Managing Residential Property PDF

Managing Residential 10 Property Learning Objectives After completing this lesson, students should be able to… List the different types of multi-family rental properties Discuss the steps in developing a management plan for residential...

Managing Residential 10 Property Learning Objectives After completing this lesson, students should be able to… List the different types of multi-family rental properties Discuss the steps in developing a management plan for residential property Explain how a property manager creates an operating budget Identify different ways to market residential property Explain the steps involved in finding, screening, and selecting tenants Define the Uniform Residential Landlord and Tenant Act Discuss the most common lease provisions Compare a tenant’s options when a landlord breaches the lease agreement Explain what happens to security deposits when a tenancy ends Identify the different types of residential property and the unique management challenges of each Suggested Lesson Plan 1. Give students Exercise 10.1 to review the previous chapter, “Staffing and Maintenance.” 2. Provide a brief overview of Chapter 10, “Managing Residential Property,” and review the learning objectives for the chapter. © 2021 Rockwell Publishing  Property Management Instructor Materials 3. Present lesson content: Introduction to Residential Property Management – Managed residential property EXERCISE 10.2 Classifying types of residential buildings Residential Management Planning – Management plan – Operating budget EXERCISE 10.3 Vacancy factor Marketing Residential Property – Target audience – Internet advertising – Print ads – Model units and rental centers – Leasing agents – Additional considerations Leasing Residential Property – Application process – Screening and selecting tenants – Residential lease agreements – Lease renewals Residential Operations – Staffing – Maintenance Working with Residential Tenants – Communicating with tenants – Rent issues – Breach of the lease agreement – Fair housing considerations – Tenant complains and tenant unions Handling Residential Security Deposits – Refund after tenancy ends EXERCISE 10.4 Deductions from security deposits EXERCISE 10.5 Security deposits and the useful life rule Managing Specific Types of Residential Property – Single-family homes 2  Chapter 10: Managing Residential Property – Common interest developments – Manufactured home parks – Subsidized housing – Housing for the elderly 4. End lesson with Chapter 10 Quiz. Chapter 10 Outline: Managing Residential Property I. Residential Property Management A. Managed residential property includes: single-family homes, duplexes, triplexes, apartment buildings, many common interest developments, manu- factured home parks, subsidized housing, and housing for the elderly B. Types of multi-family rental properties include: traditional buildings, mid- rise buildings, high-rise buildings, garden apartments, and converted loft buildings EXERCISE 10.2 Classifying types of residential buildings II. Residential Management Planning A. The management plan represents the manager’s strategies for handling the property and serves as a roadmap for ongoing management activities 1. Regional analysis: considers the economic and demographic conditions that affect the supply of and demand for residential property in the sur- rounding region 2. Neighborhood analysis: an analysis that identifies the neighborhood’s physical or intangible boundaries, then gathers data about the neighbor- hood’s characteristics, population, and location 3. Property analysis: the manager gathers and evaluates information about the property’s physical attributes, attractiveness and condition, current management, and financial status a. Curb appeal: a building’s exterior appearance and condition 4. Market analysis: the manager determines appropriate rental rates for the subject property by locating comparable housing units and evaluating their current rental rates 5. Analysis of alternatives: if the manager believes that any operational or physical changes to the property may be appropriate, he performs a cost-benefit analysis of the changes and presents the client with a written proposal summarizing his findings B. Operating budget: a budget that reflects the property’s anticipated monthly income and expenses over the upcoming year 3  Property Management Instructor Materials 1. Rent is the main source of income for residential property 2. Vacancy factor: a percentage deduction that accounts for losses in income due to vacancies and difficulties collecting rent, expressed as a percentage of the prop- erty’s potential gross rental income 3. Typical residential property expenses include wages for the property manager and other staff, supplies and administrative costs, maintenance and repairs, owner- paid utilities, and property taxes and insurance; debt service, however, is not an operating expense 4. When preparing the budget, the manager considers all factors that could affect occupancy over the coming year, such as economic conditions and housing trends 5. Net operating income (NOI) budget: a budget format that lists potential gross income, effective gross income, and expenses, before providing a projected net operating income EXERCISE 10.3 Vacancy factor III. Marketing Residential Property A. When planning a marketing campaign, the manager should consider the target audi- ence and choose methods that are not only effective but reasonable in terms of time, energy, and expense B. Internet advertising is an inexpensive way to reach a large pool of potential tenants, and may include online classified ads and/or dedicated websites, with photos, floor- plans, and videos C. Print ads are a traditional form of advertising in newspapers and include classified ads, display ads, and For Rent magazines D. Managers of larger properties may opt to maintain a model unit for prospective rent- ers to visit, or a rental center used for meeting prospective tenants and distributing information and marketing materials E. Leasing agent: a trained salesperson hired specifically to help with marketing and leasing activities F. Other considerations when marketing residential property include complying with federal, state, and local fair housing and antidiscrimination regulations (such as in- cluding the fair housing logo) and maintaining the property’s curb appeal IV. Leasing Residential Property A. The first step in the leasing process involves using a lease application form to obtain information from a lease applicant 1. A standardized application form should be used to collect information in an orga- nized manner, and to ensure that every applicant is asked the same questions to avoid discrimination claims 2. Most lease applications ask for information that includes: the applicant’s name, address, and social security number; current employer; prior rental and employ- 4  Chapter 10: Managing Residential Property ment history; bank and credit card information; permission to verify information in the application, including a credit check and a criminal background check; and the applicant’s signature 3. The application should clearly state the amount of any fee or deposit charged at the time of the application, and whether the money is refundable B. The second step in the leasing process is screening and selecting tenants 1. The manager usually begins by obtaining the applicant’s credit report from one or more of the three major credit reporting agencies (Equifax, Experian, or TransUnion) a. The manager may require the applicant to have a minimum credit score, and must comply with the Fair Credit Reporting Act 2. Next, the manager will contact the applicant’s employer to verify income and determine if the applicant’s income is sufficient to ensure regular and timely rent payments 3. Finally, the manager should contact the applicant’s current and previous landlords to determine if the applicant will make a good tenant C. A variety of pre-printed lease agreements can be used; some states require residential lease agreements to be in “plain language” D. Uniform Residential Landlord and Tenant Act (URLTA): a model landlord-tenant law created in an effort to provide some consistency in state and local residential land- lord-tenant acts; many states have adopted it 1. URLTA addresses handling security deposits, notice requirements for landlord entry, maintenance, termination notice, grounds for eviction 2. Implied warranty of habitability: a provision implied in every residential lease that the landlord will keep the leased premises