National Association of Residential Property Managers 25 th Annual Convention 25 years! WOW! Your Own Residential Property Management Brokerage for NGP

National Association of Residential

Property Managers

25th Annual Convention 25 years! WOW!

Your Own Residential Property Management

Brokerage for NGP (Next Generation

Professionals)Presented by:Gail A. Moncla, MPM®, RPM®, CPM®Florida Broker and Licensed Real Estate Instructor

Welcome to the . . . . .

K E Y S T O S U C C E S S

The ever present disclaimer requirements:

I am not a lawyer - no legal advice

I am not a CPA - no accounting advice

Before implementing anything you learn in this session please seek legal and/or business counsel to ensure you understand how it may affect your business.

Before implementing anything you learn in this session please check federal, state and local laws and ordinances for the area in which you live.

I am the owner of businesses related to the residential property management profession with 25 years of experience and I am happy to share my real life experience with you.


In this session we will discuss:

Your Own Business . . . . It is exciting . . . .

However what will you do, how will you grow, do you want to grow,how will you sustain your business and yourself?

Your Own Business . . . Is it for you?

Organic GrowthPortfolio purchases

5 Best practices for your business

1. Policies and procedures2. Plan for growth (what is right for you)3. Realistic pay scales4. Profit (It’s a positive word)5. Reward plan for me!


Own a residential property management business to:

Generate a lucrative, consistent income stream

Build an asset (business) that can be sold(or become a family legacy)

How will your business take root and grow?

Organic growthMarket for leadsTurn leads into clientsPlan to keep long-term business

Purchase client accountsEvaluateCash – Loan – Percentage of incomePlan to keep long-term business

What is the average income per property in your business?What is the value of each account?


Organic growth . . . .

Pros . . .Total controlWell defined modelCan start small and learn as you grow

Cons . . .Takes timeYou wear all the hats

This method is well worth the work because generally these clients stay with you longer because they selected you!

Market for leads . . . .

Inside the real estate community

Outside the real estate community:

Word of mouth Home buildersEstate/Senior Care Attorneys Leads groupsDirect mail campaigns Radio (talk)Television Car signs or wrapsSponsorships Professional affiliationsProperty Owner’s Handbook Referrals from customers Resident’s Handbook Social networkingAdvertisements SignsWebsite Trade shows



Turning leads into clients:

We must assess the client’s needs. Research what investment owners ask not what you want to tell them!

The top ten questions property owners are advised to ask when interviewing property managers are:

1. Can you give me some background on your business and qualifications?2. Do you have knowledge of the area?3. Will you explain your experience level to me?4. How do you find tenants?5. How do you handle the responsibilities of management?6. How will you communicate with us?7. If a problem comes up, how do you deal with it?8. What sets you apart from your competition?9. How do you handle the finances? When will I receive my money?10.What are your fees?



What is striking about these questions is that the answers can provide us with the insight to determine the customer’s needs. You see, with his/her questions the prospective property owner is actually telling us what his/her needs are at the time.

The property owner’s needs that we fulfill include:

Knowledge Provide financial recordsSkill EducationProblem solvingExpertise

Continuing with needs assessment, what are other roles we fulfill for the property owner that the previous questions do not necessarily address?

The Landlord Tenant Law is the foundation of our business. This law and subsequent rules are the foundation on which we must build our business. In most cases, the investment property owner will not have an understanding of this law, but would expect us to.



Plan to keep long-term clients:

Without question our long-term clients contribute to our business success in numerous ways. We sometimes get so focused on obtaining new business we do not recognize our loyal clients.

1. Tell them you plan to be their property manager for as long as they own their investment property.

2. Fulfill your stated procedures and promises every time

3. Develop a “Yes I Can” attitude

4. Thank them for their continued business frequently

5. Keep employee turnover to a minimum if possible

Research shows that companies that have high employee retention rates have high customer retention rates

6. Provide the highest value versus the lowest price

7. Empower your work force to resolve issues right now

8. Make sure that employees deliver the promises made by marketing and sales departments.



Michael LeBoeuf, author of How to Win Customers & Keep Them for Life, argues that "It’s not enough to reward your customers with good service. You have to make them aware of the good deal that they’re getting for doing business with you—and keep reminding them of that in many subtle, different ways.“

Make “no reason” contacts

Maintenance call backs – the property owner needs to know the vendor returned at no cost to the property owner

Did you resolve an issue with the tenant? Make the property owner aware how hard you are working for them.

