Property management

Property Management-- Mike Kremko, Mark Silva, and Daniel Fiero

Real estate can be used for its investment value including apartment complexes, offices, or shopping centers. For property owners it is often necessary to hire a property manager to supervise the operation since it can be tedious and the property may often be located in a different city. The property manager has duties including: accounting, maintaining equipment, accepting rent, and responding to any issues a tenant may have. A property manager may be a licensed real estate salesperson, but generally they work under a licensed real estate broker. They act as a buffer between property owners and tenants. Should any issues arise, the property manager will more than likely bring them to the attention of the property owners in an attempt to remedy the issue, but some issues can be easily resolved without the owner’s involvement. We will be discussing property management from the landlord’s point of view covering such things as possible income properties, the job of a property manager, perspective tenants, and contracts with tenants.

Residential Property Management

Screening prospective tenants is an important thing a landlord should always do to protect their investment and to also prevent any unnecessary problems. Since the turnover rate is typically high in the residential market, it is best to do a thorough check to prevent a vacant unit and any legal issues. One of the first things to do is have them fill out a rental application. Be sure to get full names, copy of their driver’s license/identification card, social security numbers, and employment history with a recent check stub. A small fee should be charged to cover the expense of checking their credit report, which can now be done easily on various websites at a small fee. Getting a credit report will determine if the prospective tenant has been consistent about paying their bills and their debt to income ratio is not too high. If they have met your criteria, it may be reasonable to think the perspective tenant will be able to pay you the amount agreed for the duration of the lease. If they have not been responsible in the past, it may be a risk to assume they will pay you and will either require you to choose the next applicant or require a cosigner for the current applicant. Next it is crucial to get fairly recent references. If possible, get numbers to old landlords and speak with them. This will be a good way to get their rental history or learn of any issues they may have had in the past (Haupt & Dorsey). At this point you would want to schedule an appointment with the prospective tenant to explain your expectations of them. This will provide a way to see how they react to those expectations. Also, it invites questions from both sides to clarify any ambiguity. Once terms have been agreed on and the interested party decides on the property, it is time to sign a lease agreement.

A lease agreement must comply with state and local laws. Depending on the area, lease agreements may have some differences. It is a good idea to have an attorney review your lease to make sure it is compliant with local and state laws, as well as enforceable in court. The lease will all have some major components such as: name of tenants, lease term (typically one year), payment of rent, deposit, fees, user responsibilities, pet clause, security deposit clause, and access to premises (Lopez). The lease will also include information on what will happen if the tenant is late on a payment or if they refuse to pay.

In California the eviction process is complicated and sometimes costly. The eviction process begins with a 3-Day Notice to Pay or Quit, 30-Day Notice to Vacate, or 60-Day Notice to Vacate (Marsh). If the tenant doesn’t move out by the specified times, the landlord may file an unlawful detainer. In an unlawful detainer, the landlord is the plaintiff and the tenant is the defendant. Usually within 1 to 10 days the tenant is served with summons papers. At this point it may be a good idea for the tenant to seek legal advice. The legal process is very complicated and lengthy. In the end the court could rule in favor of the tenant. In which case, the tenant may continue to reside in the rental unit and the courts may award the tenant his legal fees as well as damages. The court could also rule in favor of the landlord. In this case, the court orders a “writ of possession” and awards the landlord legal fees and unpaid rent. The court clerk will issue the order to the Sheriff. Within 1 to 3 days a peace officer will deliver a 5 days’ notice to vacate the property or be evicted. If the tenants do not comply the peace officer will physically remove the tenants and return the property to the landlord’s possession. Although the eviction process rarely occurs, it is best to understand how to handle the process.

 

Commercial Property Management                               

Screening perspective tenants in commercial real estate differs for the process done in residential. Unlike residential properties, there is a fairly low turnover rate in commercial properties because businesses become synonymous with a certain location. Property management companies usually will put together a detailed packet of information for potential renters, which include traffic studies, demographics of the area, and land reports. Due to the troubled economy the turnover rate has gone up in commercial real estate and there are more vacant storefronts and office buildings in cities across the country.  When applying for a commercial space a few more factors are taken into consideration. A typical application will have you include a full balance sheet of the company, any liquid assets or collateral possessed by the company or their owners in the event that the rent is not paid, and information on any cosigners of the property. Additionally, the perspective tenant will have to have either enough cash or a loan from a banking institution in order to complete any work on the property. Once the application has been processed and accepted, the lease agreement is covered.

 

Unlike residential leases, a commercial lease will be a long-term contract with various different clauses. One main difference between residential and commercial is that the commercial property is leased out by total square footage and could also have additional monthly fees based on their monthly income. Another clause in the lease is a tenant improvement allowance or TI allowance for short. Many commercial properties are leased as an open floor plan, which allows for tenants to design their property in a way that is beneficial for their business. A tenant improvement allowance is usually given once the work is complete and is paid out by the owner per square foot. The tenant improvement allowance covers the construction costs of any fixed items that will continue to be in the property after the tenant leaves (Schwellinger). Typically with a commercial lease, the repercussions of defaulting are much greater. The property owner could keep the security deposit, restrict you from entering your property, and will more than likely sue you for all rent for the duration of the contract.

 

 

California Eviction Guide For Tenants and Landlords

Prepared By: Melissa C. Marsh, Los Angeles Landlord-Tenant Attorney

http://www.ehow.com/articles_4827-property-management.html

 

Schwellinger, Brian. "Questions and Answers about Tenant Improvement Games." 20 APR 2005. Web. 20 Nov 2009. http://www.realestatedec.com/artman/publish/article_49.shtml

 

Haupt, Kathryn, and Megan Dorsey. California Real Estate Practice. 4th. Rockwell Publishing, 2009. Print

 

Lopez, Carrie. "A Guide to Residential Tenants’ and Landlords’ ." July 2006. California department of consumer affairs, Web. 18 Oct 2009. 

http://www.dca.ca.gov/publications/landlordbook/catenant.pdf