The duties of a property manager for the purposes of the Real Estate License Exam generally are defined as maximizing income and maintaining or increasing the overall value of the property being managed. The information here is about how a property manager is responsible for the financial and physical condition of the building and cover a manager’s duties in actually renting out property units or floor space and handling insurance.
Financial responsibilities
Some of a property manager’s duties include the following responsibilities:
Creating an annual operating budget: This task includes analyzing the building’s income and expenses over time. The manager also examines ways to reduce building expenses.
Collecting rents: A manager usually creates some system of collecting and accounting for rents.
Setting rents: The manager examines the rents and vacancy rates for competing buildings in the area and either sets rental rates or recommends rates to the owner.
Paying bills: A manager is typically responsible for paying bills for operating expenses and repairs and maintenance.
Preparing periodic financial reports: These reports relate to the building’s financial condition and its income and expenses.
Physical responsibilities
The building manager also is responsible for properly maintaining the property’s value, its physical condition, and the physical condition of its buildings. These duties include the following:
Physical analysis of the building: The property manager analyzes the building with a view toward immediate and long-term repairs and improvements that might be made to enhance the desirability of the building and allow for higher rents.
Preparation of capital and repairs budgets: Using the property analysis as a basis, the property manager creates a capital budget that includes larger improvements and repairs to the building. Capital budget items typically include the replacement of major fixtures, such as roofs, boilers, and air-conditioning units, while repair budget items deal more with making repairs and maintaining those same fixtures.
Maintenance: Part of the manager’s responsibilities is arranging for routine cleaning and maintenance of the building and grounds, including scheduling janitorial services, preventive maintenance, and needed repairs on equipment like the boiler.
Rental responsibilities
A manager usually is responsible for renting the space in a building. However, sometimes an owner takes care of this task directly or hires a real estate agent other than the manager to find tenants and negotiate leases.
Advertising for tenants is another rental responsibility. “For rent” signs on the building and print ads in appropriate media, such as newspapers for apartments and specialized publications for office or industrial space, can be useful. Billboard, direct mail, and Internet advertising may be used. Radio and TV ads usually are less effective but may prove useful in some markets. Recommendations by satisfied tenants can be effective advertising for a building.
The manager is also responsible for providing necessary services to the tenants as agreed to in the lease, for trying to settle any disputes that may arise with tenants, and for engaging in eviction activities if necessary.
Insurance responsibilities
Property managers sometimes analyze the insurance needs of a building they manage or call in insurance experts to do it. Unlike a single-family house, which usually has a single insurance policy that covers a number of things, large complex buildings may require different types of insurance policies to cover specific items. Proper insurance coverage is part of an overall risk management plan that a property manager needs to consider.
In general, managing risk, or in some way dealing with potential liability issues, can be handled by a system known as CART, or controlling, avoiding, retaining, and transferring risk. These four general risk management options are described in the list that follows:
Controlling risk means anticipating it and preparing for it.
Avoiding risk means removing the source of danger.
Retaining risk means accepting the liability.
Transferring risk means buying the appropriate type and amount of insurance to cover the payment whenever an insured incident occurs.
The following are types of insurance that are available to cover different types of risks:
Boiler and machinery insurance: Because of the substantial cost of heating units and air-conditioning systems in large buildings, a separate type of insurance is needed to cover the replacement and repair of this type of machinery.
Casualty insurance: This type of insurance covers losses caused by theft, vandalism, and burglary.
Co-insurance: This coverage essentially is for situations in which the owner takes on part of the risk by self-insuring for a portion of the risk. Incorporating a large deductible before the insurance policy starts to pay off is one example.
Errors and omissions insurance: This type of insurance can cover property managers against any errors they make in the performance of their duties. This insurance doesn’t cover losses caused by fraud or other dishonest or malfeasant activities.
Fire and hazard insurance: Depending on what it covers, this type of policy sometimes is called an all-risk, all-peril policy. It basically covers loss of the property caused by fire, storms, and other types of damaging conditions. This type of policy usually does not cover flooding and earthquake damage.
Liability insurance: This type of insurance covers losses caused by injuries that are the result of negligence on the part of the landlord. The classic case is the person who falls on an icy sidewalk that the landlord was supposed to have cleaned.
Rent loss insurance: This insurance sometimes is called business interruption insurance or consequential loss insurance. It pays the owner of the building for the loss of rent from tenants if the building is destroyed by fire.
Surety bond: Technically a surety bond provides payment whenever something is not done within an agreed-upon period of time. However, the coverage provided by surety bonds has come to mean making up for losses caused by dishonest acts of an employee.