>>>>>Manage
BY KEN McELROY
Professional managers follow systems and procedures for every property they manage.
I
ndependent rental owners often ask,
“When is it appropriate to use a pro-
fessional property manager?”
The question indicates how much
education many owners need about
the benefits of using a professional
property manager. This question usual-
ly is posed by a less experienced owner,
one who thinks that the only require-
ments of the day-to-day management of
real estate are to fill vacancies and col-
lect rents.
Time is the most determinant factor
on whether to employ a property manag-
er. If the owner has the time to dedicate
to managing the property effectively, then
he or she should do it. For those who do
not have the time, using a professional
company can save a tremendous amount
of money and time. Experienced real
estate investors, especially those more
interested in finding new deals, are
focused on their use of time. They know
the far-reaching benefits and advantages
of using a professional management
company.
My company, MC Realty Advisors in
Scottsdale, Ariz., has a staff of 200 and
has an ownership or management hand
in 2,000 communities. We are primarily
focused on investment. Each community
in our portfolio is owned by a separate
partnership that can include one, two or
more persons.
MC Realty Advisors recently assumed
the management of a property in
Phoenix that was in serious trouble
because of poor management practices
by the ownership. The Seattle-based
owner had decided to self-manage the
property from Seattle. The resulting
negative financial impact was irre-
versible and eventually led the owner to
sell the property at a significant dis-
count.
w w w. n a a h q . o r g
Live and Learn
Independent rental owners who plan to manage
their own properties need to do the same.
This is the second in a from more than 90 percent to less than
collection of articles 70 percent in less than one year. When
from owner/author the good residents moved out, the
Ken McElroy, who income dropped accordingly, and so did
wrote “The ABC’s the cash flow. When there is no cash
of Real Estate flow, bills do not get paid. Soon, the
Investing,” which property began to show signs of deferred
was released in maintenance.
September 2004 When this owner finally decided to
and became No. turn to a local professional property
1 on the BusinessWeek management company, the owner literal-
best seller list in December 2004. ly was not aware of the extent of the
See “Investing in the Right damage.
Market” in the May 2005 issue When my company took over the man-
of UNITS. agement, the property had a high delin-
quency rate and was collecting about 65
Pitfalls of Self-Management percent of the rent—not enough to sup-
In deciding to self-manage the proper- port the operating expenses. During the
ty remotely, the owners ignored some course of the next several months, it was
basic management practices, such as necessary to evict several drug dealers
conducting criminal and credit back- and residents who were creating prob-
ground checks on all prospects. Many of lems as well as not paying the rent. There
these residents decided not to pay rent, was also a murder at the property just
and many more created serious problems one week after assuming the manage-
in the community that resulted in police ment duties.
intervention. All this obviously made it very difficult
The occupancy on this property slid to retain existing residents, much less
Crunching the Numbers
he cost of using a professional property manager or management company
T can vary, but typically a reliable firm charges about a 10 percent leasing com-
mission of annual rents.
This may include marketing costs the firm assumes to get a property rented. It
is recommended that independent owners run the numbers to see if enlisting pro-
fessional management is worthwhile.
For instance, if rent is $800 per month, an owner will pay approximately $950 a
year for management services. Put another way, the effective rent receipt for that
property is $720 each month. That expense, plus unexpected maintenance issues,
could put one in negative cash flow territory.
What you don’t want to do is get a friend to manage your properties for free.
You may be in violation of the law and it could be an expensive experience if that
friend errs. —Jeff Young
June 2005 UNITS ##
 Questions to Ask

he following are questions to ask before hiring a professional property

T management company:
> How long have they been in the business?
> What professional designations do they hold?
> What continuing education programs do they offer their employees?
> May you call their existing clients for a reference?
> Do they manage properties in your area?

1/3 > Do they have a policies and procedure manual? Is it up to date?

> What forms do they use in managing the property?
> May you obtain a sample of the management agreement and review it?
> What costs are included in the management agreement and what is extra?

vert; > How many accounts have they lost in the past 24 months?
> How many accounts have they acquired in the past 24 months?
> How many employees are in the company?

paid > What is the turnover rate of the employees and why?
> What kind of reporting software do they use?
> How many employees are in the accounting department?
> Who will be the main contact? How long have they been employed?

or > What cost saving techniques do they use in managing properties?

—K.M.

attract new ones. investors look to achieve.

house
Not properly conducting criminal and
credit background checks had cost the
partnership more than $50,000 in proper-
ty damage, $200,000 in negative cash
flow and upset many financial partners.
Professional managers follow systems
and procedures for every property that
they manage. Anyone who plans to man-
age their own property must do the same.
The best place to look for a qualified

ad?
The partners eventually could not pay all property manager is to start with the
their bills and sold the property for a dis- National Apartment Association
count. (www.naahq.org). ■

Learn From These Mistakes Ken McElroy is President of

These stories are common among my
peers in the real estate management busi-
ness. Unfortunately, inexperienced rental
owners seem to want to go through this
learning process and think that the local
market place will take care of the ongo-
ing management.
Real estate investing is a business and
should be treated as a business. It is not
just an investment. There is an entire
management process that must be fol-
lowed to maximize the return that
MC Realty Advisors in
Scottsdale, Ariz. He can be
reached at 480/998-5400.
McElroy is a NAA Region 7
Vice President.
Jeff Young is a financial
planner and Senior Vice President at
First Financial Equity Corp. in Scotts-
dale, Ariz. He is Chair of the Indepen-
dent Rental Owners Committee for the
Arizona Multihousing Association and
can be reached at 480/778-2041.

2 UNITS Month 2005 w w w. n a a h q . o r g