How to Determine the Profit in a Convenience Store

Calculate Gross Sales

Add the sales revenue your convenience store generated from your primary revenue sources for the accounting period in question to calculate your gross sales. For example, assume your convenience store sold $50,000 in food and beverages, $75,000 in gasoline and $5,000 in miscellaneous merchandise during the month. Add these to get $130,000 in gross sales.

Calculate Gross Profit

Subtract the amount of any refunds you gave to customers as well as your cost of goods sold from your gross sales to calculate your gross profit. Cost of goods sold represents the amount you paid for the merchandise you sold during the period. In this example, assume you refunded $1,500 to customers and had $90,000 in cost of goods sold. Subtract $91,500 from $130,000 to get $38,500 in gross profit for the month.

Calculate Operating Expenses

Total your operating expenses for the period to determine your total operating expenses. These are the expenses necessary to run your core business, such as rent, utilities, wages, repairs, maintenance and insurance. In this example, assume you paid $3,000 in rent, $1,500 in utilities, $20,000 in salaries and wages, $1,500 in maintenance and $500 in insurance during the month. Add these amounts to get $26,500 in total operating expenses.

Calculate Operating Profit

Subtract your total operating expenses from your gross profit to figure your operating profit. In this example, subtract $26,500 from $38,500 for $12,000 in operating profit.

Calculate Net Profit

Add the income you earned from sources other than from selling your primary merchandise to your operating profit. Subtract the interest paid to creditors, income tax payments and any other non-operating expenses from your result to calculate your net profit after taxes.

A negative number represents a net loss for the period.

Assume you earned $500 in fees from a third-party in-store ATM machine and paid $1,000 in interest and $2,000 in income taxes. Add $500 to your operating profit of $12,000 to get $12,500. Subtract $3,000 from $12,500 for a $9,500 net profit after taxes.

Increasing the Bottom Line

If your convenience store's profits need a pick-me-up, consider these ideas:

Increase your offerings: Food service sales are increasingly becoming convenience stores' most profitable category, accounting for 35 percent of gross profits according to the National Association of Convenience Stores.

Offer a lottery option or increase your current offerings. Ninety-five percent of lottery customers buy at least one other item while in the store.

Cut Costs: Replace old institutional-style lighting with new energy-saving lighting. This will save on costs and the softer effect will provide a more pleasant ambiance.

Maintain curb appeal: Eighty-four percent of customers who fuel up say cleanliness is a factor when considering whether to go inside to make an additional purchase.

Give a Cash Incentive: If you sell gas, give a several-cent discount on each gallon of gas when customers pay with cash. Not only will you avoid debit/credit card fees but you will also bring customers into the store to possibly make an additional purchase.

Mirror Advertising: Take advantage of big-box marketing. If a restaurant chain is offering a limited-time deal on a sub, consider offering something similar. Your customers may have seen that ad, have it on their minds and may be primed to purchase it from you if it's advertised.

Technical Analysis

Technical Analysis:

Market moves in three directions: Up, Down, Sideways

MARKET TRENDS
Long- Term: 9 months or longer
Largest overall focus of most investors

Intermediate: 3-9 months
Lasts weeks or months

Short-term: days to weeks but not more than three months
Ripple effect

Regardless of time frame, try to identify long/intermediate and short term trends. When riding ripples or waves helps to know i fthe stocks stide is going in the preferred direction. Go with the tide and ride the waves in..

Support: Imaginary price level that is difficult for a stock to move below beacuse there are so many investors willing to buy at that level. Investors create support when the bulls gain enough momentum to overwhelm the bears and stop or reverse downward movement.

The more often a stock price bounces off a support level the stronger the support level becomes.

Resistance: Opposite of support. Imaginary price level that is difficult for a stock to penetrate on the upside. Created when the bears gain enough momentum to overwhelm the bulls and stop or reverse upward movement.

Diagonal Resistance:
Occurs after a stock creates two consecutively lower peaks.

