Real Estate Risk Management By far the highest number of commission penalties, consumer complaints, and license suspensions and revocations in most states, are connected to property management. It’s not that property managers are ineffective. It’s just that property management is a very transaction-intensive business. Even as a typical agent might handle dozens of sale transactions every year, a typical property manager can tackle hundreds of smaller transactions. The fact that they’re smaller doesn’t indicate that those transactions are less important, and it doesn’t diminish the risk they involve. As a property manager, you deal with an owner to market and rent their property, collect rent and remit the cash to them, apart from managing the property in all other aspects, from implementation of tenant rules to maintenance. This means you’re transacting with owners and tenants, advertising agencies, repair guys, contractors, etc. Every one of these transactions bring some kind of risk into the business, especially those related to financial functions. Risk management is, of course, extremely important. The property’s economic survival can be threatened by a big disaster. The records kept play a huge part, as any legal action taken by others can be easily disputed if there are detailed records that oppose their claims.
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A large component of risk management is determining risk opposite reward. Let’s take, for example, a property that comes with a swimming pool. The property manager and owner must maintain a balance between the pool’s value and its risks. When a risk is identified, there are three ways to address them:
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Avoidance The pool will be taken out because the cost of insurance or the risks involved are greater than the extra rental income. Control The pool is retained but a coded lock and fence will be installed to keep the area off limits to small kids. Risk Transfer The most common way of handling risk is to purchase insurance so that the risk is transferred to the insurer. The successful property manager will anticipate and plan for problems, keep records of each activity, and consistently assess these functions to know if change is in order. Documents and Email In a lot of states, six years is the mandatory period for keeping transaction records. But it is advisable to keep them far longer, especially if you can do so in digital format. For sure, if any of the parties has a claim and someone wants to sue you for something that occurred earlier than six years ago, they will still be holding their document copies. It’s much harder to plead your case if your copies have already been destroyed. Finally, in terms of email, any court action that involves a federally guaranteed loan (pretty much all residential deals), will be able to compel you to produce emails that have something to do with your transaction and communications with your customer or client.