Risk can be avoided, reduced, transferred, or accepted. As a property manager, the risk was transferred to you by the landlord, and you accepted it...to some degree.
Here is what you need to know to reduce and transfer it further.
What is risk management in property management?
When accepting the mantel of a property manager, you accept these five general risks:
- Market - before a rental application is accepted or the property rented
- Physical - the property and rental units are safe from harm
- Tenant - verifying prospective tenants are safe, legitimate, and trustworthy. (i.e., Do tenants have a criminal record? Eviction history?)
- Administrative – efficient, organized, and well documented
- Legal, that all previous four were done by the book—legally
Market risk
When the economy is hurting and potential tenants are short on cash, it might be hard to sell/rent a property you're tasked with. It might be even harder to market it - since real estate ad spending is usually cut down during recessions, and businesses fall into bankruptcy.
Try maintaining a diverse portfolio to lower your cortisol and mitigate this risk. For example, if you manage rental properties, ensure you represent landlords in recession-proof areas with quality housing. If you're in retail, make sure you house a recession-proof business, like a coffee shop or gas station. And, as always, be focused on finding the right tenant to occupy the property.
Physical property risk
Managing a duplex in Orlando or a mansion in New York is different, but at the end of the day, avoiding physical damage or theft is needed — and maintenance will be required, from carpet stains to pipe leaks — and you'll have to oversee it.
Beyond regular inspections yourself, especially for important things, like deteriorating balconies, and ensuring repairs are done by professionals, the recommended move is to transfer the risk to an insurer. Having someone else take liability for such serious things is vital when protecting yourself from lawsuits.
Tenant risk
Ah, the human factor—the hardest thing to predict: people. The tenancy arguably presents the most considerable risk to property managers, and you're likely responsible for dozens of them. They can pose physical and financial risks. The best tenants can be anything from one social-media-obsessed obsessed lady and her dog, paying $1200 a month in Arizona, or a multi-billion-dollar chain in NY, worth north of $3 million in yearly rent. It's all circumstantial. No matter how diligent you are, some bad tenants can slip through the cracks and into your property; unless you're using our pre-screening services, of course. Red flags can be easy to miss without professional assistance.
Each tenant must sign a contract crafted by knowledgeable lawyers practicing in that state with experience in that specific real estate sector — because if a tenant or worker gets injured on the property you're managing — they will come after you through legal action for negligence.
Perform regular inspections and maintain a squeaky-clean records log of each and every contractor who performed fixing and patching for the property. And, of course, insurance is a layer of armor you should wear on this battlefield.
Administrative risk
As a property manager, you have a lot to deal with:
- Costs
- HOAs
- Monthly rent Rolls and Rent Payments
- Checking Tenant Credit and Employment History
- Fair Housing Laws
- Having Landlord References
- Residents (Good Tenants and bad)
- Maintenance tasks
- Incident reports & claims.
- Evictions
And it's challenging to manage all this data, let alone format it correctly and promptly.
In order to avoid things slipping through the cracks, like deadlines, forgotten clauses, billing lapses, and inspections, you must set up systems to store, organize, and analyze all this data. Finding the right software for your team, with the correct number of reminders, and notifications, will streamline collaboration and help your team grow.
Legal conflict risk
As a property manager, finding the right screening questions can be complicated. As a property manager, you'll have to decline application forms daily. Denying an application must be done legally—for valid reasons, without assumptions, regardless of the tenant's race, national origin, sex, or familial status - because if you don't - accusations of discrimination will haunt you like the plague. Potential renters should be able to rest in the knowledge that you won't decline their application due to factors they can't control. Their previous landlords may have- if you want to be their current landlord, you'll want to stand out and be welcoming.
To mitigate this risk, we suggest you have an official, public procedure for conducting your tenant screening process. It can be visible forms on your website or your blog. Use the same systemized background check for each application transparently, and you'll have one less thing to worry about.