Price Channel: Range defined by a strong support level on the bottom of the price and strong resistance level on the top of the price. Help identify possible entry and exit signals.

Guidelines to consider for identifying potential breakout:
3 percent: Consider it a breakout if the stock price penetrates the previous level of support or resistance by atleast 3 percent.

150 percent: More significant if it occurs on atleast 150% of average daily volume.

BGR: C-Store

Ref: C-Store
Milk, Bread, Soda and Snacks

RoT: Rule of Thumb
15-30% annual sales + inventory
1.5-2 times SDE + inventory
5 times EBITDA less cosmetic renovation to receive nat'l brand of fule + inventory
2-3 times EBITDA + inventory (c-store only)
6-8 times EBITDA + inventory (real estate + business)

RoT for different types of C-Stores
Kiosk - 1-2 times EBITDA + RE & Fixtures/Equipment
Mini-CStore - 2-3 times EBITDA + RE & Fixtures/Equipment
Limited Selection C-Store - 2-3 times EBITDA + RE & Fixtures/Equipment
Traditional C-Store - 3-4 times EBITDA Includes RE & Fixtures/Equipment Less inventory
Expanded C-Store - 4-5 times EBITDA includes RE & Fixtures & Equipment Less inventory
Hyper C-Store - same as Expanded CStore

Looking @ c-store
- Look @ 4 primary profit centers in c-store including typical sales, cost, margins & cash flows
- Consider impact of real-estate ownership vs lease
- Review petroleum product supply agreements
- It is more profitable for store owner to own fuel equipment and by paying loan pmt to bank rather than receiving a limited commission from fuel supply contract
- Calculate with accurate books and record, a market value that can be financed

Petroleum Supply Agreement
How long does it have remaining
Are there financial strings (loans, unamortized rebranding costs, volume rebates, buyout penalties)
Financial strings such as loans, unamortized rebranding costs, volume rebates buyout penalties?
Is brand competitive in the area or should rebranding considered?
Are financial terms competitive or can they be renegotiated to take advance of current market practices? Eg: If sales volumes have increased that would qualify for better competitive allowances, prepayments etc.
Fire sites with petroleum sales greater than 1M gallons per yr (83K GPM) there are lucrative arrangements if supplier is "buying" market share
Don't take supply agreement as admin function. Its very important part of sale.

Check store for gross/traffic count. Compare to average hours that generate profit. Exclude 1am - 5am as most stores do not generate enough business at this time.

Small volume, marginal stores impossible to sell in bad-margin market

Note: Must know supply agrements and margin that operator is working on.. High volume/good margins. Important factor to determine justification of seller's asking price is the profitability of the business. A c-store working on high margin on inside sales and having high monthly sales will sell for higher price than high-volume store working on low margin.

C-store operating at 30% + gross profit & monthly sales over 50k is attractive to buyer and should sell for higher price.

PRICING TIPS
Average price is 2-3 times SDE, 3-5 times when real estate is involved.
Business with low revenue - average under 1000 per day is buying a job - with sale price of 1 - 1.5 - under the 2 times of SDE

Location of business. Competition in immediate area. Type of products sold. Lottery Commissions.

Korean rule of thumb: 20x average weekly sales

Industry expert: Strive for an overall weighted inside gross profit margin of 30%
Attempt to get margin of 50-60% for deli sales
Gas margins vary over competition

Ballpark figure: If you get a bottom-line profit of 6.5-7% of total sales after taxes, depreciation and amortization

Usually valued at 3-4 times monthly gross depending on age of structure, new vs mature business, location etc. Price does not include RE or inventory but would include fixtures and equipment at market value. Value of food inventory for super market is about $12 p sf

High sales volume with profit important; need loss leaders especially milk and bread, good personnel, customer service important; open early morning; clean facility

Interstate locations, other good location, brand of gas very important
Age and condition of petroleum equipment important
Environmental issues must be dealt with before closing
Phase I/II reports required for financing
Up-to-date current property appraisal is helpful

