By:  Brian Patrick, Broker

july 6, 2011

Everyone knows someone who couldn't sell their home and decided to take on a tenant to cover the mortgage, taxes and insurance costs until the market improved. If they took on this concept and decided to go it alone because of high management fees, they often lived to regret their decision. It doesn't have to be that way.

Texas Realtors have the ability to offer property management services to owners. The scope of their services is covered in a Property Management Agreement that clearly specifies the duties of both the landlord and the property manager.  This Blog is intended to outline the major duties of the property manager.

The Property Management Agreement- The relationship between the owner (Landlord) and the broker (Property Manager) is established by the Property Management Agreement. Duties and responsibilities are clearly defined, and both the Landlord and Property Manager understand what their part is in the leasing of the property. The Property Manager's duties are to inventory the property at the beginning of the agreement period, find a tenant, negotiate and execute the lease on behalf of the Landlord, collect the monthly lease, hold security deposits for the landlord, and deal with any number of problems. The Property Manager is authorized by the agreement to make repairs under certain conditions, to routinely check on the property, and in the event of a default the Property Manager can take action to evict a tenant who breaches a lease.

Finding a Tenant - The Property Manager and Landlord agree on the terms desired for the lease and execute an Exclusive Right to Sell or Lease Listing Agreement. The Property Manager places the property on the local MLS and offers it to the public and other REALTORS as "Available". Other REALTORS and prospective tenants will see the listing and contact the Property Manager to see the home and will possibly make an offer. Any offer to lease must be accompanied by a Lease Application for each adult living in the home. Once a Tenant is found, the Property Manger obtains a credit report and gives a recommendation to the Landlord. Once a suitable Tenant is found and the terms are agreed upon, the Property Manager draws up a formal lease. In today's lease market, rental properties priced correctly should lease within one or two weeks.

Preparing a Lease - Once the lease is signed by the Tenant and Landlord (or Property Manager as authorized), the Tenant and Property Manager go over the property and complete an Inventory and Condition Form. This is a useful tool when the Tenant's lease terminates, because the lease requires the Tenant to return the property in the same condition in which it was rented to the Tenant. This multiple page document is used at the end of the lease to settle up with the Tenant on the security deposit after making repairs and taking cleaning charges. It is made clear to the Tenant that the security deposit is not to be used for Rent and the Tenant cannot offset any amounts against the security deposit.

Accounting - Superior Realty maintains a trust account for Landlord and Tenant funds, and keeps an accounts receivable and invoicing system to track rental charges and Tenant payments. It is essential to maintain good records on the property. The Trust account held by the Property Manager is used to hold security deposits, tenant lease payments, and to disburse funds to the Landlord and Property Manager for various purposes. Typically, the only disbursements are for repairs, management fees and commissions to the Property Manager, and distributions to the Landlord for each month's net income after commissions, fees and repairs are paid.

Repairs - It is commonplace to have electrical, mechanical or plumbing problems with any home, and even more often with lease property. Perhaps the Tenant is unfamiliar with operating the home's equipment, or for some other reason, but when things break or wear out the Landlord has the responsibility to make repairs, unless the problem is caused by the Tenant's neglect or other action. The Property Manager is the first point of contact for any repairs, and after the manager determines the problem and solution to repair the problem, the Landlord is informed and makes the decision to repair. The Tenant must pay for damages or breakages caused by the Tenant, but the State of Texas requires the Landlord to pay for all other repairs.

Pets - Both homeowners and Tenants love their pets, and Landlords have to decide if they will allow a Tenant to have a pet in the home. The Tenant's lease clearly prohibits a Tenant to have a pet in the home at any time unless there is a Pet Agreement signed in concurrence with the lease. Landlords can charge additional fees, pet deposits and additional rent if the Tenant wants a pet on the premises. The Landlord can also impose stiff penalties if the Tenant brings in a pet without the authorization from a pet agreement. The Landlord can impose any weight, age or breed restrictions desired, and must remember that some pets can cause thousands of dollars in damages.

Collections, Late Rental Penalties, Evictions - The Property Manager's primary duty is to enforce the lease and ensure that it is closely followed by the Tenant. If a Tenant breaches a lease for any reason, the Property Manager can take action to enforce the lease by imposing late fees, charges for repairs, or taking possession of the property. Texas Real Estate law allows the Property Manager to serve notice of termination of the lease, file an eviction lawsuit, and represent the Landlord in Small Claims Court to evict the Tenant and recover a judgment for back rent. If necessary, the Property Manager can obtain a Writ of Possession after winning an eviction judgment and can have the Tenant removed from the property. In the event that Superior Realty has to evict a Tenant, there is an hourly charge of $75 to perform these services. 

Fees and Commissions - Superior Realty performs residential property management using a simple compensation structure: 1. Commissions are 50% of one month's rent; 2. Management fees are 6% of lease collected; 3. Other fees, such as application fees and late fees are paid to the property manager in accordance with the the Property Management Agreement.

This blog is not intended to present all information about property management and leasing residential property. If you have any questions, please feel free to contact me by email or telephone.