S.E.C. Real Estate Observer

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Managing Real Estate for Success

Here is a question for you: What really is the importance of good and effective management in real estate ownership?

Pretty easy question, huh? Well, let’s see if I can add just a little different perspective to your thinking. And since I have held a CPM designation for 29 years, I can probably fake some of you readers into thinking I am skilled in the discipline of property management.

Seriously, I do contend that after you have cleverly and creatively mechaniced your way into real estate ownership, the success of any property depends largely on how the on-going day-to-day operations are handled.

Properties don’t run themselves. Thus, the august need for competent management that markets the property cannot be overlooked. I can think of numerous properties that show up in marketing meetings which would not even be there if proper management were in place.

The most important step in due diligence is usually overlooked. In doing a property analysis, most brokers zero in on income and expenses and after that maybe a physical tour of the premises. In many instances, the planning for the future operations of the property is, if not an afterthought, a “play it by ear” as it happens after the ownership has changed. We’ll get to that later.

I like to call the process: “Looking at the seven golden handles.” These are the most important phases of the management plan. I put them in this order

• Marketing
• Leasing
• Collecting
• Bookkeeping
• Maintaining
• Financing
• Supervising

Each of these handles is important in its own way; no management program is complete unless critical plans are made to address each one. I put them in this order because, the first four focus on the money coming in and the last three on spending it. Obviously, my focus aims on how to adapt the property to the market to maximize its income potential so let me comment on each of these seven areas.

1. MARKETING. This is the test of it all. A property management program must first determine how the property fits in its market and then lay out a program to meet that fit. So plan the ads. Plan the brochures. Plan the tenant profile. Plan the incentive program if there is vacancy. Plan where in the market you want the property to position itself. Maybe it is shopworn and trying unrealistically to attract the wrong tenants. But by all means plan the marketing as a part of the acquisition, and keep at it for as long as you own it.

2. LEASING or renting or letting or whatever you plan to do to have people pay you for the use of your property. The success or failure of every property depends upon how well this is done. We are in the people business, because it is people who say “yes” and take the space. Leasing is a people skill. The choice of leasing employees who have this magical skill is enormous. Plan for it carefully.

3. COLLECTING. I have a friend, a long time property manager who has gathered material for a book she hopes to write titled 101 Reasons Why I Can’t Pay My Rent. The process of setting forth guidelines as to what the delinquency policy will be must be set forth at the beginning and become part of the book of management procedures.

4. BOOKKEEPING. I suppose the word “tracking” is more apt for this segment of the management program that includes everything from keeping tabs on tenants to the payables and receivables, and the checks, banking, audits, time cards, inventories, and the host of things that can get out of line and create turmoil. If everyone in the world of management was wonderfully organized, what a piece of cake it would be to own and operate real property. But this is not the case. Believe me, the heart of success is in the records and record-keeping. Plan it well.

5. FINANCING. No doubt when you were laying out your acquisition of this most wonderful opportunity, you very carefully provided for the mortgage and other monetary needs to get into title. However, financing should always be thought of as a work in progress. More often than not, a strong successful management program can increase the cash flow and within a given time provide the means for a more advantageous refinancing. A solid management plan will anticipate time and cash flows, and maximize the leverage available for optimum financing advantages.

6. MAINTAINING. When is the proper time to examine the past history of the maintenance of a property? Obviously when we can do something about it. So part of the due diligence is a complete inventory of all the “deferred” maintenance. To put it correctly, we probably need to negotiate allowances beforehand. This, of course, needs accurate estimates and therein a plan to remedy. So why not at the same time, layout the whole program along with budgets, personnel, cost estimates and an exacting projection of what is going to be required to keep the whole thing on track.

7. SUPERVISING. Nobody wants to recognize how dire and time demanding the supervision of a management plan really is. Why we’ll get in there, roll up our sleeves and get it done pronto. Wrong. Of all the demands of a management plan, nothing approaches the difficulty of this job. I like to say “Don’t EXPECT what you don’t INSPECT.” But the “specting” is just the beginning. As we said earlier this is a people business and nothing short of intense attention to the people skills required for supervision will meet the challenge. If you cannot insure that everything about your management plan is going to be constantly monitored and attended, it will be relegated to mediocrity, and maybe failure.

This then is the summary outline that can be the basis for a successful property management program. Of course anyone looking at it will see the many ways it needs to be modified to fit the individual case. But make no mistake, going into a property that presumes to be a good money maker without a well defined management program can make for some scintillating and exciting times ahead.