SELLER FINANCING
5 year all due payable with 15-year amortization
5 - 7 years

QUESTIONS TO ASK
If petroleum - any previous environmenal issue, current leak test result
3 year tax return, lease agreement
Amount of gross that is tobacco related
Lottery sales
Any employee or customer thefts
Location: traffic count and number of rooftops dictate best locations along with traffic patterns, red lights curb out access
Age and condition of other equipment important
What is the mixture of sales?
How do sales break down concerning gas, merchandise/cig, beer, grill, deli?
EPA requirements completed?
Robberies since buying store
Key people
Gas supplier
Gas equipment owner
Wholesaler who supplies majority of groceries
C-stores being built within two miles of store?

BENCHMARKS
Strive for average 30% inside margin on merchandise sales
Rental less than $15 p sq foot
C-store annual sales $767k
Foodservice annual sales $115k
High volume easier to sell. Small stores under $25k monthly very hard to sell
Secondary Income (1.7% of total sales; $250k > $4250 and $150k > 2550)
Secondary income avenues: rebates/allowances; product placement fees; special promotions; pay phones; car vaccum/air/water; ATM: money order; Lottery; Pre-paid cards

EXPENSE AS % of SALES
COGS: 50-60% or less - good store
Payroll: 20% (owner operator will lower)
Occupancy costs: 7-15% (rent or mortgage payment)
Profit (pretax) 10-15% gasoline profit should cover rent/mortgage

Hotel Investments: Facility Types

FACILITY TYPES:

DELUXE:
Very top of hotel segment in regard to service, physical facilities and amenities. Common associated brands - Four Seasons, Ritz Carlton. Likely to contain independently-owned hotels who have established reputation over many decades. Eg: Lenox in Boston and Mark in New York.

LUXURY:
Commercial facilities catering to business traveler - generally situated in downtown or commercial districts. Amenities include restaurant, lounge meeting facilities, fitness room and gift shop. Service offered include room service, business center, concierge and valet services, shoe shine, daily newspaper, airport shuttle and local transportation. Modern facilities provide work desks, multiple telephones with dual lines and data ports, in-room coffee makers, irons and ironing boards and copy/fax services. Convention hotels are large facilities that have meeting spaces with capacity to handle large groups of people. Convention hotels are large facilities - 30 sq feet of meeting space per guest-room located near convention. Contains large inventory of guestrooms with high % of double/double bedding configuration. Convention hotels provide large ballrooms and small breakout rooms for meetings and conferences. Some hotels feature exhibit space and auditoriums.

UPSCALE:
Hotels and all-suite brands that cater primarily to business travelers who do not need the amenities of full service luxury hotel. Segment also appeals to leisure travelers who want more amenities that can be found in a midscale hotel.

MIDSCALE WITH FOOD & BEVERAGE:
Largest single segment in the nation. Represented by old brand names such as Holiday Inn or Best Western.

LIMITED SERVICE SEGMENTS:
Three segments: Midscale without F&B, Economy, and Budget. Eg: Comfort Inn, Hampton Inn
Economy segment offer larger rooms than typical budget hotel.

Budget segment is popular among senior citizens and people traveling on very limited budget.

EXTENDED STAY:
Provide residential atmosphere by offering larger, apartment-type guestrooms with separate living and sleeping areas, full kitchens, exterior entrances and recreational facilities. Extended-stay resemble garden apartment complexes and usually have a small administrative building that houses the front office and lounging/dining area. Guest suites furnished with residential style goods and feature fireplace. Attracts travelers who must stay in the area for an extended period of time. Average length of stay at Marriott Residence Inn is 10 days. Typical guests include relocated employees, auditors working on long-term projects attorneys involved in lengthy trial and engineers assigned to building project.

CASINO HOTELS:
Provide guests and visitors with on-site gaming facilities. Casino hotels offer buffet-style restaurants, cocktail lounges, retail outlets and entertainment facilities. Depending on extent and orientation of gaming facilities, guestroom range from moderate to luxury. Suites are provided for "high rollers" and other high-profile guests.

