There are many risks involved in property management, often more than people realize
Sources of Risk in Property Management
Most of the time, people think of liability risks. That includes things like slip-and-falls, pool accidents, and playground injuries. These risks can lead to a lawsuit if something goes wrong or if someone is injured.
There are other risks at play in property management, however. Accusations of violating fair housing practices, for example, are a notable liability risk, as are accusations of harassment.
Further, if an operator mishandles mold or lead paint remediation, your organization can be put at risk. Operators need to follow precise processes in those situations. If they don’t, and somebody claims that they are ill, you can be exposed legally, which can have significant consequences.
Risks Involving Discriminatory Practices
Property management is a people-centric industry and has high personnel-to-revenue ratios. Discriminatory employment practices can be a significant source of property management risk.
Clearly established fair labor practices can reduce property management risk in this area, which includes:
- Reasonable, documented termination practices
- Overtime pay
- Regular breaks
- Complying with ADA regulations
Occasionally, failing to address ADA-related risk may be related to the physical characteristics or conditions of the property that were present when you bought it. But there’s an entire industry that specializes in finding non-compliant parts of your property, which can lead to litigation.
Tenant laws are violations or risks that may involve:
- Hazardous materials on site
There are a lot of things that may be property management risks from a liability standpoint. But there are even more that we haven’t mentioned yet.
Physical Maintenance Risks
Physical maintenance risks can cause equipment to break down or lead to property damage. For example, when an operator is pruning trees, that’s also an opportunity for roof inspections.
This also covers preventative maintenance. If water treatment isn’t completed properly, equipment can break down or leaks can occur on the property.
Operational Maintenance Risks
These are property management risk items that may impact day-to-day operations. And this in turn may affect NOI. These may include risks such as:
- Improper billing of residents’ move out charges
- Delay in posting available units online
- Ineffective or no advertising of available units
- Delay in raising the rent on schedule
- Excessive rent hikes that affect occupancy
- Not considering market rates in the rent calculation
- Improper processing of affordable housing
- Failing to document eligibility requirements
This last factor is a significant source of property management risk. HUD officials can reclaim money allotted to the owner, and if there are problems in this regard, it can become very expensive.
Operational Risk & Reputational Risk
Operational risk can include a third-party company’s poor performance or neglected maintenance, which can lead to equipment failure or lawsuits. This type of property management risk often results in the termination of the company.
If you’re the owner/operator, however, you can’t fire yourself. And poor operations or maintenance may result in bad reviews online. This may influence potential residents who read online reviews before signing a lease, which can kill your traffic.
Reputational risk is something people don’t often think about. Examples include bad employee reviews. You should be clear about the expectations you have for your staff and make them feel valued. In addition to the obvious benefits, if you don’t treat your employees well, you can get poor reviews on platforms like Glassdoor or Yelp. Those reviews can discourage good people from coming to work for your company.
Legal Risk in Property Management
Finally, there is the type of property management risk known as legal risk. These are areas where you might be breaking the law by failing to follow local codes.
There may be legal consequences for these violations. Usually, these include property management risks such as fines and misdemeanors. But in some cases, criminal penalties may apply. Examples of violations may include:
- Not checking pool chemicals regularly
- Hiring operators not certified by the city or county
- Failing to perform timely fire inspections
- Not meeting heat and ventilation requirements
- Failing to perform annual fire rated penetration checks
There are many esoteric things in municipal codes. In some areas, you must also maintain the private property that abuts your property. And the least property management risk is the exposure to fines.
Also, if something happens at your property, you need to be sure you have complied with local codes. Otherwise, you compromise your ability to defend yourself.
The legal aspect of property management risk is one of the things that is most often overlooked. Because it can be difficult to read municipal codes on a regular basis. And a few can make their way through your process because codes change. Watching them requires constant vigilance. And that is where Leonardo247 can help.
Solutions for Property Management Risk
Clients turn to Leonardo247 because we reduce property management risks as a part of our service.
Our machine learning algorithm reads municipal codes, for example, to find and extract specific codes that apply to collective operators. We also provide feedback on the things you need to be doing to reduce property management risk and mitigate legal issues.
Establishing a Process for Property Management Risk Reduction
If you want to reduce property management risk, the first thing you need is a process. You need an established and agreed-upon way to mitigate property management risk.
That’s not going to happen by itself. And relying on whoever happens to be on site relies on their personal history and experience. This should not be how you mitigate risk. You need to create a process.
Once you have a process, you need to make sure everyone follows that process. It’s one thing to have a binder on a shelf with your risk mitigation procedures outlined. Making sure that the operators are paying attention to it, however, is something else.
Finally, you need to ensure that operators are following the process in the right way, at the right time, throughout your portfolio. Executing the process is where breakdowns often occur.
