NNPM NEWSLETTER By Nicholas Nagy, CPM® DON’T BE FOOLED BY LOW MANAGEMENT FEES, LOW EXPERTISE AND LOW EXPERIENCE IN THE PROPERTY MANAGEMENT INDUSTRY.  USE MANAGEMENT COMPANIES WITH GOOD REPUTATIONS, KNOWLEDGE AND EXPERIENCE.  GOOD COMPANIES WILL SAVE YOU MONEY IN THE SHORT AND LONG RUN.   LOW FEES CAN MEAN LOW SERVICE AND POSSIBLE LOSS OF INCOME THROUGH COSTLY MISTAKES.    This is a public service from N. N. Property Management, Inc.   The following article is reproduced in its entirety from the October 20, 2008 edition in the California Real Estate Journal.   The Next Level PROPERTY MANAGEMENT Amateur Managers Appear Out of Shadow Market   With home sales down, Realtors are turning to property management to fill empty residential units and their wallets, despite limited experience.   BY JULIE NAKASHIMA CREJ Staff Writer     Casting a pall over what should have been a bright spot for the apartment industry, multifamily property management experts report a surge in shadow rentals. Instead of moving into traditional apartment properties, shadow renters are people who have lost their homes to foreclosure renting from inexperienced owners who are thrust into apartment property management because they are unable to sell homes or condominiums in the current housing downturn. Laura Khouri, senior vice president of Irvine-based Western National Property Management, said the Orange County apartment market shows sign indicating that a shadow housing market is at work as multifamily demand has remained flat despite the general increase in home foreclosures. “We’ve not seen an increase or decrease either way,” Khouri said. “What does that tell us? It wells us that people are doubling up. It wells us that people are in fact renting houses.” One added side effect of this market for shadow rentals is that a growing number of real estate agents who can’t sell homes are looking to manage them. Apartment industry professionals increasingly see Realtors advertising themselves as property managers for single-family rental homes and condominiums for rent.I am seeing more and more agents advertise houses for lease as opposed to houses for sale,” Khouri said. Sandy Acton, president of the Orange County Chapter of the Institute of Real Estate Management, agreed.“When you can’t sell,” Acton said, “you find a service to provide, and that’s a natural one to get into for people in that industry.“Certainly, we would hope if they’re going to get into the field that they would seek out education like that which is offered by IREM, so they understand the laws and to things the way they should be done. ”Indeed, Khouri said, the difficulty that these Realtors will encounter is that, although property managers and real estate agents are licensed the same, they’re working in specialized areas. So, for a Realtor who lists and sells homes, management is a much different world. “Managing one or two houses is not a big deal,” Khouri said. “When you get into huge developments that have quite a few residents, it does become quite cumbersome if you don’t know what you’re doing.”

Education Needed                   The trend of amateur multifamily management is prompting a number of apartment owner trade organizations to act. The San Diego County Apartment Association is trying to reach out with education to these real estate agents-turned-managers with education, according to Michelle Slingerland, public affairs manager for the association. “They are separate disciplines,” she said. “Someone who has been selling homes is not familiar with managing them as rentals.” While the association has no formal classes or seminars specifically targeting these individuals, she said, it has educational offerings covering such tops as apartment leasing, contracts, fair housing law, smoking issues, tenant warnings, lease termination and keeping properties crime-free. The SDCAA has reached out to the San Diego Association of Realtors to make that group aware that these programs are available. In doing so, Slingerland said the association is trying to be proactive. “We haven’t gotten much feedback that there’s been a problem, but there could be down the line,” she said. But some problems already have been reported from banks taking back homes. Some were investment homes that people were renting, Slingerland noted. “These tenants would suddenly get eviction notices from the bank,” she said. “They had no idea that the property owner had defaulted.”    Meanwhile, the Washington, D.C.-based National Multi Housing Council is boxing against shadow rentals with a new program exposing the dangers of renting these properties, while highlighting the benefits of renting in professionally managed apartments. NMHC President Doug Bibby said the organization plans to develop ads that apartment owners can run in their individual markets. The campaign’s centerpiece is a brochure titled “Your Best Start to Renting Smart: Rent From the Pros,” which warns that nearly 40 percent of today’s foreclosures involve a house or condominium that has been rented out. “What we thought we’d do is make sure our members and professional managers are armed with the facts,” Bibby said, “so they can [help renters] weigh whether they want to be renting from a new landlord, or someone who is a professional, seasoned landlord.” Now is the time to arm members with these collateral materials, he added, because it has become more of an issue as the housing market has burst.

Renter Risks                   The housing boom brought speculators into both the multifamily and single-family sectors, Bibby observed. But with regard to the latter, he said the NMHC saw an “unrestrained bubble” in which houses and condominiums were owned by investors, and likely would not be resold to other occupants. “People realize the investment they made is not going to pan out the way they thought it would,” he said. “We became concerned that people would be lured into renting in these situations and could find themselves in trouble.” As Bibby explained, these renters run the risk of a host of ills, such as having the house foreclosed or sold out from under them, losing their lease or security deposit, and being forced who is a newbie at renting out property may not handles tenant’s needs properly. “If your landlord is not an experienced landlord, you’re not going to get the same kind of service as you would in a professionally managed property,” Bibby asserted. So far, he said, the organization is seeing a modest amount of competition from shadow rentals, but fear of the unknown drove it to take these steps.   Members fret these rentals will undercut the market, and they won’t have a shadow of a chance. This hasn’t happened yet, however.  In fact, studies by NMHC members have shown that shadow rentals primarily attract people in single-family homes, Bibby said, “or, worst case, three-bedroom apartments, and not those who are renting apartments.” According to Bibby, the NMHC operates in every state and is making the brochure available across the country. He expects the issues addressed in it will resonate in places like the Inland Empire, Las Vegas, Phoenix and South Florida, which were among the most speculative markets during the housing bubble. “No one is sure where this foreclosure crisis is going to go,” Bibby said. “We’re anticipating potentially more competition from shadow rentals in those markets where they are the most foreclosures. Karen Fricke, executive director of the Apartment Association of the Greater Inland Empire, said her organization has been seeing a great deal of the amateur manager trend. “Because of it, we have made it a point to attend the meetings at several of the different Board of Realtors offices in our territory, to encourage the people who are managing property to join our association so they can get up to speed on the rules, regulations and laws, and so they can have access to the forms they need to use and so they can attend our education programs,” she said.                   In addition, they’ve been encouraged to attend the apartment association’s trade shows. The association also is working with the local Realtors boards on developing some classes. Fricke said her association began an extensive outreach nine months ago.“We saw it coming, and we decided to make sure that the Realtors were educated, so when they go out and manage the properties they are managing them properly,” she said. People in the apartment industry agree that these amateur managers aren’t exactly good news for the apartment business.There are many laws and regulations that govern the property management business, and Realtors, although they are supposed to know them via continuing education, if they don’t put them into practice on a daily basis, they may not be able to remember it. “Who suffers then? Well, it could be the residents suffer, or, worse, the owners suffer if the Realtors are not maximizing their income from a rental,” Khouri said. The San Diego County Apartment Association sees the importance of this, as well. “Our association has very specific forms that have been reviewed by attorneys to make sure they’re compliant with California laws.” Slingerland said. “Some landlords think they can go down to their local Home Depot and pick up a pad of legal forms.”     E-mail Julie_nakashima@dailyjournal.com

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