Getting a property ready for rent? Have a policy regarding updates to the property owner.

Many software programs have a system to add a note to the next monthly statement. This makes communication updates easy.


Portfolio purchase . . . .

1.Buy an existing business

Pros:Infrastructure in placeProcessing vs. creating

Cons:May have financial debt Clients may leave

To buy an existing turn key business you would evaluate the management accounts, the business and building itself and goodwill.

2.Buy the residential property management accounts only

To buy the residential property management accounts you evaluate the clients and their properties and the income and property history.

For this session we will look more closely at buying the management accounts only.



Contacts have been made and someone has an interest in selling their property management accounts.

Questions regarding purchase of accounts initial meeting:1. How many managed accounts?

a. how many of the managed homes are for sale? b. how many of the managed homes are vacant?2. Management agreements

a. assignable?b. review fees as outlined in

management agreement confirm fees have been charged in practice

c. average retention of clients in years

3. Lease agreementa. assignable?b. What is the average rent of the

properties?c. how many rents are delinquent?d. review fees as outlined in the lease

agreement confirm fees have been charged in practice

e. What percentage of tenants renew their leases each year?



If you are considering move forward from this first visit you must mutually sign a confidentiality agreement.

A confidentiality agreement (also called a nondisclosure agreement ) is a legally binding contract in which a person or business promises to treat specific information as a trade secret and promises not to disclose the secret to others without proper authorization.

There are five important elements in a nondisclosure agreement:

1. Definition of confidential information2. Exclusions from confidential information3. Obligations of receiving party4. Time periods (non disclosure for a period of five years)5. Miscellaneous provisions:Which state's law will apply in the event the agreement is breachedWhether arbitration will be used in the event of a disputeWhether attorneys' fees will be awarded to the prevailing party in a dispute.



It is vitally important that you do not disclose or use for personal gain any information provided to you during negotiation to purchase accounts. Your honesty, integrity and reputation are on the line.

Once the confidentiality agreement is completed you may offer a letter of intent to the seller of the management accounts based on your preliminary findings from your first visit.

You may prefer to complete your due diligence and present a more formal contract.



Letter of intent of Purchase Management Accounts

Based on preliminary information provided I would like to make the following offer to purchase approximately 41 property management accounts, currently under your brokerage. The offer is as follows:

Option #1 – Cash Purchase (lowest price)

I am willing to pay $__________ cash, which represents a purchase price of $_____ per account (based on 41 accounts)

Option #2– Cash Plus Income Over Next 18 Months(slight increase in price)

I am willing to pay $__________ , which represents a purchase price of $______ per account. These amounts would be paid as follows:

$____________ cash at closing$____________ paid over 18 month at

$_____ per month



Option 3 – Percentage of income for a period of months(highest price)

I am willing to pay _____% of total income as currently outlined for a period of ___months. This amount would be paid the first of each month for income calculated in the previous month.

Other conditions:

1. Reduction for lost accountsCash – escrow reserve for lost accountsCash and payments – amount for lost accounts

would be deducted from balance owedPercentage of income – no reserve necessary

2. Upon signing the letter of intent by all parties a due diligence period of _______ days will begin.

During this period seller agrees to provide buyer

access to all documents requested in the

attached due diligence outline.



3. This offer is subject to and contingent upon the buyer’s sole discretion after review of all documents during the due diligence period and a final inspection and approval of all accounts prior to closing by Gail A. Moncla, MPM®, CPM®

4. The closing of this transaction would occur on (date) at the offices of (location or attorney address). I would begin management and entitlement to all property management, leasing and all other income fees beginning (date).

5. I require a covenant not to compete from you agreeing not to solicit the owners of the properties being acquired for future property management or sales or any service of real estate for a period of _____ years.

6. You and your company agree to hold me harmless of any claims of liability in connection with all activity prior to the closing date of this transaction.

7. Security deposit and owner and tenant funds being held by you would be transferred to our escrow account at closing of this transaction.



I appreciate the opportunity of submitting these offers for your consideration. I look forward to the successful conclusion of this transaction for the mutual benefit of all parties concerned.

Once the due diligence inspection has been completed a more formal contract will be submitted to you.

Respectfully submitted:Gail A. MonclaRental Home Management Services, Inc.

The fun aspect of this business is that if what you would like to do is ethical, legal and makes sense and all parties agree you can just do it.