BED & BREAKFAST
Offer quaint, residential-style accomodations along with breakfast. Usually in historic areas.

MOM & POP MOTELS:
Small, independent, family-operated motels. Older-style lodging facilities usually have fewer than 50 units and offer limited amenities. Tourist cabins and camps are included in this category.

BOUTIQUE HOTELS:
Small lodging facility that caters to upscale patrons looking for intimate, quiet sorroundings. Often converted from historic structures, these properties offer high-quality amenities and furnishings, signature upscale restaurants and expensive personalized guest services. Public areas and meeting facilities are minimal in this category.

HEALTH SPAS:
Hotel that provides various health-oriented services and activities such as special diets and dining plans, exercise programs, medical supervision, massage and therapy and health education and training.

BOATELS:
Lodging facility that is specifically associated with a marina development. Generally accomodates leisure travelers who wish to enjoy nearby bodies of water along with boat owners seeking accomodations and other amenities on shore. Amenities typically offered include restaurant, lounge, ship's store, laundry facilities, docks and marine equipment repair and service.


LOCATION & CLIENTELE:

AIRPORT:
Situated either at or near airport facility, this type of hotel attracts commercial travelers, small meetings and groups, airline related visitation such as crewes and distressed passengers.

HIGHWAYS:
Designed for guests traveling by automobile. Properties with highway locations attract commercial and leisure travelers. Proximity to major roadway, accessibility and visibility are major attributes required for this type of property. Features limited meeting facilities, restaurant on property or nearby, and amenities such as swimming pool, playground, complimentary hot beverage service, sundries and road maps.

DOWNTOWNS:
Cater mostly to commercial and meeting and convention market segments.

SUBURBS:
Generally located near office, retail, and light industrial areas. Development costs are lower for suburban hotels than for downtown properties.

CONVENTION CENTERS:
Draws patronage from events held at the nearby convention center. Typically provide food and beverage facilities.

RESORTS:
Located in areas with considerable scenic beauty or recreational opportunities. Attracts leisure demand segment of the lodging market and leisure-oriented meetings and conventions such as corporate-incentive groups.

MIXED-USE FACILITIES:
Facilities situated in multiple-use developments that contain both hotel and non-hotel elements (office space, retail property, residential property).


GUESTROOM DESIGN

Microbudget motel:
Total area is 190 sq feet and provides enough space for one bed. Although guestroom is small, it has all normal amenities found in conventional budget motel guestrooms.

Budget motel:
Total area is 236 sq feet and provides space for two double beds. Window is adjacent to entry door which means property has exterior corridors.

Mid-rate facility:
Total area is 300 sq feet and includes larger bathroom, separate closet and sleeping area containing king-sized bed and two chairs. Guestroom contains desk/dresser with television. Corridor to which room has access is interior.

Luxury:
Total area is 450 sq feet. 25 feet length and 18 feet wide - creating feeling of greater open space. Bathroom is above average in size and sleeping area has capacity for desk, two small couches and coffee table.

Suite:
Contains separate sleeping and living areas. Rectangular guestroom in which living area is in front and leeping area is to rear. Approx 400-500 sq feet space only slightly larger than typical luxury guestroom.

Extended stay:
Provides greatest amount of space of any lodging facility. Guestrooms consist of full-size living rooms, kitchen and bedrooms. Two floor duplex - 580 sq feet 1st floor; 244 sq feet second floor - Total of 824 sq feet.

AMENITIES:
Such as swimming pool, room service and personal care items play large role in marketing of hotel rooms. A survey was done to quantify usage of amenities. Although swimming pool is frequently an expected feature - it is used by less than one-third of the guests. Should a costly swimming pool which guests expect but rarely use be included in design on property? The answer is yes because the need to conform with the local competitive environment - despite the low usage.