fit for habitation E. Most residential leases contain provisions that address the rights and duties of the parties 1. Parties and occupants: every competent adult who will occupy the unit should sign the lease; a co-signer may sometimes be necessary; the number of occupants cannot exceed the amount set by state law or local housing codes 2. Lease term: the lease should state the beginning and ending dates of the lease term a. Term tenancy: a tenancy for a particular length of time, with a definite end date b. Periodic tenancy: a tenancy that automatically renews itself at the end of each lease period unless one party gives notice of termination 3. Rent: the lease usually spells out the rent due date, which is often at the beginning of the month; if the lease doesn’t specify a due date, rent is due at the end of the rental period a. The lease should specify acceptable methods of payment b. The lease should also specify amount and conditions under which late fees will be charged 5  Property Management Instructor Materials 4. Description of the premises: the lease must identify the rented premises by street address and should describe the condition of the property (usually by using a walk-through checklist) 5. Security deposit: residential property managers require a security deposit when the tenant signs the lease 6. Utilities: the lease should specify which party is responsible for paying which utilities 7. Assignment and subleasing: most residential leases prohibit the tenant from as- signing or subleasing premises without the landlord’s consent 8. Rules: rules in the lease address federal, state, and local requirements, as well as management policies such as use prohibitions 9. Maintenance: the lease should state any maintenance the tenant is expected to handle 10. Possession: the date the lease term begins usually sets the date for possession 11. Entry and inspection: as a general rule, a residential tenant may not unreasonably refuse the manager’s legitimate request to enter the unit to inspect it, perform repairs, provide agreed-upon services, or show the unit to prospective buyers or renters a. The state’s landlord-tenant act usually states how much notice a residential landlord must give before entering the premises 12. Pets: the manager’s pet policy should be clearly stated in the lease; however, the manager can’t refuse service animals under fair housing law a. Landlord may require doctor’s note confirming need for service animal but cannot ask what disability is or require tenant to disclose need for animal on rental application 13. Lease renewals: to encourage tenants to renew, a manager should send a renewal notice before the current lease expires, and may also offer incentives V. Residential Operations A. The size and organization of staff needed will depend on the size and type of property being managed, but will usually include an off-site or resident manager, and mainte- nance staff 1. Resident manager appropriate for buildings with more than 15 – 20 units B. Maintenance tasks vary depending on the size, type, and location of a property, as well as the amenities offered 2. A significant maintenance task is preparing a unit for a new tenant VI. Working with Residential Tenants A. Residential mangers use a variety of methods to communicate with individual ten- ants, make general announcements, and receive complaints and suggestions; this includes newsletters, email, and/or a website 6  Chapter 10: Managing Residential Property B. The manager must handle rent payments in accordance with state laws governing trust funds, keep good records and provide regular reports to the owner, and deal with rent delinquencies in accordance with debt collection laws C. If a residential landlord breaches a lease agreement, the tenant has options that in- clude repair and deduct, self-repair, depositing rent into an escrow account, vacating the premises, or filing suit or entering arbitration 1. If a tenant breaches the lease, the landlord’s primary remedy is to evict the tenant D. Every landlord must be familiar with the federal Fair Housing Act and other federal and state fair housing laws 1. Under the Fair Housing Act, a residential landlord must allow a disabled tenant to make reasonable modifications to the property at the tenant’s expense; and must make reasonable exceptions to their rules to accommodate disabled tenants (such as allowing a guide dog even when pets aren’t allowed) 2. Managers cannot discriminate based on familial status; “adults only” complexes (or areas within a complex) are illegal, unless the property qualifies as housing for older persons E. Tenants are more likely to band together into a tenant’s union when management fails to keep a property clean and in good repair, or fails to respond promptly to com- plaints and repair requests VII. Handling Residential Security Deposits A. Most state residential landlord-tenant acts place restrictions on how a landlord han- dles security deposits 1. A written, signed rental agreement is usually required before a landlord can col- lect a security deposit, and serves as a written receipt for the deposit 2. State laws may also limit the size of the security deposit, require deposits to be held in trust accounts, and/or require the landlord to pay the tenant interest on the deposited funds B. Under state law, the manager has a certain amount of time (usually 2 or 3 weeks after a tenancy ends) to either refund the entire deposit, or provide a written itemized state- ment of repair expenses and unpaid rent amounts, plus any remaining refund 1. The landlord can only use the deposit to cover damage that exceeds normal wear and tear 2. A landlord who fails to follow a state’s security deposit refund rules may have to pay penalties, up to treble damages 3. When a rental property is sold, the original owner must either transfer the ten- ant’s security deposit to the new owner through the escrow process, or return the deposit to the tenant 4. Useful-life rule: while a landlord can’t deduct normal wear and tear, he can deduct a percentage of the replacement cost if the tenant created damage over and above normal wear and tear 7  Property Management Instructor Materials EXERCISE 10.4 Deductions from security deposits EXERCISE 10.5 Security deposits and the useful life rule VIII. Managing Specific Types of Residential Property A. A property manager may handle single-family rental homes for owners who live out of town, or those uncomfortable with or uninterested in managing property B. Common interest developments (CIDs): residential developments in which each resident owns her own unit (or has a proprietary lease to it) and also holds a shared interest in the common areas 1. CIDs usually have a community association that often employs a community as- sociation manager 2. The three main types of CIDs are condominiums, cooperatives, and planned unit developments 3. Some states have special licensing requirements for community association man- agers; elsewhere, a real estate license may be required C. Manufactured home park residents usually own their own home, and own or rent the site on which the home is placed 1. The park may employ an on-site manager to handle leasing, rent collection, main- tenance, and other general tasks 2. Eviction procedures, notice requirements, and other rules may be different than those that apply to other residential rental property D. Subsidized housing: residential rental property for lower-income tenants whose rent is subsidized by the government; may either be public housing or government-assist- ed housing 1. Public housing: residential property owned and managed by a government body or agency 2. Government-assisted (Section 8) housing: privately owned and managed residen- tial property where a government agency pays a portion of the tenants’ rent 3. The manager of subsidized of housing must be familiar with regulations and per- form the usual tasks, usually on a smaller budget E. A residential housing complex can be designated as senior housing without violating fair housing laws, as long as the housing meets certain requirements 1. Housing for the elderly includes independent living communities and assisted liv- ing facilities 2. Managers must perform the usual tasks, but may also provide additional services, such as food preparation and transportation 8  Chapter 10: Managing Residential Property Exercises EXERCISE 10.1 Review exercise To review Chapter 9, “Staffing and Maintenance,” have your students answer the fol- lowing true/false questions. 1. One advantage to hiring a contractor is that the property manager doesn’t have to worry about insurance issues. 