12 Ways to build and control a successful property management company.
As a leader of a property management company, you have some very specific goals you need to reach.
Happy clients
Happy tenants
Fast and efficient communication with your vendors, employees, clients and tenants
A focus on bottom line growth for your clients and your business as well.
The delivery of services with integrity and honesty as your core corporate ethos
Clients are usually reasonable. For them the bottom line is that they need to make money. If you plan ahead and budget, they will step up to that. Beware of the property that has a constant negative cash flow problem.
Clients will not tolerate constantly feeding a property,
unless it is part of a longer-range management plan. Key property management staff are usually assigned to take care of clients.
Assistant property managers typically take care of most Tenants. Their job is to resolve problems quickly and efficiently. If maintenance is not resolved, phone calls and emails not answered and their needs are ignored, tenants will throw the assistant property manager under the proverbial bus. Leaders need to develop quality controls to track response times and resolve issues to keep tenants happy.
Clearly operating a property successfully is financially related, but fast responses even with negative news will buy allegiance from tenants and clients alike, though it helps if you solve the problems.
If Property managers do not respond to clients quickly, and on a regular basis, clients will go to another company that gives them the attention they are paying for.
How do you get there?
1. Most important is employee selection and screening. Finding those with a great “can do” attitude, some industry skills and the desire to take care of your business will hold you in good stead. Investing in great team player employees will help you take care of your clients and grow your business. The owner and senior managers must care about the business, the properties, clients and tenants. This includes the administrative, maintenance and accounting staff. Creating a compensation system that incents those goals will ensure success.
2. Owners/ Managers need to be meeting regularly with their key property managers and need to be in regular touch with their clients. Owners and Key managers should double check the monthly financial statements that are being sent out to clients. This huge job pays off in ensuring property company policies are followed and reduces the number of surprises that show up on your desk.
3. Monthly trust account reconciliations need to be completed and double checked. It is too easy for an accounting staffer to accidentally make an error. Sometimes you may find an accounting staffer will fill their own pocket if the key management company principals don’t pay attention to the monthly financial reports.
4. Spending controls and internal audits:
Strict spending controls need to be in place. Depending on the size of a company it may be easy to find an employee managed credit card charged for personal items, like new shoes, clothing, meals, drinks and trips. (Yes, this can and does happen).
For examples, of spending controls, think of:
a. On-site spending Caps/Limits
b. Off site manager Spending Limits on their credit cards
c. Limit use of credit cards to urgent and auditable items.
Sure you can charge up a lot of travel miles by paying for your client bills with a company issued credit card, but to make this work systems need to be in place to audit every transaction. This can also be is a gray area for co-mingling of funds. The sue of the credit cards need to be well defined.
d. Create a set of annual internal audits to track your financial policies, procedures and operations. Remember every time you have employee turnover they may want to clean up and short cut your control systems and do it their way. Their way, is not your way, and you won’t know until you audit. https://www.apmhelp.com/blog/top-5-critical-accounting-mistakes-property-managers-must-avoid
5. Limit Liability
Use outside vendors such as construction and project managers, or mechanical or structural engineers and architects to draft specs for major projects and supervise and inspect. Often vendors may have on staff specification managers that can help as well.
6. Set a schedule for random on-site visits, to inspect the properties and inspect rented and vacant units and maintenance work performed by vendors and maintenance staff, as well as onsite managers and other onsite based staff. Meet with tenants to ensure rents have been posted correctly.
Double check to make sure that on-site managers have not found a way around property and accounting controls and accepted funds from tenants they have not receipted for. Yes, it does happen, and when it does happen you must fire the person that stole the money.
7. Insist on employees taking vacation… you never know what you might find on their desk. It’s the super reliable long-term employee that could be taking money out of the trust account, or depositing funds in their account instead of he company accounts.
8. Limit who can sign checks and order goods. This is a huge challenge for any company. Controls need to be put in place with signature approvals for large expenditures in excess of say $5,000. This can slow down large projects but may keep you from a major expense you need to cover. Training in this area should be reviewed every six months for new employees and once a year for everyone else.
9. No leaving checks on the desk. It is a requirement by real estate agencies that money is deposited quickly. Funds should be deposited no more than three business days after receipt. Holding rent checks till they are covered is not allowable.
10. Train your tenants and put in place a series of quality control measures such as:
a. Annual tenant surveys
b. Clear rent collection policies
c. Annual policy and trust account audits
11. If money does vanish, managers must be willing to track down the perpetrators. Sometimes it’s an accident, sometimes it’s on purpose. We had an employee take mail to the post office and they forgot to deliver the checks. They slipped under the backseat of the car and the problem was not detected until a month later. A lot of bills were paid late, and we had to pay many late fees for the clients. That employee received a warning letter in their employee file. Other employees blatantly stole money. They were asked to leave.
12. Don’t be afraid to ask for help if you are in trouble
a. Keep an attorney or employers help association on retainer.
b. Make sure you have an errors and omissions insurance policy in place
Summary
Growing a property management company is built on the skills of its leaders, managers and employees, and on solid property management and accounting software with built in control systems.
The total team needs to be committed to ensure all are on the same page and work together to limit risk to the client’s tenants and property management company. Leadership is responsible for making sure all employees are on the same page with ownership.
Compensation should be structured not only to grow the company, but also to reward all for successfully reaching goals that include risk reduction. Train to reach goals and celebrate when goals are met. Highlight key players including administration and accounting staff. Don’t leave out communal recognition so all the employees realize they are part of a large team.
The success of every property management company rests on the honesty and integrity of all of the employees. Sweeping problems under the carpet or ignoring them just makes them worse and undermines your relationship with your clients and tenants. More importantly you risk an investigation by your real estate agency or a civil lawsuit.
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021.
He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN | Bluestone.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate-related topics. Cliff is the author of two books, 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC., designed to help investors and commercial brokerage owners successfully navigate their businesses. He can be reached at 503-267-1909, Cliffhockley@gmail.com or Cliff.Hockley@SVN.com.
