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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 those property managers are being incompetent. It’s just property management one extremely transaction-heavy business. Even as a typical agent might handle dozens of sale transactions every year, a typical property manager can tackle hundreds of smaller transactions. Just because they’re smaller doesn’t give these transactions less importance, and it doesn’t decrease the risk entailed in doing them. Being a property manager, you’re dealing with an owner to market and rent their property, handle rent collection and remit the money to them, as well as to manage the property in all aspects, from maintenance to enforcement of tenant rules. This means you’re transacting with owners and tenants, advertising agencies, repair guys, contractors, etc. Each of these transactions brings some risk into your business, especially financial. This makes risk management very important. A sizable disaster can economically threaten the property’s survival. Record-keeping plays a huge part, since any legal action others may take can be easily disproven if there are detailed records that dispute their claims.
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A considerable part of risk management is determining risk versus reward. Let’s say a property has a swimming pool on it. The property manager and owner must balance the value of the pool and the risks it brings. After a risk is identified, it should be addressed in one of three ways:
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Avoidance The pool will be removed as the extra rental income it brings is far less than the insurance cost or the risks involved. Control If the pool is retained, a coded lock and fence will be installed to keep small children out. Risk Transfer The most common way of dealing with risk is to get insurance and transfer the risk to the insurance company. 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. It is best to keep them for much longer though, especially if you may do so digitally or electronically. You can be sure that if any of the parties have a claim, a person who wants to sue you for an incident six years and ten days ago, can still have their document copies. If you’ve already destroyed your own copies, it would be much harder to plead your case. Finally, when it comes to email, any court action that involves a federally guaranteed loan (almost all of our residential deals), can force you to produce emails connected to the transaction and communications with the client.