Rental Management Software

One of the biggest challenges for the rental property owner is tracking and keeping up with the expenses and income. The remifications of poorly tracking include out of control expenses, missed rental payments, tenants staying without paying and much, much more. It is imperative that you track what you do with your properties.

Recently, I began using a new product from Intuit called "Rental Rental Property Manager". It does a great job at tracking the "Cash Flow" from a property. I want to clarify, that this is not a replacement for an accounting system. What it provides is a simple system for tracking rental collections and property expenses.

First what it does not do. It does not setup a balance sheet for your properties. It does not run depreciation schedules for the capital improvements, etc.

Now what does it do for me? You have to understand that my wonderful wife manages all of our rental properties and she ROCKS at this job. Vacancies are under 10% in true vacancy numbers (total dollars collected in a month / total potential rent dollars). The tenants love her responsiveness to problems, our professional contractors that do the work and her attention to detail. The computer tracking of the expenses / rent income has always been a sticking point in our rental operations. In general, we were forced to implement a manual (pen and paper) tracking system and we updated the computer at the end of the month. With the new Quicken product we are able to use it on a daily basis to input and track all rents and expenses. The interface is incredibly simple to use and it allows us to have it up and running on the screen to update rent / expenses without a lot of computer skills or time invested.

Rental Manager:

Cash flow reports:

Tenant payment history:

A value of Excellence when serving customers

Book Review by Andy Sheehy

Raving Fans (Author: Ken Blanchard)

A Revolutionary Approach To Customer Service is a book on providing excellent service in your business. It follows the career of an “Area Manager” and his fairy godmother Charlie. Charlie has a knack for mentoring business owners and managers to providing service so well that their fans become raving fans.
Charlie introduces the area manager to four companies that he uses as examples of service, and gives him three concepts to guide his decisions.

These concepts are:
1. Decide what you want
2. Discover what the customer wants
3. Deliver the vision plus one percent.

Success requires that we have raving fans and the concepts defined will help you create a company that creates raving fans.
In conveying the concept of “Decide what you want”, Charlie introduces the area manager to two service companies: a department store and a grocery store. The department store has a greeter at the door that pins a flower to your shirt, the book he wanted to purchase was out and the attendant went to another store to purchase it for him and was back within 15 minutes. The owner (Leo) has his office at the center of the store so that he can see down all aisles and is approachable by all the customers. The grocery store is owned by Sally and it has valet parking. A grocery consultant that will enter your list into a computer and organize it by the rows, give nutritional value and sales.

All of these enhancements that these companies implemented have been done by their managers/owners first “creating a vision of perfection centered on the customer”. This detailed vision encompasses every detail of the experience that you want the customer to have. It is the model that you can strive for, that will show you the changes needed in your organization, but this model is not static and must be adjusted as we combine it with the other concepts.

For illustrating the concept of “Discover what the customer wants”, Charlie introduces the area manager to one more company. A manufacturing company managed by Bill. “The key is to discover the customers vision for your company and then alter your vision if need be.” Your vision provides the framework for you to understand the customer’s vision, to fill in the gaps in the customer’s vision and to help you to know when to ignore the customer’s vision. It is challenging to get this information from customers for three reasons:

1. Customers say one thing and mean another
2. Customers are disappointed in your service but they do not want to go to the effort of telling you so they just say “fine”.
3. Customers are silent. To get this information you need to always be listening

Lastly, in conveying the concept of “Deliver the vision plus one percent”; Charlie introduces the area manager to two more companies. A Taxi Cab driver has one cab and a gas/service station. The gas station is a Full-Service station where the attendants pump gas, wash windows, check fluids and their gas price is the same as Self-Serve.

The key to delivering service is to do it consistently, every time! Consistency creates credibility in the eyes of the customer. As we implement changes do them in small increments. For example, he started by cleaning the windshield first even though his vision was to have all windows cleaned. It is better to find a smaller service that you can implement 100% of the time than to strive for too much and under-deliver. Meet the customer’s expectations first and then exceed their expectations.

*Meet first, Exceed second*

The only way to be consistent is to have systems and training in place. Systems are the core to a successful, consistent delivery. The purpose of systems is to ensure consistency. The rule of one percent reminds us that all we have to do is improve in one percent increments. This guides us to make small manageable changes that we can deliver consistently.

Cap Rate: What does it really represent?

Hello. I wanted to write a short description on how "Cap Rate" applies to commercial, investment property. I like the cap rate number because it is easily understandable since people are used to paying interest on borrowed money and receiving interest on deposits. Cap rate strives to answer a simple question.