How to determine the purchase price when you are buying an income stream . . . . .

Some rules of thumb: (provided by my business broker friend from a business reference guide)

Reference to 100% of annual revenues

6 to 7 months revenues for firms selling under $500K10 to 12 month revenues for firms above $500K2.5 to 5 times SDE based on cash sale3.5 to 6 times SDE based on sales involving notes and/or

contingencies

Pricing tips:A key item is the longevity of the accounts (managed more than 3 years is good.

Is the seller remaining visible to help with the transition 2 to 3 months?

Most property management firms earn 10 to 30% of their revenue from non-management activities like lease fees, app fees, vendor discounts, etc.



How much will you pay to obtain or increase your income stream?

Simple example:

50 accounts with an average annual income per account of $1800.00 would equal $90,000.00 additional income to your company or $7500.00 per month.

Pay one year’s income in equal payments over 24 months.Monthly payment = $90000.00 /24 = $3750.00

First year gross income of $90,000.00 less total payments for 12 months $45000.00 = $45000.00 to your company.

If the average account stays with your firm 3 years the additional income would equal 2 x $90,000. plus first year income of $45000.00 or $225,000.00 for an original investment of $45000.00.


Five Best Practices:

1. Policy and Procedure Manual

Policies reflect the "rules" governing the business

Procedures represent an implementation of policy and should evolve over time as new tools emerge, new processes are designed, and the risksassociated with an area changes in response to internal or external environmental changes.

This document would preferably on line for ease of access by everyone in the company. Without it processes are whatever you decide at that moment.

2. Plan for growth. This plan can be for number of properties, personnel or average income per property. Is there enough business in your area to fulfill your plan?

Once you have your polices and procedures in place you can begin to plan for how many people you will need to deliver your service level.

What size do you want to be?



Plan for growth . . . .

Potential Market for Residential Property Management Services

CountySeminole Orange

Number of Households 172,252448,215Renter occupied (26%) 44,170 (35%) 156,441 Vacant

19,665 56,407Built after 1978 110,969295,655Single family homes (71%) 123,044 (63%) 281,233 % paying >30% of income per mo.53% 58%Annual median household income $56,201

$46,825% living in same house a year ago 83.9%78.5%

Data: factfinder.census.govers.usda.gov

What can we learn from this data?

3. Realistic pay scale for folks in our profession.



3. Realistic pay scale the tasks performed.

Employment agencies in your area Websites like salary.com

you can search nationally and locally

Sample graph from salary.com for residential property manager.



Realistic pay scale the tasks performed.

Definition of a property manager from salary.com:

Responsible for the daily operations of one or more residential properties. Oversees sales/leasing, marketing, maintenance, and other support staff. Provides information on operating costs as well as the annual budget for the properties. May be responsible for development and implementation of programs designed to increase occupancy or lease renewal rates. May require a bachelor's degree and at least 5 years of experience in the field or in a related area. Familiar with a variety of the field's concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. Performs a variety of tasks. May lead and direct the work of others. A wide degree of creativity and latitude is expected.



4. Absolute plan for profit.

Can you manage 50 properties with an annual income of $90,000 by yourself?

Could you manage twenty more if you added a part time person for 20 hours a week at $15.00 an hour?

What would that do to your bottom line?

Annual:

20 properties at $1800.00 each = $36,000.0020 hours x $15 an hour x 52 weeks = $15,600.00 Additional annual income $20,400.00

As your business grows what profit margin will you require from your business activities. If you don’t know you won’tAccomplish it.



5. Reward plan for me!

Pay yourself first!

If you work in your residential property management business pay yourself for your work. The salary should be in line with your job description.

The profit margin from your business should be after all expenses including your own

salary.

A well run residential property management business can produce a profit margin of 20, 25, or 30 percent after all expenses.

If your business generates $500,000.00 in annual gross income that would mean an additional$150,000.00 for the business owner after all expenses are paid including the business owner’s salary.

You can do it!

Congratulations!

Your Own Residential Property Management

Brokerage for NGP (Next Generation

Professionals)

Presented by:Gail A. Moncla, MPM®, RPM®, CPM®Florida Broker and Licensed Real Estate Instructor

Email: [email protected]: 407-261-5610

Documents

National Association of Residential Property Managers 25 th Annual Convention 25 years! WOW! Your Own Residential Property Management Brokerage for NGP