2. A building janitor is classified as service staff. 3. An information desk staffer at a major office building is classified as service staff. 4. The three main categories of maintenance are: custodial, preventive, and deferred. 5. A purchase order is also called a work order. 6. The property manager doesn’t have to withhold income tax from the pay of an independent contractor. Answers: 1. FALSE. The manager has to make sure that the contractor has appropriate insur- ance. 2. FALSE. A janitor is part of the maintenance staff. 3. TRUE. Service staff include information desk staff, doormen, and concierges. 4. FALSE. The third category is corrective maintenance. 5. FALSE. A purchase order is a form detailing a particular purchase. A work order is a form laying out the details of a repair or other work that needs to be done on the property. 6. TRUE. Independent contractors handle their own income taxes. EXERCISE 10.2 Classifying types of residential buildings Match these classifications of residential buildings with the descriptions of various properties below. Traditional buildings Mid-rise buildings Converted lofts High-rise buildings Garden apartments 9  Property Management Instructor Materials 1. A former textile plant on a river made over as an apartment building with units featuring high ceilings, large windows, and an open floor plan. 2. A 12-unit, three-story apartment building which is older and of average condition with relatively cheap rents. There are no elevators so younger people tend to rent there. 3. A downtown 50-story building called “Harborcrest” featuring luxury amenities for residents including a doorman, rooftop pool, and stunning views of the water. 4. A residential development in a warehouse area by downtown, popular with work- ers who haven’t yet formed families and want to walk to work. The buildings are fairly new and between four and six stories tall. 5. In a neighborhood with good schools, a development of one- and two-story build- ings containing lots of two- and three-bedroom units. The grounds are well-kept, with open spaces that kids can play in. Answer: 1. CONVERTED LOFTS. Lofts are usually former warehouses or other industrial build- ings that have been converted to residential use. 2. TRADITIONAL BUILDINGS. Smaller older buildings, often without elevators, are the traditional form of apartment buildings. 3. HIGH-RISE. Buildings over ten stories tall are classed as high-rises. 4. MID-RISE. The mid-rise building category includes structures from four to nine stories tall, usually containing smaller apartments; the renters tend to be working singles. 5. GARDEN APARTMENTS. Garden apartments offer gardens and other landscaping amenities. Many of the units are on the ground floor, giving tenants ready access to the grounds. EXERCISE 10.3 Vacancy factor Discussion prompt: The 60-unit Howard Apartments is under construction. The own- ers have hired a property manager to prepare a budget, among other tasks. The manager creates a rent schedule for the four kinds of units the building will contain. When projecting total operating income, does the manager simply multiply the number of each kind of unit by the amount of rent that will be charged? If not, what does the manager do to get a more accurate picture of likely income? What sources of information might he turn to? 10  Chapter 10: Managing Residential Property Analysis: Larger buildings are rarely fully occupied. When calculating projected income for the coming year’s budget, the manager must allow for a certain percentage of vacancies, as well as a certain number of tenants who won’t pay rent. This percentage is called the vacancy factor. With an established building, a fairly ac- curate vacancy factor can usually be determined by looking at the building’s rental history in recent years. This is not the case with a brand-new building. To estimate a vacancy factor for a new building, the manager looks at competing buildings. Managers of those buildings may be willing to share information about vacancy rates. More generally, the organizations mentioned in Chapter 4 are likely to publish helpful data. These organizations include: Institute of Real Estate Management (IREM), Building Owners and Managers Association International (BOMA), National Apartment Association (NAA), and National Association of Residential Property Managers (NARPM) EXERCISE 10.4 Deductions from security deposits Alyssa and her family leave their single-family rental house in a shambles at the end of their tenancy. The property manager is trying to determine how much to deduct from the security deposit. Which of the following items are likely to be deductible? 1. Faded carpet (carpet is getting old) 2. Cleaning 3. Broken pane of glass in door of built-in dining room bookshelf 4. Scarring and wear in kitchen floor linoleum at door area due to family failing to wipe backyard dirt off shoes (landlord provided a door mat) 5. Picture hook holes in walls and holes from hanging planters in ceiling 6. Repainting living room due to old, tired paint Answers: 1. NOT DEDUCTIBLE. Faded carpet is probably standard wear and tear. 2. DEDUCTIBLE. Bringing an apartment to the level of cleanliness it was in at the start of the tenancy is deductible (although landlords don’t always charge for this if the unit isn’t especially dirty). 11  Property Management Instructor Materials 3. DEDUCTIBLE. A broken pane of glass in the door of a built-in dining room book- shelf goes beyond normal wear and tear. 4. DEDUCTIBLE. Worn kitchen floor linoleum in the door area probably goes beyond normal wear and tear. 5. DEDUCTIBLE. Holes in the walls and ceilings are a minor item if painting is already necessary, but it’s not normal wear and tear. 6. NOT DEDUCTIBLE. Paint eventually wears out. Painting costs—absent any special damage by the tenant—can’t be deducted from the deposit. EXERCISE 10.5 Security deposits and the useful life rule Returning to our hypothetical tenant Alyssa discussed in the exercise above, let’s focus on the damage to the kitchen floor linoleum. Alyssa tells the landlord that it’s unfair to charge her for the full cost of replacing the flooring. The linoleum was about 12 years old and was sold as a 15-year flooring product. It would cost $600 to replace. Is Alyssa correct? If she is, how much would be reasonable to deduct from her deposit for the damage? Answer: This question involves applying the useful life rule. When an aging building element gets damaged, it’s proper to charge the tenant a prorated amount based on how much useful life the building element had left. In the case of the kitchen floor linoleum, since the landlord would have to replace the flooring in about three years, he has lost three years of useful life (15-year life – 12 years used up = 3 years). Note that since the linoleum can’t be patched, a complete replacement of the flooring is necessary. Here’s the calculation. The linoleum is a 15-year product that costs $600 or about $40 dollars a year ($600 ÷ 15 years = $40 per year). The landlord could deduct $120 from Alyssa’s security deposit for this damage (3 years of useful life × $40 = $120). 12  Chapter 10: Managing Residential Property Chapter 10 Quiz 1. All of the following are ways in which resi- 5. The advertising method that’s the best way to dential property management is significantly reach out-of-towners who haven’t visited the different from commercial office management, area yet but are beginning to research apartment except: options would be: a) residential managers must comply with a) For Rent magazine state and local landlord-tenant laws b) internet advertising b) residential managers need to be on-call c) newspaper classified ads around the clock d) rental centers c) residential managers spend less time on finding new tenants because it involves 6. A residential lease application form would longer leases include all of the following, except: d) residential managers should possess good people skills because they work with a a) bank name and account number variety of tenants b) current employer and job title c) profit and loss statement d) social security number 2. Garden apartments are: a) buildings of ten stories or more in an urban 7. The federal Fair Credit Reporting Act requires area all of the following, except: b) converted industrial spaces c) multiple low-rise buildings in a suburban a) a landlord may not discriminate against a setting prospective tenant because part or all of her d) older buildings with a dozen units or less income is derived from public assistance