What is the effective interest rate that this investment yields?

I like to use the analogy of deposting money into a bank account. If you were to deposit an amount of money equal to the purchase price, the cap rate would equal the interest rate that the bank is willing to pay on your deposit.

For Example:

If you are purchasing a commercial apartment complex for one million dollars ($1,000,000.) and the listing agent represents that it has a 10% cap rate, then the property should net profit one hundred thousand dollars ($100,000.) annually. Ten percent of one million is one hundred thousand.

Simple, right... Well here is where the problems definitely start to come out in the details.

First: The cap rate is calculated on the net income of the property (IE gross rent, less vacancies, less utilities, property taxes, insurance, maintenance, advertising, management,... etc.). It does not include any debt service. This is as it should be, since a 10% cap rate property should return the same for an all cash buyer as it does for a 90% financed buyer. You do not want to confuse cap rate with cash flow.

Second: The expenses that the current owner is having may be lower or higher than you would experience. If you purchase this property and your expenses increase by sixty thousand dollars ($60,000) annually, then your cap rate is reduced to four percent (4%) and your annual profit would decrease to forty thousand dollars ($40,000.). You may have been better off keeping your money in the bank.

Third: Income is primarily generated from rent collected. If you have a significant increase in vacancies due to a transfer of ownership your cap rate is affected as well. You definately can maximize your profit by keeping a sharp eye on the occupancy. Most of the money that you end up keeping is from the last 15% of apartments and your ability to keep them rented.

Fourth: Your debt service is paid out of the proceeds after all expenses are taken out. You can easily end up with a property that makes money on paper but that you have to come up with money every month to pay the bills and the mortgage. This is what I affectionately call an "Alligator property" because every month it is taking a bite out of your available cash. Ouch.

There are many aspects to commercial investment property that can be a double edged sword to the owner. Each item that affects your "cap rate" can also be used to improve it. The key is to understand the terms that are presented in the property listing and knowing how that applies to your specific investment needs.

Removing Land Use Restriction Agreements (LURA)

Removing Land Use Restriction Agreements (LURA)
You may come across a multi-tenant property that is under a government program called a Land Use Restriction Agreement (LURA). It is a program that in Texas is administered by the Texas Department of Housing & Community Affairs (TDHCA). In this blog, I will address the facet of the LURA that allows you to remove it from the property after 15 years (generally the half way point through the life of the contract). The benefit of removing it is that you can remove the property from the obligations required with the LURA (IE only renting to tenants that qualify at a percentage of the median income for the county). Additionally, I will use as an example a 90 unit apartment complex in Waco, Texas that is managed under the LURA. Finally, I will summarize the pros and cons to moving forward with trying to remove the LURA from the property.

The LURA has an procedure built in (Section 5b2 of my contract) that may provide for you to remove the LURA from the property at the halfway point. Essentially, this clause allows you to give notice to the managing authority (TDHCA in Texas) halfway through the term of the contract that you would like for them to find you a qualified buyer. They have one year to find a qualified buyer (as defined by IRS code). If they find a buyer for your property then you can either accept it or decide not to sell. If you decide to NOT sell then you cannot petition them under this clause ever again. It is a one time event in the life of the contract. If you accept the contract then you sell the property and move on to the next deal in your real estate investment life. If they cannot find a qualified buyer for your property, then the LURA is terminated and your property is free of the remainder of the LURA's terms.

In my case, I purchased a 90 unit apartment complex in Waco, TX that is bound by a 30 year LURA. The LURA began in November of 1993 and I am able to petition them on the 15 year anniversary date (November 2008) to find a buyer. They will have one year to find a buyer for the property.

Pros / Cons: There are several benefits that you gain by removing the LURA from the property. First, you do not have to pay the annual fee to the managing authority (In my case this saves approx $1400 annually). Second, your business is less expensive to run because you do not have to deal with the added paperwork and monitoring that is required under the LURA. Third, it improves the resale value of the property to have the LURA removed. Finally, you expand your pool of potential renters by removing the income requirements from new tenants. This allows you to rent to anyone and that helps your occupancy rate stay at the highest possible levels. The downside of going this course is that the process to get the LURA removed is cumbersome and it is a one time event.

In the end the decision to attempt the removal of the LURA will be based upon a ton of variables that are unique to each property and investor. In my case, the benefits of getting the LURA removed far outweigh any downside associated with the time / expense of working through the process.