and a series of articles on the same subject can be published later as a property management text, again generating income and providing valuable public exposure.

Conclusion

As you can see, there are many, many areas to consider as revenue generators for the property management firm. Remember though, do not spread yourself too thin. In many ways, the rifle shot approach to business is more effective then the shotgun. But if there is additional money to be made with little additional effort, why not at least look into it?

Property management, as a profession, provides a valuable service to the real estate industry. Obviously there is a real need for all the peripheral services described in the preceding paragraphs - and someone will see that they are addressed. Property management firms should take a good look at these areas and the needs of their market area, to decide which one, if any, to adopt, develop, and market.

George F. Allen, CPM(R), is president and founder of GFA Management, Inc. of Indianapolis, which specializes in residential and commercial property management throughout Indiana. He is also president of Master Communities, providing management and consulting services to mobile home communities. Mr. Allen writes a monthly column for the Mobile/Manufactured Home Merchandiser and is a member of the IREM Academy of Authors, a regular contributor to JPM, and past president of the Indianapolis Chapter of IREM.
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Title Annotation:career options in property management
Author:Allen, George F.
Publication:Journal of Property Management
Date:Sep 1, 1989
Words:2117
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