b) notice to an applicant that her credit and background information are being checked 3. A property’s “curb appeal,” and other consider- c) notice in writing, if an application is denied ations regarding its age and appearance, would based on a credit report, that the applicant be factors when performing which phase of a may obtain additional information from the residential management plan? credit agency a) Analysis of alternatives d) notice in writing that an applicant may b) Market analysis dispute any errors in a credit report c) Neighborhood analysis d) Property analysis 8. A building must have light, heat, and water available, and be free of garbage, under the: 4. What additional element is included in a cash a) covenant of quiet enjoyment flow budget, but not considered in a net operat- b) implied warranty of habitability ing income budget? c) state residential landlord-tenant laws a) Vacancy factor d) Both B and C b) Cash reserves c) Maintenance costs d) Mortgage payments 13  Property Management Instructor Materials 9. Brittany, a college sophomore, has never rented 13. A tenant has many options if he gives notice her own apartment before. Her parents accept to a landlord regarding a maintenance problem liability for any default on her part, and sign and the landlord fails to take action. One com- the lease agreement as well. Her parents would mon solution is for the tenant to have the work be known as: done by a contractor and to subtract the cost of a) assignees the repair from the next month’s rent. This is b) co-signers known as: c) co-tenants a) arbitration d) sublessees b) depositing rent into an escrow account c) repair and deduct d) self repair 10. A lease agreement for a month-to-month lease does not specifically say what date rental pay- ments are due. If so, when is the rent due? 14. Which of the following would not fall under a) Beginning of each month the scope of the Fair Housing Act’s protections b) End of each month against discrimination on the basis of familial c) Not until the end of the tenant’s occupancy status? d) The landlord cannot enforce payment of a) Parents the rent at all b) Persons in process of obtaining custody of a child c) Persons who use service animals 11. A tenant decides to buy a condo when there d) Pregnant women are still a number of months left on his lease; he finds a friend who’s willing to take over the remainder of the lease, but the original tenant 15. Several weeks after a tenant moves out, a resi- will remain secondarily liable for the rent. The dential manager must do what? landlord must still approve this, however, under a) Provide an itemized statement listing repair the terms of the lease agreement. This is a/an: expenses withheld from the security deposit a) assignment b) Refund the entire deposit b) cancellation c) Use the deposit to fix regular wear and tear c) novation d) Either A or B d) sublease 16. A manager manages a number of single-family 12. Advantages of using a resident manager for an residences, rather than one building. What is the apartment complex include all of the following, main advantage of this type of arrangement? except: a) It is less time-consuming a) an on-site manager is better able to handle b) Less time is spent on marketing because noise or parking problems the tenants stay longer b) an on-site manager may respond quickly to c) The commissions are larger complaints and requests, round the clock d) There is less in the way of grounds to c) the owner may save on maintenance costs maintain by having someone on site to do basic tasks d) the resident manager can handle all main- tenance and repair tasks himself 14  Chapter 10: Managing Residential Property 17. A common interest development is a develop- ment where: a) each resident owns a unit and also owns a shared interest in common areas b) each resident owns a unit but leases access to common areas c) each resident owns a unit, which they in turn rent out to a paying tenant d) each resident pays for a partial interest al- lowing use during a set time of year 18. A new development has single-family homes on smaller-than-usual lots that residents own in fee simple, but also a fair amount of green space and recreational facilities that the resi- dents own as tenants in common. This includes park and playground areas, a swimming pool, and forested areas. This describes a: a) condominium b) cooperative c) manufactured home park d) planned unit development 19. In most manufactured home parks, residents: a) own both the home they live in and the space the home is placed on b) own the home they live in, but rent the space the home is placed on c) rent both the home they live in and the space the home is placed on d) rent the home they live in, but own the space the home is placed on 20. An apartment building is privately owned, but residents’ rents are partially paid through a government agency’s housing vouchers. This would be considered: a) a cooperative b) an independent living community c) government-assisted housing d) public housing 15  Property Management Instructor Materials Answer Key 1. c) Residential managers spend more time 8. d) The implied warranty of habitability, marketing the property and finding which promises that the premises will new tenants because they’re used to be fit for habitation, is implicitly part shorter lease terms and higher turnover of every lease. Most states’ landlord- than commercial managers. tenant laws, however, make this protection explicit as well. 2. c) Garden apartments are large apartment complexes, usually in suburban areas, 9. b) A co-signer is a party who won’t live with several low-rise buildings in a on the leased property, but who accepts landscaped setting. liability in case of a tenant’s default and who also signs the lease agree- 3. d) Property analysis focuses on the char- ment. acteristics of the building and other factors within the property lines. 10. b) If a lease does not specify, rent is not due until the end of each rental pe- 4. d) A cash flow budget includes the own- riod (at the end of the month, with a er’s mortgage payments as expenses. month-to-month tenancy). Most leases, A vacancy factor helps determine the however, will explicitly state that rent property’s effective gross income, is due at the beginning of each month. while cash reserves and maintenance costs are expenses that will be used in 11. a) In an assignment, the remaining lease calculating net operating income. is transferred to another party, but the original tenant remains secondarily li- 5. b) Internet advertising, on sites such as able for the rent. craigslist, is free from geographical limitations, and can be viewed by any- 12. d) A resident manager is unlikely to be one from anywhere. able to do all maintenance and repair work himself; for instance, experts are 6. c) A profit and loss statement might be usually needed to do electrical work, required as part of a commercial lease or to work on elevators or fire safety application, but would not be relevant systems. as part of a residential lease applica- tion package. 13. c) Repair and deduct involves having repair work performed on a tenant’s 7. a) The Fair Credit Reporting Act is not behalf by a professional, and then de- an antidiscrimination law; it requires ducting the cost of the repairs from the certain notices to lease applicants con- next month’s rent bill. The tenant must cerning use of their credit histories. allow the landlord’s repair deadline to expire and also provide the landlord with a cost estimate of the cost of the repairs, before having any repairs made. 16  Chapter 10: Managing Residential Property 14. c) Persons who use service animals are 19. b) In most manufactured home parks, a protected under the Fair Housing resident will own the manufactured Act, but they’re protected against dis- home he lives in, but usually rent a crimination on the basis of disability. space in the park where the manufac- Parents and parents-to-be are protected tured home is placed. from discrimination on the basis of fa- milial status. 20. c) Government-assisted housing is pri- vately owned and managed but where 15. d) A residential manager may do one of tenant rent is partly paid through a two things: either return the entire se- government agency. By contrast, curity deposit, or return part of it while public housing is owned and operated retaining part of it to pay for damages directly by a government agency. (not regular wear and tear), accom- panied by written notice of repair expenses. 