REAL TALK RENTALS
Episode 25: The Property Management Glossary
Are you interested in expanding your knowledge about property management? If so, you won't want to miss the latest episode of Real Talk Rentals. In this informative discussion, Ben and Eric dive deep into the intricate world of property management, explaining the most commonly used terms and industry jargon.
Some of the terms we'll be defining:
- Market Rate
- Security Deposit
- Rent Concessions
- Holding Deposit
- Fair Housing Act
What Did They Say!? Property Management Jargon Decoded
Ben Bailey: Coming up on today's episode of Real Talk Rentals, we're going to walk through the terminology of property management and give you a glossary and definitions for all those words that you may not know what they mean. Welcome back to Real Talk Rentals, a podcast brought to you by Oncue Property Management. We're here to give you all the inside scoop on owning a rental property and everything that goes into managing it. I'm Ben. I'll be your host. And with me, as always, Mr. Eric Dixon, the go to expert on all things rental property and real estate, especially here in Arizona. And in this episode, we're going to do something we probably should have done more towards the beginning. Um, we always talk about how we're in this every day. We're in it day to day, and there's things that we just take for granted that maybe everybody else doesn't know. So we got together and we compiled a list of terminology. It's a glossary, if you will, of all things property management stuff that we say all the time that other people may not know exactly what it means. Yeah, yeah, we should have.
Eric Dixon: Done this at the beginning. We're actually at a show last night, a local, uh, improv type deal, and they picked my wife to pick a personal relationship type, and she was like, landlord tenant. And. And I was like, to us, that's just so normal, like, landlord tenant relationship, whatever. And I'm just like, that's kind of just like a household term. Yeah. A lot of not many people talk about landlord tenant relationships. Sure. She's like discuss.
Ben Bailey: Five day notices. Yes. They're like, What?
Eric Dixon: Like she's been listening to the pod man. Yeah. So, no, this will be good. It's kind of, you know, preparing for this. It's hilarious how, like, normal these terms are to us day to day. Yeah. And how some of the listeners are going to be like, Yeah, you guys are weird. So.
Ben Bailey: And full disclosure, some of these I didn't know for like my first year working here because, you know, it wouldn't be in my department or whatever and be like, What are they always talking about there?
Eric Dixon: Well, we faked it till we made it on some. Exactly. For sure.
Ben Bailey: All right. So let's start super high level and define property management.
Eric Dixon: All right. So this is the I would say that just kind of general, the daily oversight of as a third party company, the daily oversight of all the finances, the rent collection, the marketing, the leasing and the maintenance. Um, you know, if you hear to within the real estate world in general, a lot of people call it to like they'll just send it to the PMS, you know, and the real estate agents kind of are on their high horse like I was one just did sales too. Um, you know, property managers are kind of seen as that redheaded stepchild type term and you're just like, No man. Property management is pretty awesome. It's actually just as or more important than the the acquisition side.
Ben Bailey: So realtors, they love an acronym. You know, you give them something, they're going to shorten it up every time.
Eric Dixon: You say property management, how about PM? Yeah.
Ben Bailey: All right. So next one, something we talk about all the time with our owners is market rate. All right, so.
Eric Dixon: The market rate and you'll see this on proformas or, you know, projected analysis of a property, it's the anticipated rental rate. So the market rate isn't necessarily what the property's current lease rate is. It's the anticipate rate. If you were to get full, you know, full rate today, um, you know, usually on a pro forma or an analysis, you'll say current rent and market rate are different. And it's like, hey, we're currently getting 1200, but market is 14. Sure, you're not going to get 14 tomorrow when you buy the house, maybe, but maybe as you renew it or you that tenant, you know, you get another one for a lot.
Ben Bailey: Of people think this is too what they think of is it's like a Zestimate or whatever Zillow, when you type it in there.
Eric Dixon: The rent Zestimate.
Ben Bailey: Yeah. And we're constantly telling our owners, that doesn't mean you're going to get this rate. Yeah. You know, this is a it's an educated guess of like what the best case scenario.
