Those of us that invest in real estate want to know how to get the most out of our investments. Here are a few tips.

Let’s start with the condition of a unit. We want to make sure the tenants keep it clean. Since excess clutter can be a potential fire hazard, it should be uncluttered enough to prevent a fire from occurring. In case a fire should occur, they should be able to safely get out. There should be proper ventilation to keep mildew and mold from growing. Some tenants don’t have enough furniture to fill an apartment. Some have so much that mice, roaches and other vermin feel at home too. At least once a year, your on-site managers should go through all units. They should take notes because you will need to know what they saw. It might be helpful if they take pictures of problems, and it might be better if you, your off-site manager or an assistant manager look at some of the units with the on-site manager. Two sets of eyes are always better than one.

Just recently I tried to sell a property for a client. We got a great cash offer, but when it got down to the inspection, even though the owner had installed new windows the previous month, he had left it up to his on-site manager to run the property. He was surprised when we discovered that all of the bathrooms had to be rebuilt due to dry rot. Of course the one unit he always visited (the manager’s unit) was in great shape. Needless to say the sale died and the client hired an inspection service to identify the problems and established a budget to make the repairs.

Next, consider the exterior of the properties. Some questions: What does it look like at night? Is there enough exterior lighting? Would your tenants feel safe? Would your tenants trip into a pothole or over a bike left in the way by another tenant? Are the stairwell handrails fastened solidly? Could children fall through deck rails or get their head caught between the rails? Decks should be either painted with an abrasive surface or an abrasive surface needs to be added. Trip-and-fall injuries are very common, especially in wet areas or where potential tenants or guests cannot see because the lighting is not bright enough.

How about the playground? Is it safe? Is all of the dry rot repaired? Does it have a soft landing surface should a child fall off of a swing? Is there a bench so that the parents can watch their children? Are playground rules posted for the parents to read? You cannot expect the on-site managers to be back-up Mom and Dad. What are your policies for dealing with latch key kids? Does the manger know all of the tenants, their children and their guests?

Five years ago a single mom (tenant) had to go out of town. She left a babysitter in charge of her child. That babysitter had a boyfriend, and this boyfriend had a .22 caliber BB gun. This apartment faced a major avenue and he decided to shoot at cars. It was fortunate that the police arrested him. But we still could not find the mother. Once she returned home, we asked her to move out—just in case she had another attack of bad judgment. Unfortunately, an injured driver could sue an owner. We were lucky to get away from this problem without a major accident or lawsuit.

Swimming pools also attract problems: loud parties, glassware, alcoholic beverages, the potential for unsupervised kids at play, and injuries resulting there from. Most apartment properties do not have lifeguards, but pool owners need to post rules. In most states, the health department inspects pools to make sure that diseases are not spread, and that chemicals are properly mixed. On hot summer days, chemicals evaporate rapidly. Managers must be aware of these problems. They should also post pool hours. They need to be prepared to handle an emergency situation as well as a party gone rowdy. Preparing a manager for potential problems is just common sense.

We know you or your manager cannot be everywhere. So it is important to think ahead. Buy an insurance policy that can reduce your risk. You should consider a $2,000,000 policy with a potential for two occurrences. You might also want to consider umbrella and earthquake coverage to with it. It is highly unlikely that you will find coverage for mold and mildew terrorism, but you might buy insurance that will cover you for a loss due to a fire or other disaster. You should always consider a replacement cost policy and building ordinance addendum. Because building codes have changed quite a bit in the past five years, you need enough coverage. If you have a loss, the building will be rebuilt to current building codes.

To help our clients cope with the myriad risks, we have just started a policy requiring all tenants to carry renters insurance. This will help an owner should a tenant cause a problem, and the tenants goods will also be covered should the water pipe break in their unit.

It is clear that investment properties do not run by themselves. On-site managers need continual training to protect the property and the owner from potential future loss or liability. Understanding the risks and your insurance coverage is critical. Take the time to meet once a year with your insurance agent. All insurance is not equal, and there are fewer companies than ever before that are willing to cover your properties. You must find out what is covered and what is not covered and leave yourself at least 30 to 45 days before you buy new insurance. Things that were fine five years ago are now old and tired, worn-out and not working. Now is the time to use your common sense!

Published: July 22, 2002

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Clifford A. Hockley is the President of Bluestone & Hockley Real Estate Services, one of the larger brokerage and property management companies in Portland, Oregon. Mr. Hockley holds an MBA Willamette University and a B.S. in Political Science from Claremont McKenna College. He is a Certified Property Manager and Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM). Mr.Hockley serves as member at large on the Portland IREM board. He has twice been named Certified Property Manager of the Year (2001 and 2003) by the Institute of Real Estate Management and is a frequent contributor to industry newsletters.