16. b) Single-family homes have less turn- over, as residents stay there longer, which means less time spent on marketing and negotiating leases. However, travel time between proper- ties is increased, and there is more yard maintenance to do. 17. a) A common interest development is any development where residents own their own units, but also own a shared inter- est in common areas. A condominium is a typical example; the owners as- sociation is likely to employ a property manager to oversee the jointly-owned common areas. 18. d) In a planned unit development, lot siz- es are small, but that is compensated by having common areas that residents own together. A property manager is likely to work for the owners associa- tion to manage the common areas. 17  Property Management Instructor Materials PowerPoint Thumbnails Use the following thumbnails of our PowerPoint presentation to make your lecture notes. Property Management Lesson 10: Managing Residential Property © 2021 Rockwell Publishing 1 Introduction This lesson covers residential property: ⚫ types of properties ⚫ management planning ⚫ marketing ⚫ leasing ⚫ operations ⚫ tenants ⚫ security deposits ⚫ management of specific types of property © 2021 Rockwell Publishing 2 Managing Residential Property Residential property (compared to commercial property): ⚫ is used day and night (manager on call) ⚫ has shorter lease terms (more turnover, more time spent marketing, leasing) ⚫ has more personally invested tenants (manager needs good people skills) ⚫ is more regulated under landlord-tenant laws © 2021 Rockwell Publishing 3 18  Chapter 10: Managing Residential Property Managing Residential Property Types of managed property Various types of housing under professional property management: ⚫ single-family homes ⚫ duplexes/triplexes/apartment buildings ⚫ condominiums/cooperatives/planned unit developments ⚫ manufactured home parks ⚫ subsidized housing ⚫ housing for elderly © 2021 Rockwell Publishing 4 Types of Managed Property Multi-family properties Most managers handle multi-family properties: ⚫ traditional buildings ⚫ mid-rise buildings ⚫ high-rise buildings ⚫ garden apartments ⚫ converted loft buildings © 2021 Rockwell Publishing 5 Management Planning Two critical elements of residential management planning: ⚫ creating management plan ⚫ developing operating budget © 2021 Rockwell Publishing 6 19  Property Management Instructor Materials Management Planning Residential management plan Residential management plan: ⚫ represents manager’s strategies for handling property ⚫ serves as roadmap for ongoing management activities © 2021 Rockwell Publishing 7 Management Planning Residential management plan Management plan analyzes: ⚫ region ⚫ neighborhood ⚫ property ⚫ market ⚫ alternatives © 2021 Rockwell Publishing 8 Residential Management Plan Regional analysis Regional analysis: Considers economic and demographic conditions that affect supply of and demand for residential property. Manager considers region’s: ⚫ average age, family size ⚫ salaries, employment rates ⚫ major industries, employers ⚫ quality of schools © 2021 Rockwell Publishing 9 20  Chapter 10: Managing Residential Property Residential Management Plan Neighborhood analysis Neighborhood analysis: Manager identifies neighborhood’s physical or intangible boundaries and considers: ⚫ vacancy and rental rates ⚫ transportation issues, zoning ⚫ demographics of local residents ⚫ crime rates ⚫ public services/transportation ⚫ proximity to schools, stores, recreation © 2021 Rockwell Publishing 10 Residential Management Plan Neighborhood analysis Manager also considers: ⚫ neighborhood employment/income data ⚫ occupancy and rental rate trends © 2021 Rockwell Publishing 11 Residential Management Plan Property analysis Property analysis: Manager gathers and evaluates information about property’s: ⚫ physical attributes ⚫ attractiveness and condition ⚫ current management ⚫ financial status © 2021 Rockwell Publishing 12 21  Property Management Instructor Materials Residential Management Plan Property analysis Owner can provide most of the information needed, but manager should conduct personal inspection of property. Manager should note building’s: ⚫ size, configuration, age ⚫ curb appeal (building’s exterior appearance and condition) © 2021 Rockwell Publishing 13 Residential Management Plan Market analysis Market analysis: Analysis to determine appropriate rental rates for subject property by locating competitive units and evaluating their rental rates. ⚫ Uses data gathered in regional, neighborhood, and property analyses. © 2021 Rockwell Publishing 14 Residential Management Plan Market analysis When choosing comparables, manager considers: ⚫ number and type of apartments available locally ⚫ average age and character of buildings ⚫ typical unit features (size, layout, amenities) ⚫ occupancy levels © 2021 Rockwell Publishing 15 22  Chapter 10: Managing Residential Property Residential Management Plan Market analysis Manager should pay attention to factors often considered “dealbreakers” to potential tenant: ⚫ cost, payment of utilities ⚫ proximity to transportation, arterials ⚫ laundry ⚫ parking ⚫ pet policies © 2021 Rockwell Publishing 16 Residential Management Plan Market analysis Manager uses comparison grid worksheet to: ⚫ compare properties side-by-side ⚫ estimate values for each feature/amenity ⚫ adjust rent of comparables to account for differences © 2021 Rockwell Publishing 17 Residential Management Plan Market analysis Manager uses adjusted rents to assess subject property’s current rent schedule. Manager may decide to: ⚫ raise or lower current rents ⚫ leave rental rates alone For new buildings, use adjusted rents of comparables to set rental rates. © 2021 Rockwell Publishing 18 23  Property Management Instructor Materials Residential Management Plan Analysis of alternatives Analysis of alternatives: Analysis done when manager believes that operational or physical changes to property would be appropriate. Manager: ⚫ performs cost-benefit analysis ⚫ presents owner with written proposal for approval © 2021 Rockwell Publishing 19 Management Planning Operating budget Operating budget: Reflects property’s anticipated monthly income and expenses over coming year. ⚫ Usually based on numbers from previous year (unless building is new). © 2021 Rockwell Publishing 20 Operating Budget Income Primary source of income is rent. ⚫ Must take into consideration vacancy factor. Vacancy factor: Percentage deduction that accounts for losses in income due to vacancies, difficulties collecting rent. ⚫ Expressed as percentage of property’s potential gross rental income. ⚫ Based on rent collected in recent years. © 2021 Rockwell Publishing 21 24  Chapter 10: Managing Residential Property Operating Budget Income Additional sources of income may include: ⚫ parking and storage fees ⚫ revenue from laundry, vending machines ⚫ late fees, forfeited security deposits © 2021 Rockwell Publishing 22 Operating Budget Expenses Typical residential property expenses include: ⚫ wages for manager and staff ⚫ supplies and administrative costs ⚫ repairs and other maintenance ⚫ owner-paid utilities ⚫ property taxes and insurance Doesn’t usually include mortgage payments. ⚫ Debt service isn’t operational expense. © 2021 Rockwell Publishing 23 Operating Budget Preparing the budget Must consider all factors that may affect occupancy over coming year: ⚫ changes in economic conditions ⚫ housing trends ⚫ construction of competing units nearby © 2021 Rockwell Publishing 24 25  Property Management Instructor Materials Operating Budget Preparing the budget Most residential managers use net operating income budget. Net operating income (NOI) budget: Format that lists potential gross income, effective gross income, and expenses, then provides projected net operating income. ⚫ Cash-flow budget that includes mortgage payments may suit owner better. © 2021 Rockwell Publishing 25 Summary Residential Management Planning – Management plan – Curb appeal – Operating budget – Vacancy factor – Net operating income budget – Cash flow budget © 2021 Rockwell Publishing 26 Marketing Residential Property Manager planning marketing campaign should: ⚫ consider target audience ⚫ weigh advisability of method in terms of: ⚫ time ⚫ energy ⚫ expense Best methods vary from property to property. © 2021 Rockwell Publishing 27 26  Chapter 10: Managing Residential Property Marketing Residential Property Most common marketing methods for multi- family properties: ⚫ internet advertising ⚫ print ads ⚫ model units and rental centers ⚫ leasing agents © 2021 Rockwell Publishing 28 Marketing Residential Property Internet advertising Internet advertising is inexpensive