Eric Dixon: Sure, they have a good algorithm in there. But yeah, it doesn't take into account the condition and the backyard and different things. Yeah.
Ben Bailey: All right. So next one all the time you hear it, especially rentals, security deposit.
Eric Dixon: So deposit instead of the the other side of the coin would be a fee. This would be a deposit is a deposit by the resident or by the tenant held by the property management company or the broker, or if you're self managing held by the landlord. Yeah. To cover, you know, certain situations. If they don't fulfill the lease or if they leave damages. Right.
Ben Bailey: Um, this is a relatively new one, at least to me for sure. But I know like at our company too, and that is a security deposit alternative.
Eric Dixon: So that would be a solution in lieu of a standard security deposit. What I mean by a standard security deposit would be your refundable deposit. You know, you'd pay it at the beginning. The property management company or the landlord holds it for the duration of the lease, take deductions as needed at the end and refund the rest. A security deposit alternative is actually been very, very popular in multifamily for decades. It's been, Hey, I want to move in. I don't quite have the deposit. I've got good, good enough credit and qualifications. I just don't have the cash. And so I'd rather pay a fee every month in lieu of that deposit. And it's not like adding up to be the deposit. It's. It's literally a non-refundable fee that I am paying every month so I don't have to pay that refundable deposit. And it's been very popular in the new build to rent communities in the third party property management sector like we're in because people are they're getting cash strapped. And the reason is, is because they're moving out of a rental and that property manager or landlord has their deposit tied up and they're applying for a new place and they're like, Wait, I'm gonna have to pay another deposit. I haven't got my last deposit back yet. Yeah. Meanwhile, you know, we have moving expenses, we have utility switchover, we have all this stuff. So it's been super successful, not just from like revenue and stuff. It's more successful from providing a solution where tenants don't have to write a multi-thousand dollar check to make sure to move in anymore.
Ben Bailey: All right. Um, we did a whole episode on this one, but disposition or as we call it, a dispo.
Eric Dixon: A dispo. You want to save the extra couple syllables there? Yeah. So a disposition. It just details out the tenant's breakdown of charges that apply against their security deposit or what is owed upon Move out easy.
Ben Bailey: Yep. Um, this is one I didn't know for a long time. Holding deposit? Yeah.
Eric Dixon: So holding deposit. It's evolution ized as well. So this is, you know, once once you've applied on a property and you get approved, you have to pay some sort of deposit to hold it. Right? It's like, Hey, Ben, you were approved. Congratulations. You're moving in next month on the first. But that's in 20 days. We can't just say, Hey, Ben, thanks. Just hang out and then we'll let you move in. You have to actually put some skin in the game and pay a non-refundable deposit that goes towards your moving costs. So for us, once that holding deposit is paid, the landlord, our client knows that, hey, that person's not going to walk away from that deposit. Or if they do, I'm going to keep it. And they can move, they can move on. So it's kind of it's just that money due after an application is processed and approved.
Ben Bailey: All right. Um, next one, rent concessions.
Eric Dixon: Rent concessions. So any, any discount or, um, adjustment made and I'll get, give an example that's a true life example is we, I had a property that had a washer dryer and they moved in and the day they moved in, they're like, Hey, these aren't working. Or one of them wasn't working or something. So rather than they offered said, Hey, how about you don't fix it and just give me 25 bucks a month concession each month and I'll I'll get my own or something. And, and I think the way it worked out is they're like, actually take both washer and dryer. I'll provide my own, but give me a $50 a month reduction or concession. Sure. And so it's really just like a negotiated discount or adjustment made. And usually you want to make sure it's a win win. It was a win for the tenant. They actually proposed the idea and it was a win for me because I didn't have to fork up, you know, the repair cost or the replacement cost of the appliance. Sure. So that's a real life example.
Ben Bailey: All right. Uh, pet deposit and pet rent kind of put these together because they go hand in hand. Yeah.
