23.1 Management Functions

Property management is a specialty within the real estate profession. Many states require people who manage real estate on behalf of
others to be licensed (often as real estate brokers). Some states license property managers specifically.

Property managers are more than rent collectors. They often need technical expertise in marketing, accounting,
finance, and construction. Many managers specialize by property type (apartment, office, retail, industrial, farm, single-family, etc.).

Common Types of Property Managers

• Individual property manager — usually a real estate broker who manages properties for one or more owners; may be self-employed,
  part of a small management firm, or one of several managers in a large firm.
• Individual building manager — usually manages a single large property; may be employed by a property manager or directly by an owner;
  may or may not have a real estate license.
• Resident manager (residential only) — lives on the property and may manage part-time or full-time; may be required by state law for certain
  property types and sizes.

The Manager’s Role (Fiduciary + Balancing Owner/Tenant Needs)

A manager has a fiduciary relationship with the principal (owner). In general, the manager is charged with producing the greatest possible
net return on the owner’s investment while safeguarding the value of the investment.

At the same time, the manager has responsibilities to tenants, who want the best value and the best space for their money.

Management Functions (Common in Most Agreements)

Specific duties are determined by the management agreement, but most agreements include at least:

• Reporting
• Budgeting
• Renting
• Property maintenance
• Construction
• Risk management

Reporting (Financial Reporting to the Owner)

Financial reporting to the principal is a fundamental responsibility. Reports may be required monthly, quarterly, and annually.
Common reports include:

• Annual operating budget
• Monthly cash flow reports (income, expenses, NOI, net cash flow)
• Profit and loss statements
• Budget comparison statements (actual vs. budget)

Budgeting (Income, Expenses, NOI, Cash Flow)

An operating budget based on expected expenses and revenues is essential. It helps determine rental rates, capital expenditures, reserves, staffing costs,
taxes, insurance, and debt service.

Expenses may be fixed (more constant) or variable (change month-to-month or occur sporadically). Major renovations/expansion are
capital expenditures. A cash reserve is often set aside for variable expenses like supplies, redecorating, and repairs.

Renting (Vacancies, Marketing, Rents, Tenants, Collections, Tenant Relations)

Renting is a core function because the property must be properly rented and tenanted to meet the owner’s financial goals.
Renting tasks commonly include:

• Controlling vacancies (pricing, marketing, retention, property image, management quality, market vacancy rate)
• Marketing (ads, signs, websites/online services, networking, brochures, presentations, referrals, etc.)
• Setting rents based on expenses + desired ROI + market realities (comps and vacancy rates)
• Selecting tenants (fit, ability to pay, compatibility; plus Fair Housing compliance for residential)
• Collecting rents with a clear system of notices, records, and legal compliance
• Maintaining tenant relations (communication, prompt maintenance response, consistent enforcement of rules)

Property Maintenance + Construction

Maintenance is one of the manager’s primary functions. Costs must be balanced with owner financial objectives and tenant needs.
Three general types of maintenance are:

• Routine (inspections, cleaning common areas, minor repairs, scheduled upkeep)
• Preventive (planned replacements/painting/roof replacement to prevent bigger problems)
• Corrective (repairs/replacements when systems fail)

Construction work may include tenant improvements (build-outs), renovations, expansions, and sometimes environmental remediation (asbestos, radon, mold, lead, etc.).
ADA compliance can require physical modifications like ramps, door hardware changes, signage, and barrier removal when “readily achievable.”

Risk Management (Safety, Insurance, Trust Funds)

Many things can go wrong in a rented property (natural disaster, injury, terrorism, employee malfeasance). Managers should plan for risks using:
avoidance, reduction, transference (insurance), or retention (self-insurance).

Insurance may include casualty, liability, workers’ comp, fire and hazard, flood, contents/personal property, consequential loss, surety bonds, and multi-peril policies.
Tenants should carry their own renter’s/tenant’s insurance.