Hotel Investments: Part 1

HOTEL AQUISITION

PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available properties
Perform preliminary economic market study & appraisal

IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Negotiate terms of sale
Go to contract on property
Line up operator
Line up franchise
Commission a formal economic market study & appraisal
Line up mortgage financing
Line up equity financing


HOTEL DEVELOPMENT

PLANNING STAGE:
Select region of country
Narrow selection to cities or market areas
Look for market niche
Look for product / available sites
Perform preliminary economic market study & appraisal

IMPLEMENTATION STAGE:
Tie up property with letter of intent, option or contract
Obtain zoning and permits
Assemble project team
Line up operator and franchise
Prepare architectural plans and estimate project costs
Commission formal economic market study & appraisal
Line up mortgage
Line up equity capital

SELECTING MARKET:

Proximity to home office: Hotels are labor-intensive that require constant supervision and direciton. When aquiring or developing a facility its advisable to keep it close to home so that it can be given full attention.

Signs of economic growth: Regions exhibiting strong growth trends are generally better suited for hotel investments than regions that are economically stagnant

Competitive environment: Carefully evaluate regional supply of competitive facilities in conunction with economic growth. Even if economic trends are favorable, an adverse competitive environment brought by the oversupply of hotel rooms can make a region undesirable location for aquiring or developing a facility

Evaluating market area: Look for situations that exhibit a need for specific hotel product. Consideration is given to protective charecteristics known as barriers to entry - which include restrictive zoning or license approval process, limited suitable land or acquisition opportunities, rapidly escalating construction costs and unavailablility of appropriate chain affiliation or management company. Unique market position can quickly change to overbuilt position if no barriers to entry exist and other competitive products can enter the market without difficulty.

Market niche: May be necessary to reposition an existing property. Hotel can be repositioned through a renovation or upgrading, changing franchise affiliation or introduction of new management.

PROPERTY & SITE SELECTION:

Once type of hotel is determined on basis of evaluation of market niche, investor must start looking for available hotels if an existing property is desired or suitable sites if a new development is desired

When looking for existing hotel, investors use services of broker whose practice is concetrated in the lodging industry. When looking for potential hotel sites, best to use a land broker familiar with local area - particularly the zoning regulations, building codes and related laws. One of the difficult aspects of accomplishing a hotel development is obtaining necessary zoning changes and variances. Knowledgeable land broker understands these issues and can direct developer to suitable sites requiring minimal zoning changes and approvals. Brokers are compensated by seller with commissions based on a % of sales price - generally 1-4% for existing hotels and 4-10% for vacant land.

PRELIMINARY MARKET STUDY & APPRAISAL:

Before any $ is commited to the purchase of property, investors perform or commission a thorough preliminary economic market study and appraisal. Information yielded by this analysis is used to determine the type of hotel and facilities best suited to the location and type of management and franchise affiliation that would be most effective. Another important product of a market study is a forecast of revenues and expenses that the subject property can be expected to realize. This information is vital to the buyer during the negotiation of sale of property because it can be used to determine the value of facility.

First step in evaluating a proposed investment is to analyze the site of the proposed or existing property. The suitability of site for hotel operations is important determinants of success of investment. Site analysis involves such factors as physical suitability of land, access and visibility and availability of utilities and other services and applicable zoning regulations.

Once site is selected, the area in which it is located must be evaluated. This evaluation includes both immediate neighborhood o fthe site and its market area. Extent of relevant neighborhood can be usually determined by simple observation of surrounding area, including roads and land-use patterns. The market area is hardeter to identify because it involves a larger area and depends on more factors (competition/travel patterns). Another important step is an examination of the supply of lodging facilities in the area. Before success of proposed investment can be determined the appraiser must determine the degree with which other hotels in the area would compete with the subject property.

After supply of hotels is evaluated, existing demand must be quantified to determine the ability to support new hotel or acquisition of existing facility. Demand analysis can be performed using - demand generator build-up approach or lodging activity build-up approach. In addition to local supply and demand, appraiser must determine the competitive positions of all local facilities and how the subject property would fit into this picture. This involves determining current market share, average room rate and occupancy rate of existing competition. Once this determination is made, appraiser can forecast the variables for subject property.