Eric Dixon: So with a pet, again, the biggest differentiator is the deposit versus a fee. A pet rent is a fee. Pet deposit is a deposit. So a deposit is always refundable. A fee or a, you know, pet rent is non-refundable. And so it actually used to be, you know, a decade ago when when I was in the leasing game, the pet deposits were very popular. And it's like, yeah, I'll put $250 down. It's refundable if I leave the place in good shape. But the landlord didn't get the benefit of extra rent every month. And so it's kind of switched where there's less and less pet deposits and more and more pet fees. And it's one of those things, you know, if you're a tenant that's there for five years, you're like, Man, I wish I could have done a deposit, right? A one time refundable deal because pet rent for five years adds up. Sure. But on the other side of the coin, the landlord likes the pet rent. So, yeah, it kind of just depends. Um, you know, just. Just know that both are an option. Typically. It's not an option to do, to do both on one lease. Sure. Pay a pet deposit and pay pet rent. Yeah. There are instances where that's the case, but that's rare.
Ben Bailey: It's funny. I mean, pets have become basically people in relationships, right? And people will be like, Why I have to pay rent for this? And it's like, well, you you call that your child? You know, if it was a person, it would have to be on the lease. You know, you would have had to do all those things. So. All right. Um, another very important one. Uh, fair housing act.
Eric Dixon: Yeah. So actually, I wrote this one down word for word because you don't want to mess it up. The Fair Housing Act and fair housing in general is very important. Take it very serious. So the Fair Housing Act, it protects people from discrimination when they are renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing related activities. So it pertains to you if you own real estate, even if you own a primary residence, it it pertains to you. If you're ever going to rent it out, if you're going to do short term. Long term. Right. Or. Or. Do anything. You're under certain federal guidelines with the Fair Housing Act?
Ben Bailey: Yeah. And if you hire a property manager and you're doing something intentional or not and they say, Oh, that's actually against fair housing, don't you're not going to win that fight. Yeah. Don't be like, No, it's okay if we do that. Like, no.
Eric Dixon: Yeah. And, and we use it as a way to educate. So and keep on saying these just happened. But literally yesterday a property manager came in and we had a client that was concerned that an application got approved because of a qualification and was like, Well, you can't decline them for that. If you were to decline them for that reason, you know, specifically, then it's against the Fair Housing Act and we can't do business. Like if you're going to put your foot down to do that, we have to cancel immediately, give their money back. Like we have to tell them, sorry, we're not managing this property anymore. And and we said that in a nice way. And the owner is like, Oh, I didn't realize this was that big of a deal.
Ben Bailey: Yeah, And I think that's usually the case, right? Most people are.
Eric Dixon: They really had great intentions. Yeah. And I think that they're just like, Hey, look, I just didn't want pets. And I'm like, It's an animal with documentation. Yeah. Can't say no, you know, And that's with fair housing, you know, So it's a real thing. I think for the most part, maybe the listeners are our landlords. You just got to you got to realize that this is a business and you have certain federal guidelines you have to follow. And if you don't like those and you don't like participating in those, being a landlord is not for you.
Ben Bailey: Yeah, go buy some crypto or something.
Eric Dixon: Short and sweet.
Ben Bailey: All right. Next one. Notice to vacate.
Eric Dixon: So this is a notice that is written so it has to be in writing by the landlord or the property management company or the resident giving notice to to move out or to end the lease. So for a tenant or a resident, it would be letting the landlord know, Hey, I'm moving out at the end of the lease. Here's my, you know, notice to vacate. If it's the property manager or landlord, you're you're providing the written notice that you don't want to renew the lease. And it could be because you want to sell, it could be you want to do some renovations and up the rent or, you know, something like that.
Ben Bailey: All right. This is one we've been refining our process here and doing all sorts of stuff. So I truly thought I knew what this one was and I did not until we got into it here at the office. And that is five day notice.
