A Property Management Revolution?

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

Property management… just mentioning those two words usually sets off a plethora of comments, memories and grunts. Most of them are bad memories and grunts of frustration, annoyance and mild to wild anger. Yep, this sector of the real estate industry has grown up to be like the delinquent teenage child who is hell bent on causing pain and humility, rebellious in every sense of the word. You only have to ask around to discover that this is a problem the world over… yes, that’s right, the world over.

Why?

There are many reasons why, but the good news is there is no need to be seen as the delinquent and rebellious child anymore. Property management is set to become the golden child of every real estate business. For those agencies that don’t provide leasing and management services it’s time to sit up and listen. It’s time to feel confident in knowing that as a business owner you can design and deliver the leasing and management service of your choice.

It’s important to truly understand what we mean when we say the world is changing and so is the industry. Real estate businesses can no longer rely on commission from property sales alone. The last few years have highlighted the vulnerability each and every real estate business faces. First there was the Global Financial Crisis (GFC). The GFC should have been the wake up call to every real estate business owner needing to understand that they cannot rely on sales alone any longer.

The GFC led to 2011, the year, it seems, of catastrophic natural disasters that are impacting communities in Biblical proportions. My own State of Queensland, that has for many years suffered drought, was 91% flood impacted this past year. The floods were major and destroyed whole communities, even damaging central business districts including the main capital city of Brisbane. There have been earthquakes and continuing shakes in Christchurch, New Zealand, destroying whole communities. The earthquake, tsunami, and nuclear meltdown in Japan, also destroyed whole communities. The tornados touching down across the USA yet again destroyed whole communities in a matter of minutes… and the list go on.

Now I’m not saying it’s the end of the world, but it could certainly be the end of business for real estate brokerages in these areas. With whole communities wiped out and having to be rebuilt, there is little chance of sales for many years to come. There will be no properties to sell, as rebuilding is taking place, but it will also be many years for consumer confidence to return and for the memories to be softened before people start being drawn to these communities again. Real estate sales businesses will close down… however, there are still people who need somewhere to live in these areas, as they will still have ties to the community. The communities need to be rebuilt, businesses need to reopen, community centers, facilities and schools will begin to operate once agin. People will still live there and most will need temporary to long-term accommodation. For those real estate businesses that provide leasing and management services, they will survive, as they will still have a regular monthly income and asset value through their rental services.

Over my coming blogs, I will take you down a path of what has gone wrong in this industry along with how we can make it right. The solutions are available now. The systems, resources, and training are all available.

It’s time for change, a mindset change. Change comes through empowerment. I hope you enjoy my blogs as I aim to empower, educate, and inspire real estate agency owners and teams into being passionate about the leasing and management industry and their ‘chosen’ profession. It’s time to design the business of your choice, design the service of your choice, design the team of your choice, and become a service by choice in your community.

I’m excited and I would love to welcome you along this journey.

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Have You Heard of R.U.B.S.?

By Salvatore J. Friscia, San Diego Premier Property Management, San Diego, CA

If you own multi-family rental property in the southwestern United States you should know about RUBS (Ratio Utility Billing System). A large majority of multi-family rental properties in California, Arizona, Nevada, and New Mexico are individually metered for electric but have what’s called a “master” meter for water. The electric usage of the tenant is paid for by the tenant and the water and sewer usage for the entire complex is typically at the owner’s expense. This expense can be rather costly and eats into the NOI (net operating Income) of the property producing a negative effect on the value of the asset. Most industry experts foresee prolonged price increases for water consumption as the areas mentioned above are currently dealing with drought and long-term water conservation concerns. To mitigate this expense savvy investors have typically reduced water consumption by the installation of low flow toilets, low flow shower heads, and landscaping of indigenous plants or desert landscaping in common areas. While this helps reduce cost it doesn’t eliminate it and the owner is still burdened with an expense that continues to outpace reduction methods. Some owners have gone as far as installing sub-metering on each individual unit if the property’s current piping system allows it. This would seem to be the best solution but once again this is only feasible if the properties current piping system will allow you to make these changes. All of these methods are helpful and will curb water consumption and the cost associated with it but unfortunately all of these methods also require an initial capital investment by the owner to implement. Depending on the size of your property, this initial capital expense could be significant — sub-meters can cost anywhere from $200-$400 per unit not including installation fees.

The RUBS (Ratio Utility Billing System) uses an allocation formula that divides a property’s water bill among its residents based on square footage, number of occupants, or some other quantitative measure. It allows the owner to recover a substantial portion of the water and sewer cost by proportionately allocating the costs amongst the tenants. To implement RUBS it is recommended that an owner give monthly notices for at least 6 months to all tenants about the new program. This will give adequate time for the tenants to absorb the changes and understand the new cost associated with the billing. Studies have shown that the loss of tenants will be minimal and the cost associated with the savings from the program will outweigh any short-term vacancy bumps.

The owner then takes a percentage (typically 10% to 20%) from the total water bill for common area usage and allocates the remaining amount to the tenants. Some owners gradually increase the percentage for which tenants are responsible to ease tenants into the program over a yearly time frame. The RUBS program is a useful tool that eliminates the outlay of capital and the high cost associated with sub-metering. When implemented correctly the program will reduce operating expenses and increase the overall value of your property.

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