way to reach large pool of potential tenants. Advantages: ⚫ can contain lots of info on property ⚫ removes geographical limitations for prospective tenants © 2021 Rockwell Publishing 29 Marketing Residential Property Internet advertising Simplest type is short listing on classified ad site. ⚫ Examples: craigslist, online newspapers. ⚫ May be searchable by neighborhood, price, number of bedrooms, pets. ⚫ Ads usually contain brief description of property, with a few photos and contact info. © 2021 Rockwell Publishing 30 27  Property Management Instructor Materials Marketing Residential Property Internet advertising Manager of larger properties may use dedicated website to advertise units. ⚫ Listings usually more detailed than classified ad sites: ⚫ descriptions of amenities, finishings ⚫ photos ⚫ floorplans ⚫ short video of unit interior © 2021 Rockwell Publishing 31 Marketing Residential Property Print ads Historically, printed ads in local newspapers were preferred method of marketing residential rental property. Classified ads: Ads that communicate basic information (rent amount, location, pets). Display ads: Larger, more expensive ads that contain photographs and more details. © 2021 Rockwell Publishing 32 Marketing Residential Property Print ads For Rent magazines: Publications printed monthly and distributed free at newsstands or shopping centers. ⚫ Used in some areas. ⚫ Can be most cost-effective option for advertising units, especially in high-end apartment buildings. © 2021 Rockwell Publishing 33 28  Chapter 10: Managing Residential Property Marketing Residential Property Model units and rental centers Manager of larger complex or development may keep model unit (show unit) for prospective tenants to view. ⚫ Similar to staging a home for sale. ⚫ Allows tenant to visualize finished space. ⚫ Should be furnished, decorated by professional. ⚫ Should be kept clean and in show-ready condition at all times. © 2021 Rockwell Publishing 34 Marketing Residential Property Model units and rental centers Rental center: Office or room used only for meeting prospective tenants and distributing information and marketing materials. ⚫ May attract passersby who are interested in displays. © 2021 Rockwell Publishing 35 Marketing Residential Property Leasing agents Leasing agents: Trained salespeople hired specifically to help with marketing and leasing activities. ⚫ Often well-suited to rental centers. © 2021 Rockwell Publishing 36 29  Property Management Instructor Materials Marketing Residential Property Additional considerations All advertising must comply with fair housing and antidiscrimination regulations. ⚫ Display ads and printed materials must contain equal housing logo. ⚫ Photos of models must demonstrate diversity. Marketing efforts futile if property lacks curb appeal. © 2021 Rockwell Publishing 37 Summary Marketing Residential Property – Internet marketing – Classified ads – Display ads – For Rent magazines – Model units – Rental centers – Leasing agents © 2021 Rockwell Publishing 38 Leasing Residential Property Leasing process involves: ⚫ accepting applications ⚫ screening and selecting tenants ⚫ signing leases © 2021 Rockwell Publishing 39 30  Chapter 10: Managing Residential Property Leasing Residential Property Application process Lease application form is used to gather information from prospective tenant. Best to use standardized application form for all applicants. ⚫ Allows collection of information in organized, efficient manner. ⚫ Helps avoid claims of discrimination (all applicants asked same questions). © 2021 Rockwell Publishing 40 Leasing Residential Property Application process Most forms ask: ⚫ applicant’s name, social security number ⚫ names of other occupants ⚫ current address, phone number, reason for leaving, current landlord information ⚫ same information for previous address ⚫ current employer, salary, length of employment, supervision information ⚫ same information for previous employer © 2021 Rockwell Publishing 41 Leasing Residential Property Application process Most forms ask (continued): ⚫ bank names and account numbers for checking, savings, loans, credit cards ⚫ permission to verify information and run credit check, criminal background check ⚫ applicant’s signature ⚫ references, emergency contact Manager should also get copy of applicant’s identification. © 2021 Rockwell Publishing 42 31  Property Management Instructor Materials Leasing Residential Property Application process Application should clearly state: ⚫ amount of any fee or deposit collected ⚫ whether it is refundable (background or credit check fee is usually nonrefundable) State law may limit: ⚫ amount of application fee ⚫ whether fee can be collected if no vacancies exist © 2021 Rockwell Publishing 43 Leasing Residential Property Screening and selecting tenants Primary concern is whether tenant will pay rent on time. Manager looks at: ⚫ credit history ⚫ income ⚫ debt levels May use screening service to handle some or all steps in screening process. © 2021 Rockwell Publishing 44 Leasing Residential Property Screening and selecting tenants Screening process begins with manager obtaining applicant’s credit report. Credit report: Report from one or more of the three major credit reporting agencies that summarizes an individual’s: ⚫ loans ⚫ credit purchases ⚫ debt repayment history over last 7 years © 2021 Rockwell Publishing 45 32  Chapter 10: Managing Residential Property Leasing Residential Property Screening and selecting tenants Credit report also reveals any outstanding court judgments, bankruptcy filings. Credit report contains credit score that quantifies applicant’s credit history. ⚫ Manager may require minimum credit score. © 2021 Rockwell Publishing 46 Leasing Residential Property Screening and selecting tenants If credit report is satisfactory, manager: ⚫ verifies employment and income ⚫ must comply with Fair Credit Reporting Act and similar state laws ⚫ must decide if applicant will take care of property, get along with other tenants ⚫ done by contacting prior landlords ⚫ must abide by fair housing laws © 2021 Rockwell Publishing 47 Leasing Residential Property Residential lease agreements After screening and selecting tenant, next step is to sign lease agreement. ⚫ May use pre-printed form, filled in by hand. ⚫ May use customized form, created for the property by lawyer. ⚫ In some states, form must use “plain language.” ⚫ Must comply with all provisions of state’s residential landlord-tenant act. © 2021 Rockwell Publishing 48 33  Property Management Instructor Materials Residential Lease Agreements Landlord-tenant acts Every state has a residential landlord-tenant act. ⚫ Many are based on Uniform Residential Landlord and Tenant Act. Uniform Residential Landlord and Tenant Act (URLTA): Model landlord-tenant act created to achieve consistency in state and local residential landlord-tenant acts. © 2021 Rockwell Publishing 49 Residential Lease Agreements Landlord-tenant acts States usually don’t impose much regulation on commercial leases. ⚫ Commercial tenants are assumed to have more knowledge and sophistication than residential tenants. © 2021 Rockwell Publishing 50 Residential Lease Agreements Landlord-tenant acts Residential landlord-tenant acts spell out rights and duties of parties in great detail. Laws address: ⚫ amount, handling of security deposits ⚫ notice requirements for landlord entry ⚫ responsibility for maintenance ⚫ notice requirements for lease termination ⚫ grounds/procedures for eviction ⚫ remedies available for breach © 2021 Rockwell Publishing 51 34  Chapter 10: Managing Residential Property Residential Lease Agreements Landlord-tenant acts Every residential lease contains implied warranty of habitability. Landlord-tenant acts make this duty explicit. Usually, landlord must provide: ⚫ weather-tight building ⚫ garbage removal ⚫ water, heat, electricity Landlord has duty to fix problems that make unit uninhabitable within specified time. © 2021 Rockwell Publishing 52 Residential Lease Agreements Lease provisions Most residential leases address: ⚫ parties and occupants ⚫ lease term ⚫ rent ⚫ description of premises ⚫ security deposit ⚫ utilities ⚫ assignment and subleasing © 2021 Rockwell Publishing 53 Residential Lease Agreements Lease provisions Most residential leases address (continued): ⚫ rules ⚫ maintenance ⚫ possession ⚫ entry and inspection ⚫ pets © 2021 Rockwell Publishing 54 35  Property Management Instructor Materials Lease Provisions Parties and occupants Every competent adult who will occupy unit should sign lease. ⚫ Makes all parties jointly and severally