Eric Dixon: Okay. So the five day notice and I'm speaking from Arizona, so I don't know the case in other states, but it's very often misunderstood. A five day notice for non-paying or for not paying rent on time does not mean that you're five days late on rent. It means that once you receive this notice, you have five days to make, to make right of what you owe before you can take further action, you know? And so it gets confusing because it does say five day notice and in your head you're like, Hey, rent's due on the first. If I'm five days late, I'll get a five day notice, you know?
Ben Bailey: And it just so happened that here at on Q, we sent it out on the fifth of each month.
Eric Dixon: And so and then and then if the fifth lands on a weekend, it's going out on the third or, you know, whatever. So, you know, we send out five days on the fourth and it does not mean you're five days late. Right? It's a certified letter that says you have not paid rent on the first, second or third, your grace period at the third at midnight. You are now subject to late fees and whatever. And so that's when the five day notice goes out. Well, they don't even get it by certified mail until, let's say it goes out on the fourth, maybe fifth, sixth, seventh, maybe the seventh. They go to the post office and get it. And so it's like, you know, we have to it's.
Ben Bailey: Five days from when they receive it, right? Yeah.
Eric Dixon: And so and when it was delivered, delivered and it's tracked. So we basically we send it on the fourth. We have to give five days for delivery and five days to pay. So it's basically ten days. Yeah. So we still can't send it to the attorney for an eviction until the 14th or 15th or 16th, depending on where the weekends lie. Right. So it's not like it's misunderstood in that it's not the five days, but it's also misunderstood that if you get that letter, it does not mean you're evicted. Right. It's like we get a couple calls that, hey, I just got this notice. I'm so sorry this happened. It's like, hey, it's okay. You know, you just let me know, have a little late fee here and there. But it's not that we're not trying to evict you. Yeah, it's just that we have to. We have to check this box that we made this notice and got it out so that if you don't follow through, the landlord has recourse.
Ben Bailey: All right, Speaking of recourse, we did a whole episode on this to eviction.
Eric Dixon: So plainly or simply, I should say, it's the legal process to remove a resident from a rental for a valid reason. So it's it's the legal process through the court system. It could be unpaid rent. It could be unauthorized occupancy, unauthorized pet. It could be, you know, damage, that it could be criminal activity, you know, for a legitimate reason going through the court system and evicting them. So we hate doing it. Yeah, it's a it's a horrible thing, but it is a tool that protects the landlord that that we do have to exercise on occasion.
Ben Bailey: All right. This next one, while we were putting this list together, I. Told you that when I first started here. I. Didn't ask what this meant and had a whole different definition in my mind, which is multifamily, and I thought that meant. Multiple families living in a house. I was like, That's weird that we would do that.
Eric Dixon: But that's more the what do they call it? Like multigenerational? Yeah, yeah, yeah, yeah. So and I'll kind of just combine the next two. So multifamily versus single family, right? So multifamily, essentially multiple housing units under one building or under one roof. So a duplex, a triplex, a four plex, you know, whatever, whatever it is like there's a multifamily place we manage that's 13 fourplexes side by side. By side by side. Yeah. And it's a multifamily kind of complex, but they're just buildings of four units, you know, in a, in a line, right, Yeah. Um, so that's multifamily and then single family, it's designed for one family or household. It's oftentimes detached. It could be attached like a townhome or townhome or, you know, a single family dwelling. Um, but multifamily and single family, usually you're multifamily is two or more units. It's residential. This is more of a offshoot is residential. If it's four units or less, you can get residential financing and it's considered residential. If it's five units or more, it's commercial. Okay. It's kind of a side note.
Ben Bailey: Um, this one shout out to your wife landlord tenant act.
Eric Dixon: Let's go. It was actually hilarious last night at improv. You know, the they were doing a thing about non-payment of rent and shaming them and letting the whole complex know that they posted their five day notice on the door. And anyway, so we're able to do, you know, you're able to have protections for the tenant and the landlord because of the federal or the the state of Arizona Landlord and Tenant Act. They probably have very similar ones in every state. Yeah. Um, but in Arizona there's actually two that's kind of a the most people don't know about. There's your standard rental housing one and then there's your, your mobile home park one. And so interesting, they're a little different. Not huge variances, but if you do own mobile homes in a mobile home park, there's a separate tenant landlord act that you need to become familiar with. Um, but it pertains to just your standard rental housing and it's how we govern what we're able to do.