Final step in preliminary appraisal is to forecast the income and expense of the proposed hotel investment. Income projection focuses on hotel's main categories of revenue - such as rooms, food and beverage and telephone income. The expense projection examines hotel's main items of expense - such as rooms, food/beverage, telephone, administrative, management and marketing costs.

A property valuation along with forecasts of revenue and expense allows appraiser to make recommendation regarding the feasibility of proposed investment. First step in property valuation is to determine overall worth of subject property. This step entails appraising appraising existing hotel or forecasting value of proposed property. This value is contrasted against the cost of the property which is either the cost of acquisition or construction.

FRANCHISE AFFILIATIONS & HOTEL MGMT

Two important steps in investment process are obtaining a franchise affiliation and selecting a hotel management company. Franchise affiliation is important decision in investment that should be made early in the acquisition or development process as possible. Franchise company will want the opportunity to participate in decisions regarding designs and specifications for a lodging facility because most have companywide standards that must be met by each of their properties. An early decision also enables owner to accurately determine the cost of the franchise affiliation and use the information when analyzing economics of the project.

PROPERTY MANAGEMENT

Management company should be retained as early as possible. Management company should be brought in before any significant amount of time is spent on architectural drawings so the mgmt co will have opportunity to provide suggestions regarding the layout and general design of the facility. Securing mgmt co is important for acquisition because the company will often be able to generate valuable information regarding projected operating performance of the property. Mgmt company will indicate changes that must be made to the property if improvements are required in order to meet the company's operating standards.

MANAGEMENT CONTRACTS

Proper execution of management contract is vital step for the development of the investment. This document spells out relationship between owner and operator. Each party must be able to negotiate the contract with full understanding of the consequences of including or disallowing a particular provision. If either party is permitted to include provisions that are disproportionately favorable to its position the working relationship between the parties can be damaged. Basic provisions include - fee structures, financial reporting, budgeting to termination, assignment of employees and indemnification.

RE: Investment Analysis

Ultimate goal of cash flow
- More is better than less
- Sooner is better than later
- Certain is better than uncertain

Pro-Forma Operating statement
Used to analyze annual operating cash flow of real estate investment

PGI - Potential Gross Income
- Total income a property might generate in a year in ideal circumstances

Commercial Property
Rent x SF = Total annual rent + Other Income

Residential
Rent per unit x units x 12 + Other income

Vacancy & Collection Allowance
Sometimes there is not a tenant or sometimes tenants don't pay
V&C <>10% Loose market

Effective Gross Income = PGI - V&C
Operating expenses
Net operating income = NOI = EGI - OE

PRO-FORMA OPERATING STATEMENT
Potential Gross Income - PGI
LESS Vacancy & Collection Allowance - V&C

= EFFECTIVE GROSS INCOME - EGI
LESS Operating Expenses - OE

= NET OPERATING INCOME - NOI
LESS Annual Debt Service - ADS

= BEFORE-TAX CASH FLOW - BTCF


Operating Expenses
Include
Property Taxes
Hazard Insurance
Utilities
Management Fee
Maintenance & Repairs
Bank & Legal Fees
Reserve for capital improvements

Exclude
Mortgage interest
Depreciation allowances
Actual capital improvement expenses

EG: Office building 15,840 sf GLA
10,800 rents for $12 psf
5,040 rents for $10 psf

V&C = 10% of PGI

OP Expenses
Prop Taxes 15,900
Insurance 12,000
Utilities 13,900
Cleaning 5,000
Repairs 6,000
Reserve 12,000
Mgmt 8,100
TOTAL 72,900

Purchase price 885,000
Mortgage: 75% ltv, 9% interest 30 yr ammortized

Pro Forma
PGI 10,800 x 12 + 5,040 x 10 180,000
V&C @ 10% 18,000
EGI 162,000
- Operating Expense 72,900

NOI 89,100
- Annual Debt Service 64,088

Total 25,012

Capitalization rate R = NOI/V
Measures the current income of a property relative to its value or purchase price

