Negotiating Commercial Real Estate Contracts with your Property Manager

Once you have acquired your commercial real estate the next most important thing is to maintain the right relationship with the right Property Manager. This starts with the contract and we have found that many times the contracts are in favor of the Property Manager. I often get replies that these contracts are standard, but the truth is that the only standard is that you get what you negotiate for.
Here are a bunch of clauses that you may want to think aboutt :-

Limiting the Property Managers Liability

He is the guy who is on the ground floor everyday taking care of the maintenance and management of the property, so who should be responsible? Yes, he is, and be sure of it in your contract.

Termination Fee

So you’re going to pay the coffin maker to kill you? That’s what you would be doing if you offer your Property Manager a termination fee. First he does a poor job that causes him to deserve being fired, then he gets a termination fee for that? Get real.

Bonus for Lease Signing

This will cause a conflict of interest as they will be rewarded to do a poor job of tenant retention. They will make more money as your tenants keeping moving in and out while you keep losing more money. Yea, I thought that’s what you needed.

Another solution is to have a set period of time a tenant needs to stay for them to realize the lease up fee.

One year Contract

You can’t fire the Property Manage until the year is up? Right, and what if your tenants get driven out within a couple of months? You end up losing the tenants while still keep the property manager on payroll? Right, whatever. Just make sure you never sign anything with more than a 30 day dismissal period.

Right to Represent the Property or First right of refusal at Sale

You’re kidding right? This is an even bigger conflict of interest. First they treat your investment like dirt causing it to go down, then as you have to sell the investment, they get to pick it up and make money from it when it should have made money in the first place. Besides, if they are such good property managers then
why would they be interested to buy a property that they could not successfully manage anyway? Hmmm.

Performance Clauses

There should always be specific performance measures in the contract that bind the Property Manager. Ideally these asset management metrics would have been mutually planned and agreed therefore getting them to agree to this clause should not be difficult if you are really working with a professional.

Different Properties

Even if you the same Property Management Company for the different properties that you own, you should make sure that you have different contracts for each property. Each contract having its own property specific performance clauses.

In Commercial Real Estate negotiations will occur at all levels of the contract. You need to make sure that you negotiate a property management contract that protects your investments and your investors. The last thing that you want is a poorly performing property manager and no easy way out!

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Is a Property Manager right for your Multi Family Units?

If you own a multi family apartment unit – or two, or three, or more – you may be holding off on hiring a multi family unit property manager because you don’t want to part with precious profits. And yes, of course it costs money to hire a property manager.

But a property manager can save you untold amounts of hassle and aggravation in managing your several multi family units. Do you really enjoy getting phone calls at 2 am from an irate tenant who’s toilet is overflowing? A property manager can save you the hassles and give you back your sleep and peace of mind.
The real question, though, is what’s it costing you to not have a property manager for your multi family units? Consider the value of your time.

You only have 24 hours in the day, 7 days per week. You can spend your waking hours running here and there to pacify upset tenants from your multiple multi unit properties, calling plumbers, supervising the work and checking to make sure it gets done right.

Or you can spend your time looking at new multi family units and arranging financing with the bank…so that your wealth continues to grow.

So tell me again why you think you can’t afford a property manager? The cold hard facts are that you can’t afford to not have a property manager. If you try to do everything yourself, you’ll end up like John Smith.
When I first met John Smith 20 years ago, he was a landlord who’d inherited 20 rent houses. He spent his days driving around in a beat-up old work truck loaded down with supplies, going from house to house, fixing things, as the houses were old. Then I lost track of him about 15 years ago…

I saw him again 5 years ago, at the Home Depot. He was still driving around in an old truck loaded with paint, carpet, and tools…still doing everything himself. Nothing had changed except that he’d put on weight and there were now bags under his eyes and gray in his hair.

Had John hired a property manager for all his multi family units 20 years ago, he could’ve spent time doing deals for new property…and would probably be out on the country club golf course right now, or sipping single-malt scotch in the clubhouse.

Don’t be John—hire a competent property manager and spend your valuable time completing more deals!

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Multi Family Management

The ability to improve your multi family management capabilities boils down to you being a good asset manager. The sole purpose of multi family management is to increase equity by raising NOI to cap out the property. Asset management boils down to four areas: property management, repositioning, adding income sources and reducing expenses.

It is important that you understand the difference between asset management and multi family property management. Multi family property management is the day-to-day operation of a property. Multi family property management involves keeping the multi family apartment property up, collecting the rent and maintaining it.

Asset management on the other hand is adding value to the multifamily property. Asset management is the fun part of owning multifamily apartment property. It is more than multi family apartment management. This is where you let your creative juices flow and think up ways to raise rent and decrease expenses. Every time you consider a multifamily property deal, you need to be examining it through asset management lens and not just the multi family apartment management angle.

You are not a retail buyer. You are not looking to improve your multi family property management skills but are looking for ways to improve your multifamily apartment property and add value to it. Multi family Property management is pushing the rents, raising the collections, increasing the occupancy, and keeping expenses in check without much capital expenditure. All this involves making improvements without investing a lot of money.

Repositioning is when you change the appearance, and the image or reputation of the multi family property. If you are rehabbing properties and changing the tenant mix it may involve capital. Conversion from an all bills paid apartment property to an individually metered multi family apartment property may be entailed. Even a simple name change can many times help change the reputation.

Adding income sources may involve adding onsite laundry facilities or putting in vending machines. You could also amenities like cable or internet services. Other possibilities include a childcare facility or storage units. While these may add the scope of work in mult family apartment management but it will certainly increase your net rental income if done properly. Fac is, you can really get creative when it comes to thinking of additional sources of revenue for your multifamily property and then even hire the services of a professional multi family apartment management firm.

Reducing the expenses on your multifamily apartment property is a process of multi family apartment management that entails looking at every expense in operations to see if it can be curbed without affecting the value it provides to the tenants. Ofcourse you should not look to become slumlords but instead means that every expense should be something that can be optimized. Your responsibility to your tenants is to provide safe and decent housing and your responsibility to yourself is to minimize your multi family management costs.

When evaluating a multifamily property keep in mind the multi family management aspect and it will assist you in determining whether it is an investment deal worth pursuing. At the same time, if you currently manage a multifamily property, you always need to find ways through which you can add value to your property. Proper multi family property asset management will enable you to cap out your property in the shortest time possible.

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