liable. ⚫ Protects owner if one person breaches. Minors should be listed as occupants. Number of occupants can’t exceed limits set by state law or local housing code. © 2021 Rockwell Publishing 55 Lease Provisions Parties and occupants If tenant has little or no credit history or income, co-signer may be required. Co-signer: Another party, such as a tenant’s parent, who agrees to accept liability for any default by the tenant. ⚫ Must sign lease but is listed separately from tenants. © 2021 Rockwell Publishing 56 Lease Provisions Lease term Lease agreement should state lease term, with start/end dates (except for periodic tenancies). Lease can be: ⚫ term tenancy: fixed period/definite end date, expires automatically at end of term ⚫ periodic tenancy: automatically renews at end of period unless one party gives notice ⚫ usually a month-to-month tenancy © 2021 Rockwell Publishing 57 36  Chapter 10: Managing Residential Property Lease Provisions Rent Lease usually states when rent is due. ⚫ Landlords usually require payment at first of month. Lease should also specify: ⚫ late fees (amount and conditions under which they will be charged) ⚫ acceptable methods of payment © 2021 Rockwell Publishing 58 Lease Provisions Description of premises Lease must identify rented premises using property’s address. Lease should also describe condition of premises. ⚫ Usually walk-through checklist. ⚫ Also known as move-in/move-out inspection form. ⚫ Written record helps avoid disputes. © 2021 Rockwell Publishing 59 Lease Provisions Security deposit Residential property managers require security deposit from tenant when lease is signed. Gives manager some protection if tenant: ⚫ damages property ⚫ fails to pay rent © 2021 Rockwell Publishing 60 37  Property Management Instructor Materials Lease Provisions Utilities Residential leases vary in assigning who is responsible for utilities. ⚫ Tenant may pay all utilities. ⚫ Tenant may only pay certain utilities. ⚫ Owner may pay all utilities (and charge higher rent). In older buildings without separate meters, owner may pay or tenants share equally. © 2021 Rockwell Publishing 61 Lease Provisions Assignment and subleasing Assignment and subleasing: tenant transfers all or part of remaining lease to another party. ⚫ Assignment: original tenant secondarily liable. ⚫ Sublease: original tenant primarily liable. ⚫ Most leases prohibit without prior written consent. © 2021 Rockwell Publishing 62 Lease Provisions Rules Lease contains rules that limit a tenant’s use and other activities. ⚫ Some rules are imposed by law. ⚫ Some are management policies. ⚫ Violation constitutes breach of lease. © 2021 Rockwell Publishing 63 38  Chapter 10: Managing Residential Property Lease Provisions Maintenance Lease should specify all maintenance tasks tenant is responsible for. ⚫ If tasks exceed what is normal, manager should carefully explain at lease signing. © 2021 Rockwell Publishing 64 Lease Provisions Possession Date lease term begins is usually date tenant entitled to possession. If the property will not be ready for possession on promised date, landlord may need to compensate tenant for resulting costs (hotel, storage). © 2021 Rockwell Publishing 65 Lease Provisions Entry and inspection Tenant’s right of possession must be balanced against landlord’s right of entry. Tenant cannot unreasonably refuse manager’s legitimate requests for entry to: ⚫ inspect unit ⚫ perform repairs ⚫ provide services ⚫ show unit to prospective tenants © 2021 Rockwell Publishing 66 39  Property Management Instructor Materials Lease Provisions Entry and inspection State landlord-tenant law usually states how much notice landlord must give before entering premises. Examples: ⚫ for routine repairs: 48 hours ⚫ for emergencies (such as broken water pipe): no notice necessary © 2021 Rockwell Publishing 67 Lease Provisions Pets Whether or not pets are permitted, lease should have clause spelling out what is and isn’t allowed regarding animals. © 2021 Rockwell Publishing 68 Lease Provisions Pets Fair housing laws require landlords to allow trained service animals, regardless of pet policy. ⚫ May require doctor’s note. ⚫ Can’t ask what disability is, or require disclosure of service animal on application. ⚫ Can reject animal with history of causing harm. © 2021 Rockwell Publishing 69 40  Chapter 10: Managing Residential Property Leasing Residential Property Renewals Manager should make reasonable efforts to renew lease with all desirable tenants. ⚫ Send renewal notice and new lease well before current lease expires. ⚫ Consider incentives or upgrades to offset rent increases. © 2021 Rockwell Publishing 70 Summary Leasing Residential Property – Screening tenants – Credit reports – Term tenancy – Periodic tenancy – Landlord-tenant acts – Common lease provisions – Lease renewals © 2021 Rockwell Publishing 71 Residential Operations Residential operations include: ⚫ staffing ⚫ maintenance (including preparing units for new tenants) © 2021 Rockwell Publishing 72 41  Property Management Instructor Materials Residential Operations Staffing Staffing needs depend on size and type of property. ⚫ Small property may require no more than one off-site manager. ⚫ Larger property may require resident manager and several full-time maintenance persons. © 2021 Rockwell Publishing 73 Staffing Resident managers Resident manager: Hired by property owner to live on-site and handle certain management tasks in exchange for reduced or free rent. ⚫ May be better able to enforce policies. ⚫ Tenants appreciate having someone to call. ⚫ More than 15-20 units probably requires a resident manager. © 2021 Rockwell Publishing 74 Staffing Maintenance Depending on property and maintenance needs, manager may: ⚫ hire staff directly ⚫ contract for services May be cost-effective to have on-site staff perform routine maintenance (mowing lawn) and contract for larger, seasonal projects (cleaning roof, gutters). © 2021 Rockwell Publishing 75 42  Chapter 10: Managing Residential Property Staffing Other staff Other management staff that may be required for larger buildings includes: ⚫ front desk attendants ⚫ security staff ⚫ doormen ⚫ concierges © 2021 Rockwell Publishing 76 Residential Operations Maintenance All properties have common maintenance needs, such as: ⚫ grounds kept tidy ⚫ common areas kept clean, well-lit ⚫ functioning heating and plumbing systems, appliances Amenities, such as pool or gardens, add to maintenance load. © 2021 Rockwell Publishing 77 Maintenance Preparing units for new tenants A significant maintenance task is preparing unit for new tenant. ⚫ Amount of work depends on size of unit, length of previous occupancy, and so on. ⚫ Manager/tenant complete move-out checklist. Manager usually creates list of tasks that need doing before new tenant moves in. © 2021 Rockwell Publishing 78 43  Property Management Instructor Materials Summary Residential Operations – Staffing – Resident managers – Maintenance staff – Preparing units for new tenants © 2021 Rockwell Publishing 79 Working with Tenants One of manager’s main functions is liaison between owner and tenant. This includes handling: ⚫ communications with tenants ⚫ rent issues ⚫ breach of lease ⚫ fair housing considerations ⚫ tenant complaints and tenant unions © 2021 Rockwell Publishing 80 Working with Tenants Communicating Managers use various methods to communicate, including: ⚫ newsletters (email and/or print) ⚫ website ⚫ individual email ⚫ suggestion box ⚫ phone (tenants should always be able to reach manager by phone) © 2021 Rockwell Publishing 81 44  Chapter 10: Managing Residential Property Working with Tenants Rent Residential managers rarely send out rent bills (amount is usually same each month). Rent payments must be made in form and manner stated in lease agreement. ⚫ Manager must: ⚫ handle them in accordance with state laws governing trust funds ⚫ keep good records, provide reports to owner © 2021 Rockwell Publishing 82 Working with Tenants Rent Collecting rent also means handling rent delinquencies, including: ⚫ sending out late notices ⚫ collecting late fees All steps must comply with state and federal debt collection laws. © 2021 Rockwell Publishing 83 Working with Tenants Breach of lease agreement Landlord or tenant can breach agreement. State residential landlord-tenant law often governs: ⚫ remedies for breach ⚫ notice requirements © 2021 Rockwell Publishing 84 45  Property Management Instructor Materials Working with Tenants Breach of lease agreement Remedies for breach by landlord include: ⚫ repair and deduct: ⚫ tenant gives landlord notice of problem, but landlord fails to fix ⚫ tenant hires professional, deducts cost of repair from next month’s rent ⚫ tenant must provide contractor’s estimate ⚫ state may limit amount/number of times per year remedy can be used © 2021 Rockwell Publishing 85 Working with Tenants Breach of lease agreement Remedies for breach by landlord (continued): ⚫ self-repair: ⚫ same as repair and deduct but tenant does work himself ⚫ landlord entitled to inspect work ⚫ tenant liable for work not up to code ⚫ depositing rent into escrow: ⚫ tenant pays rent into escrow until landlord fixes problems © 2021 Rockwell Publishing 86 Working with Tenants Breach of lease agreement Remedies for breach by landlord (continued): ⚫ vacating premises: ⚫ if landlord fails to address critical issue, tenant can terminate lease and move out ⚫ tenant must give landlord notice (determined by state law) ⚫ landlord must refund prepaid rent, security deposit © 2021 Rockwell Publishing 87 46  Chapter 10: Managing Residential Property Working with Tenants Breach of lease agreement Remedies for breach by landlord (continued): ⚫ filing lawsuit or entering arbitration ⚫ tenant can seek court order requiring landlord to fulfill terms of lease ⚫ some leases require parties to use arbitration first Arbitration: Binding hearing conducted by private individual, usually retired judge. © 2021 Rockwell Publishing 88 Working with Tenants Breach of lease agreement When tenant breaches lease, landlord’s main remedy is eviction. State laws impose many requirements on landlords who want to evict tenants. ⚫ Can’t simply lock out tenant. ⚫ Must follow detailed legal procedures. © 2021 Rockwell Publishing 89 Working with Tenants Fair housing considerations Under Fair Housing Act, landlords must let disabled tenants make reasonable modifications to property, if needed for full enjoyment. ⚫ At tenant’s expense. ⚫ Tenant may have to restore premises. Landlord must make reasonable exceptions to rules (service animals despite no pets policy). © 2021 Rockwell Publishing 90 47  Property Management Instructor Materials Working with Tenants Fair housing considerations Manager cannot discriminate based on familial status (families with child under 18) in rental decisions or rules. ⚫ Manager can limit occupancy based on limits set by local law. ⚫ “Adults only” complexes are illegal unless they qualify as housing for older persons. ⚫ Rules/policies should be applied equally. © 2021 Rockwell Publishing 91 Working with Tenants Tenant complaints and tenant unions Manager can make tenants happy by keeping property clean and in good repair. ⚫ Respond to requests/complaints promptly. ⚫ Poor service may lead to formation of tenant unions, which can be hard to handle. ⚫ Document difficult tenants who seem impossible to satisfy. ⚫ Helps prevent discrimination claim later when landlord doesn’t renew lease. © 2021 Rockwell Publishing 92 Summary Working with Residential Tenants – Tenant communication – Repair and deduct – Arbitration – Familial status – Handling tenant complaints © 2021 Rockwell Publishing 93 48  Chapter 10: Managing Residential Property Residential Security Deposits State landlord-tenant laws regulate how landlord handles security deposits: ⚫ no collection of deposit without written, signed lease (which serves as receipt) ⚫ size of deposit may be limited ⚫ deadline for deposit refunds ⚫ trust account requirements ⚫ interest payments © 2021 Rockwell Publishing 94 Residential Security Deposits When tenancy ends When tenancy ends, manager has 2–3 weeks (based on state law) to: ⚫ refund entire deposit, OR ⚫ provide itemized statement of repair expenses and unpaid rent amounts, plus any remaining refund. © 2021 Rockwell Publishing 95 Residential Security Deposits When tenancy ends Landlord: ⚫ can’t use deposit to cover damage that is normal wear and tear ⚫ can be fined for failure to refund deposit on time © 2021 Rockwell Publishing 96 49  Property Management Instructor Materials Residential Security Deposits Sale of property Law spells out what happens to deposits when ownership of property changes hands (including foreclosure). Original owner must either: ⚫ transfer deposits to new owner via escrow, OR ⚫ return deposit to tenant. © 2021 Rockwell Publishing 97 Summary Residential Security Deposits – Handling of funds – When tenancy ends – Ordinary wear and tear – Sale of property © 2021 Rockwell Publishing 98 Managing Specific Properties Single-family homes Managers: ⚫ often spend more time managing single- family homes per tenant than apartments ⚫ homes are spread out geographically ⚫ maintenance is more time-consuming Advantages: ⚫ less turnover ⚫ higher rents © 2021 Rockwell Publishing 99 50  Chapter 10: Managing Residential Property Managing Specific Properties Common interest developments Common interest developments (CIDs): Residential developments in which each resident owns her own unit and also holds a shared interest in the common areas. ⚫ Condominiums, cooperatives, PUDs. © 2021 Rockwell Publishing 100 Managing Specific Properties Common interest developments Community association: Association of owners in a CID; often employs professional property manager. CIDs mostly resident-owned property, not income-producing property. ⚫ Means manager’s role is different. © 2021 Rockwell Publishing 101 Common Interest Developments Condominiums Condominium: Owner is sole owner of her unit but shares ownership of common areas with other unit owners. ⚫ Managed by owners association. Common elements: Aspects of property that all unit owners have right to use (lobby, elevator, grounds). Limited common elements: Aspects of property reserved for owners of certain units (reserved parking space, balcony). © 2021 Rockwell Publishing 102 51  Property Management Instructor Materials Common Interest Developments Cooperatives Cooperative: Ownership is held by a corporation; residents own shares in the corporation and hold proprietary long-term leases to their units. ⚫ Managed by elected board of directors. © 2021 Rockwell Publishing 103 Common Interest Developments Planned unit development (PUD) Planned unit development (PUD): Development consisting of individually owned single-family homes and parcels, and shared common areas (such as parks and recreational facilities). ⚫ Owners belong to homeowners association. ⚫ Owners usually subject to numerous CC&Rs. © 2021 Rockwell Publishing 104 Managing Specific Properties Common interest developments Community association may: ⚫ hire manager as full- or part-time employee ⚫ retain manager as consultant Some states require special licensing or real estate license. Role depends on type, size, needs of CID. © 2021 Rockwell Publishing 105 52  Chapter 10: Managing Residential Property Managing Specific Properties Manufactured home parks Residents typically own their home, and own or rent the site on which home is placed. ⚫ Park usually hires on-site manager to handle leasing, rent collection, maintenance. State’s landlord-tenant law for mobile homes may have different: ⚫ eviction procedures ⚫ notice requirements © 2021 Rockwell Publishing 106 Managing Specific Properties Subsidized housing Subsidized housing: Residential rental property for lower-income tenants whose rent is subsidized by government. May be either: ⚫ public housing ⚫ government-assisted housing © 2021 Rockwell Publishing 107 Managing Specific Properties Subsidized housing Public housing: Residential property owned and managed by a government body or agency. Government-assisted housing: Privately owned and managed residential property where a government agency pays portion of tenants’ rent. ⚫ Also called Section 8 housing. © 2021 Rockwell Publishing 108 53  Property Management Instructor Materials Managing Specific Properties Subsidized housing In addition to regular multi-family property duties, managers must: ⚫ understand requirements of applicable housing program ⚫ comply with specialized housing regulations ⚫ deal with government agencies ⚫ screen lease applicants for program eligibility and recertify current tenants © 2021 Rockwell Publishing 109 Managing Specific Properties Housing for the elderly Variety of housing exists for elderly: ⚫ independent living communities ⚫ assisted living facilities Managers of these facilities: ⚫ usually provide different services (transportation services, food preparation) ⚫ handle medical emergencies ⚫ must be familiar with regulations that govern housing for older persons © 2021 Rockwell Publishing 110 Summary Managing Specific Properties – Single-family homes – CIDs – Mobile home parks – Subsidized housing – Housing for the elderly © 2021 Rockwell Publishing 111 54