Chapter 12 Property Management (TEST)

Property Manager (in NC)
Hired by the landlord/owner must have an active nonprofessional real estate broker’s license. Someone who preserves the value of an investment property while generating income as an agent for the owner. (general agent)
Property Management Agreement
First step to taking over the management of any property. Creates an agency relationship between the owner and the property manager. Must be in writing from its inception.
Preparing a Management Plan
A property manager should take into consideration three factors:
1) the owner’s objectives
2) the regional and neighborhood market analysis
3) the specific property analysis
Operating budget
The projection of income and expense for the operation of a property over a one-year period.
Capital expenditures
Modernization or renovation that would enhance the property’s value and provide benefits extending beyond the current period
Cash Flow Report
Monthly statement that details the financial status of the property.
Potential Gross Income
Assumption of income based on all space being occupied.
Budget Comparison Statement
Compares the actual results with the original budget, giving percentages or a numerical variance of actual versus projected income and expenses.
Renting the Property
May use the services of a leasing agent but that agent does not undertake the full responsibility of maintaining and managing the property.
Establishing rental rates
Four long-term considerations:
1) rental income must be sufficient to cover the property’s fixed charges
2) rental income must provide a fair return on the owner’s investment
3) rental rate should be in line with prevailing rates in comparable properties
4) current vacancy rate in the property is a good indicator of how large a rent increase is advisable.
Marketing the property
Duty is to market the property to potential suitable tenants.
Selecting tenants
Generally the highest rent can be secured from satisfied tenants.
1) the size of the space meets the tenants’s requirements
2) the tenant has the ability to pay for the space
3) the tenant’s business is compatible with the building and the other tenants’ businesses
4) if the tenant is like to expand in the future, expansion space will be available.
Collecting rents
The best way to minimize problems with rent collection is to make certain that the property manager has qualified all prospective tenants in the first place.
NCREC’s Rules require
Property mangers deposit funds into trust accounts by mandated deadlines and maintain detailed and accurate trust account records.
Accountability and recordkeeping
Crucial that property managers maintain accurate records of all monies received and handled on behalf of the landlord.
Property maintenance encompasses
Four areas:
1) preventive maintenance
2) repair or corrective maintenance
3) routine maintenance and cleaning
4) construction
Property Insurance
Enormous dollar losses can result from certain occurrence one of the most critical areas of responsibility for a property manager is the field of insurance.
Risk management
1) Avoid it – removing the sources of risk (pool)
2) Retain it – certain extent by insuring its with a large deductible
3) Control it- installing sprinkler, fire doors
4) Transfer it- taking out an insurance policy
Property Management Fee
Fee can be based on percentage of gross or net income, a commission on new rentals, a fixed fee, or a combination of these.
Deferred Maintenance
Effective Gross Income (EGI)
Net Operating Income
Operating Expenses
Profit and Loss Statement
Rental Schedule
Vacancy and Collection Losses

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