Cap rate is used to evaluate the quality of an investment
High cap rates good when you are BUYING

Eg: R = 89,100/885,000 = 10.07%

Cap rates are also used to estimate value V = NOI/R
If the market cap rate is 9% estimate property worth- V = 89,100/0.09 = 990,000

Cap rate limitations
Cap rates ignore income growth (and capital gains)
Cap rates ignore risk

Other ratios & multipliers

Cash-on-cash return
COCR = NOI - ADS / Purchase price - loan

eg: = 89,100 - 64,088 / 885,000 - 663,750 = 11.3%

Mortgage Constant
MC = ADS / Loan eg: 64,088 / 663,750 = 9.7%
The "cash" cost of the debt including both principal and interest

Financial Leverage
If R > MC the investment has positive financial leverage and added debt raises the COCR
MC < R < COCR

If R < MC the investment has negative financial leverage and added debt will lower the COCR
MC > R > COCR

Operating Expense Ratio - OER

OER = OE/EGI (Estimated Gross Income) = 72,900/162,000 = 45%

Breakeven Ratio - BER

BER = OE + ADS / EGI = 72,900 + 64,088 / 162,000 = 84.6%

Debt Coverage Ratio - DCR
DCR = NOI / ADS = 89,100 / 64,088 = 1.39

Small Property Investment
Key Rules
- You make all your money the day you purchase the property
- The bets real estate investments you make are the ones you don't

Research the market
- Pick a neighborhood and research it for 6-12 months
- Drive it several times a week
- Build a database (Every Property)
Asking & Selling prices
Size, BR, Bath etc
Quality and condition
How long on market
Rentals
Rental rates
How long vacant
Lease terms

RE: Property Management & Leases

Property management involves the leasing marketing managing and overall maintenance of real estate.

Residential Property Management
- High degree of tenant relations
- Short term leases = High tenant turnover
- Apartments, condo, coops & homeowner association
- Single family housing

Commercial Property Management
- More complex but less emotional
- Retail - traffic onsite
- Help tenants attract customers
- Industrial

Roles of property manager
Position the property in the market and advertise it to prospective tenants
To do this the property manager may start by developing a management plan that
- Analyzes current market conditions
- Evaluates the subject property and its positives
- Outlines the investor's objectives

The management plan is then used to make recommendations regarding the property, position it in the market and help determine appropriate rate schedules.
- Continue current use
- Conversion
- Rehabilitate
- Modernize

Select tenants and negotiate leases
The manager may act as his own leasing agent or may hire a broker to lease the property for him.

Manager must be concerned with long-term viability of property
A leasing agent may be primarily concerned with a commission

Tenants should complement one another
Retail properties often use percentage rent

A wide variety of issues must be incorporated into the lease itself
- Commercial leases can be very complex
- Residential leases are more standardized

Collect rent and maintain good tenant relationships

Oversee administrative tasks
Preparing budget
Maintaining property
Hiring and overseeing employees
Recordkeeping

Legal issues for property managers
Americans with Disabilities act (ADA)
Accessibility
Employment

Fair Housing Act (FHA)
Prohibits discrimination on the basis of race, color, religion, sex, handicap, familial status, and national origin

Common Leasing Issues
Term of lease
Residential leases - max 1 year
Commercial leases - 99 years - 5 years or 10 years

Security deposit
Residential - 1 month rent
Commercial - Varies

Possesion of premises
Lessor grants the tenant an implied convenant of quiet enjoyment
Landlord may enter with notice or in emergency

Eviction
3 day notice for non payment
14/30 day notice for other lease violations

Use of premises - Any legal use unles restricted in the lease

Improvements to premises
Maintenance of premises

Assignment and subleasing - subleasing is allowed unless prohibited in lease

Recording a lease - typically only in long-term ground/mineral leases

Options: for renewal; for purchase

Types of leases
Ground lease
Net lease - double-net and triple-net lease
percentage lease
step or graduated lease
Indexed lease
ground lease
oil and gas lease