Leonardo247 helps both operators and stakeholders track and execute risk management procedures. We provide consistent guidance on property management risk procedures through mobile and desktop applications throughout the year
The program provides everything, including the form operators need to fill out and the inspections that need to be completed. Whatever those things are, they all come with the service.
Whether it’s Leonardo247 or another tool, however, you need a way to make sure everybody is following your processes. And you need to take action when the process isn’t followed.
Enforcing Property Management Risk Procedures
We’ve known operators who explain procedures to their teams and train them on each step. And many use Leonardo247 to make sure that they’re following procedures. But sometimes, the people in the field don’t follow up or don’t do what they’re supposed to be doing, and the operator just shrugs.
As an owner or manager, that neglect can lead to serious trouble if you aren’t willing to enforce policies and procedures.
Residents complaining about noisy dogs or having to evict people seem urgent, but the nitpicky, not-urgent risk management items that aren’t obvious are still important. If they’re dismissed or not followed, you can set a dangerous precedent. Take action to make sure that no one fails to follow the process.
The Importance of Documentation in Property Management Risk
The final recommendation is to document, document, document. You need to prove that you’re doing all the things we’ve mentioned in one way or another.
If you have an incident and find yourself in court, you need a paper trail that documents your process. You need proof of the process that you followed and the data you collected.
Once again, this is where a tool like Leonardo247 becomes critical. By providing the correct procedure at the right time and making sure people are doing it, you’ll have that proof. Also, you’ll know if tasks aren’t being completed. Further, you can export all of that data, including:
- Completion reports
- Exception reports
- Missing items
You’ll ultimately have a record that you are making your best efforts to mitigate risk.
Bad stuff will still happen, even to the best operators. But it is much worse to have bad stuff happen when you have no process, no procedures, and no documentation. That can make all the difference.
The Value of Checklists
Established policies and procedures for mitigating property management risk need to be effective. Inspections and checklists are key components for creating effective procedures.
There is a book by Leonardo Gawande, a surgeon, called The Checklist Manifesto. His focus is on surgery, and you would expect surgeons to be among the most educated professionals in any field.
But even surgeons benefit from a very simple pre-op checklist. It contains very simple things like, make sure you’re operating on the right part of the body. Make sure it’s the right person. And that simple checklist reduced post-op complications and post-op mortality by a significant amount.
If surgeons can improve their work with a checklist, then it should be useful for property management risk as well. First of all, a checklist provides accountability for property management risk. If you want to make sure people follow your procedure, put it in a checklist. That way, everybody has that same checklist and they can follow it every time. So this establishes your process and makes sure that people follow it in the same way.
Digital Checklists are Better
Checklists are good, but digital checklists are better for lots of reasons.
Accountability is important in mitigating property management risk. And with a digital list, you can check on a task’s status in real-time. If you’re using a system like Leonardo247, you can see who has completed inspections and what data they captured.
If your process changes and you’re using paper forms, accountability becomes more difficult. You have to republish your forms and swap out the old copies for new ones. With a digital list, you can make changes at the admin level, and the changes can propagate to all of the inspection forms in your organization.
Digital forms also allow people to inspect for risk mitigation issues faster because they don’t have to write everything down. They can have default answers for many items. And at the end, they don’t have to move the information from a handwritten form to a database.
If you’re using Excel, for example, you won’t have to transpose the information into some other usable format. That’s just one way a digital checklist helps with property management risk. You can collect and process data in one step.
Important Enhancements to Digital Checklists to Reduce Property Management Risk
In this scenario, we’re assuming that the digital checklist you’re using has a backstop that connects to a robust database and reporting engine.
If you’re only using a checklist program, of course, that’s better than nothing at all. But if you’re working with a database that allows for flexible reporting, you can do interesting things, including:
- Getting reports based on the data you collect
- Exporting the results into Excel
- Generating a formatted PDF that includes relevant photos
Presentation and visual confirmation are important for property management risk planning. Third-party property management risk companies often present inspection results to a client and they don’t want them to look messy. Your digital checklist should have the functionality to produce great-looking content.
It should also include advanced features, such as collecting signatures. If you want someone to sign off on a completed inspection, an effective tool will empower your team to record that signature on the spot.
More Advanced Features for Property Management Risk Mitigation
You can also assign costs to certain responses to your inspection questions. For example, does the inspection indicate that the carpet needs to be replaced? You can automatically associate a cost with that, and calculate the related statistics. You can also quantify costs by category with digital checklists.
If you have a system like Leonardo247, some of the advanced features get pretty fancy. That same response to an inspection question, for example, can trigger an email reporting that an inspection is complete and that one of the answers requires your attention.
You can also trigger a work order from the inspection and trigger subsequent procedures. Further, you can track documents in the work order, trigger another task, or schedule a follow-up inspection after the task is complete. A digital checklist with those features and capabilities can transform property management for your organization.
Interested in learning more about how Leonardo247 can help with property management risk? Click here to contact us now!