Ben Bailey: Yeah. All right. Um, guarantor.
Eric Dixon: A guarantor, a person, organization or thing that guarantees something had to look up like I couldn't put it in my own words. Yeah. So there's so.
Ben Bailey: Many of these that we're like, I know. I know what that is, but how do I write that down?
Eric Dixon: No, I'm like, I'll just Google it, man. No, but in practice, day to day, a guarantor for us is on an application and it happens one of two ways. Some people know right up front, I'm not going to get approved, so I'm going to have my mom, my dad, my. Sister. Brother. Whatever. Co-sign with me. That's another term that's kind of like guarantor, a cosigner. And I'm going to have them apply with me. We're going to check the applicant's credit and then their guarantor. The guarantor in practice, doesn't live at the property. They're just guaranteeing the financial part of it so we don't check the criminal background of a guarantor. We don't check, you know, sex offender check, you know, that sort of stuff. It's just financial and credit because they're not living in the home. They're not in the vicinity. They're not going to the house. It could be somebody out of state, but it's their financial ability to make. Right. If the two applicants or the one applicant that's applying doesn't get approved on their own.
Ben Bailey: Yeah, you see this a lot with young people that it's like their first.
Eric Dixon: Their first place.
Ben Bailey: Renting and they have no credit history, no rental history. And it's like, if don't have somebody back me up on this, there's no way I'm going to get approved.
Eric Dixon: No, totally.
Ben Bailey: Um, All right. Renters insurance.
Eric Dixon: So renters insurance protects the personal property in a rented house, So. In an instance like. Like theft. Somebody breaks the window in a house you're renting and they steal your laptop. The owners insurance could cover the window depending on their coverage, but they would not cover the tenant's laptop. You know, $2,000 laptop is going to be covered by the renters insurance and they'd make a claim. Pay deductible, you know, and have coverage there. Um, there's even circumstances like, yeah, if there's a fire and the house burns down, the owner's insurance will rebuild the house, but they're not going to replace all your contents. Yeah. So it is your responsibility as the renter or tenant there to to have renters insurance.
Ben Bailey: All right. This is one that I did not know for the longest time working here, and that is owner draw.
Eric Dixon: Yeah. So this it is interesting because we we say it all the time every day here and we're like, oh yeah, send the owner to draw. Yeah.
Ben Bailey: It's an accounting will send out a message to the group you know chat for the office and say we're doing owner draws. Don't, don't bother us for an hour.
Eric Dixon: And it's funny, the brand new employees are just like, What's an owner?
Ben Bailey: I'm not going to be the one to ask. So everyone seems to know.
Eric Dixon: Yeah. So the you know, in the business world, it makes sense. You're taking a draw from the profits or draw from dividends quarterly or whatever. As far as property management is concerned and the software we use for for sending the owner the net income for the month, we're sending you a draw. And so going to the next one, kind of jumping ahead is the opposite of that is the contribution. So an owner contribution is the owner of the property, contributing funds to the property manager to use for expenses. Yeah. And an owner draw is the net, the net income that we send you every month. So, you know, hopefully you have an owner draw every month and not another contribution every month. Yeah. If you, if you're an owner contribution, that's me. This month I had to replace an AC yesterday. So it's, you know not not going to get a draw on that property this month, but we're going to have to contribute to an owner contribution to cover the AC unit replacement this month. And then next month, when rent comes in, minus the management fee or whatever, my net income will be my draw. So it's really just the lingo. Again, that's why we're doing this. The property management lingo. Yeah. An owner draw is sending the owner money. Owner contribution is sending the property manager money. Yeah.
Ben Bailey: What really helped me was when we were doing this, you made the point that it really you have to think of the home as an investment, right? And then in the same way that if you had stock or, you know, 401. K and you wanted money from that, you'd be drawing from it.
Eric Dixon: You would draw from it. Exactly.
Ben Bailey: You know, so it's the same thing. And it makes perfect sense when you think about it like that. But for the longest time, I just didn't want to be the guy asking in the chat, You know, I'm like, I'm not making ads about owner draws, so I'm not going to worry about this right now.
Eric Dixon: Just the marketing guy. Yeah. No, but the your example is exactly it. And we were talking about it. It's that that stock that is paying dividends and oftentimes, you know, you have to treat your house, your rental like an investment and it's different because there are ways to mortgage and stuff. And with stocks, it's different. But. In the same light. You're not depending on your stock going up in a dividend every month to live. And if you treat your rental like that, it'll be be all the better.
Ben Bailey: All right. Last one, something we've been talking about a ton here in the office, and that is pocket listing. Yeah.
Eric Dixon: So pocket listing. It's an off market. An off market listing sometimes not even marketed. You know, it's a and I'll give a couple examples. And this is where we draw a lot of our interest of investors coming to Oncue is we have, you know, thousands of properties we manage and some of those owners want to sell, but they're either in the middle of a lease. So it's a hard property to market and you don't want to bother the tenant. And, you know, sometimes you can't get full market rate if it's rented, the cash on cash returns bad or whatever. And so we'll talk to our real estate team and we'll just say, Hey, Ben, for example, you have this property. If I could bring a buyer to you for 300,000, would you be interested? Oh, heck yeah, man. If you can bring me that buyer. Yeah. Without marketing it. And then on the other side, we have owners and people calling in that say, Hey, I want to buy a $300,000 house. Yeah. And then we match up the list, you know, Hey, these are off market listings, pocket listings, as we call them. Yeah. And then these other investors and we try and pair them together to create these off market deals. And they're not underground or, you know, illegal or any of that. It's really just they're not your conventional list on the MLS going through showings and all of that stuff. And we're not really we're not marketing them. You know, they're not on our website for yeah, for sale. If they were, we'd have to have a listing agreement and they'd have to go on. But these are just, you know, off market. We think the owner is willing to sell for about this range. We have this buyer that's looking and about this range and we just tried. Yeah.
Ben Bailey: Yeah. It's really those investors because unlike somebody, you know, that would normally come and say, hey, I'm looking for a three bedroom, two bath in Gilbert, you know, for my family, this is somebody who says, I've got X amount, I want an investment property.
Eric Dixon: And the numbers have to make sense. So yeah, that's it. We just kind of work the numbers and it's a win win, win win. In the case that the owner gets to sell, it doesn't have to wait till the tenant moves out the tenants happy because they don't have to do showings and put it on the market and have a sign in the yard and a lock box, right? Us Is the property manager stoked because we're we're going to retain the management and then the real estate. We can save them, we can save the buyer and the seller side commissions because we're helping the buyer and the seller. So it can be potentially a four way win if it if all the stars align on those. Yeah.
Ben Bailey: All right. Well, that's it for our list. I feel like we could probably do a part two someday because I'm sure.
Eric Dixon: There's a lot of just weird things. Yeah. Between the acronyms and just stuff we say without noticing.
Ben Bailey: Absolutely.
Eric Dixon: You know, that's. Yeah, there's a lot.
Ben Bailey: All right, so that's it for us this time. Be sure to subscribe to the podcast wherever you're listening and leave us a five star review. It really helps out. And we will see you guys next time. And.
On Q Property Management is a full-service Property Management company specializing in managing residential rental properties. On Q's client-first approach - utilizing a proprietary process and set of tools - delivers a more transparent and profitable property management experience. With year-long tenant guarantees and a no-fee cancelation policy, On Q is dedicated to earning you business month after month.
Arizona Designated Broker: Eric Dixon
Texas Designated Broker: Rodney Henson