If you own a small apartment building that has 16 or more units you must have a person on your payroll that resides at and represents the building. This is required by law in California.
What the law does not state is what the duties of the onsite manager are other than being a point of contact for the tenants. In a small building, 16-25 units, it may be that not much work is needed on a daily basis. Larger buildings, greater than 50 units, may well require a daily presence at the property, even office hours. The middle ground, 26-49 units may in some cases require an onsite presence, and in other cases, very minimal time is required.Many times it comes down to the location and tenant profiles. Buildings that are located in high crime areas or near colleges may require more time than those in high end locations. If the tenant profile is such that there is not much activity during the day, less on site staffing would be required. The ownership of the building will need to decide how much time is needed.
With technology advances, the amount of things a on site manager is expected to do has diminished for all property sizes. Rent collections can now be set up online, relieving the onsite manager from collecting rent. Tenants can be offered to pay online, pay by mail, or pay at the management corporate offices. This is now a preferred method since it also reduces the chance for robbery or theft. The corporate office or the onsite manager can monitor collections online in real time without having to maintain rent ledgers or any files at all for that matter. Some firms have the ability to have their tenants pay at 7-11 Stores using a bar code. These improvements should come at no additional cost to the property owner. If online payments are made, they should come at no extra cost to the tenant either. 7-11 just costs about the same as purchasing a money order.
Maintenance issues can also be reported via a building or company website. Tenants can also direct their maintenance requests directly to the main office by phone or send an email. This eliminates the need for someone to be staffing an onsite office. Having maintenance reported online or to an offsite office will also improve record keeping for the ownership.
What the manager of all size buildings can do is the following:
- Keep the grounds clean including the laundry, pool areas, club house, and garbage areas on a daily basis.
- Make sure the landscaping crews are doing their job.
- Make sure the lighting is all operational and turning on and off at the proper times on a daily basis.
- Check for safety issues such as broken or cracked concrete, pot holes, and other trip hazards, weekly.
- Check for broken windows or any signs that a unit has vacated.
- Be available to show vacant units. In a larger building this may involve office hours. In a smaller building this could be by appointment. I suggest that office hours be posted on the building, posted on the internet, and recorded on a voicemail message so any prospects can show up when the manager is working.
- At larger buildings the onsite manager may prepare rental agreements as well as coordinate maintenance to get vacant units ready to rent. The onsite manager may also do move out inspections and deposit refund dispositions, while in smaller buildings this may all be done by the offsite property supervisor.
Annual inspections is task that could be done by either the onsite or offsite staff. Whoever does these inspections is not as important as how they are done. Annual inspections should be completed using a checklist or city/county inspection form. Most firms now employ their phones or tablets in performing these important inspections.
A good source of prospective employees for your onsite needs is a current tenant. If that is not possible, place ads online in several websites. Be sure you perform a criminal background check before you place any onsite staff on your payroll. Make sure you document the work hours with a time card and pay through a normal payroll process taking into account payroll taxes and workers compensation insurance. Finally, get familiar with all requirements of employers of onsite staff in California before you hire.
Effective January 1, 2017, employees in California are currently entitled to minimum wages in the amount of $10.50 per hour (employers with 26 or more employees) or $10.00 per hour (25 employees or less), with some municipalities having an even higher minimum. Many owners trade off the value of the apartment in exchange for compensation. If you do this, you must have your agreement in writing. In addition, the value of the lodging credit cannot exceed 2/3 of the market value of the unit or $593.05 per month for a single person (when the employer has 26 or more employees, whichever is less. If a couple is employed, the maximum value of the unit is still 2/3 the market value with a maximum of $877.27, whichever is less. For firms with 25 or fewer employees the maximum rate is $564.81 for a single, and $835.49 for a couple. Take note that in January 2018 the minimum wage will be increasing to $11.00 per hour (for 26 or more employees), $10.50 for 25 or fewer employees. Lodging credit maximums will rise as well in 2018. If the hours worked translate into compensation to the on site manager in excess of the 2/3 value, then the excess should be paid in the form of a paycheck.
As an alternative, the owner could charge the tenant 2/3 of the market value and have on site manager pay that amount in rent. Then the owner would pay the on site manager at least the appropriate minimum wage per hour.
As an owner of a 16 more unit apartment building you are expected to know how to compensate the people you employ. I have seen many cases of owners and even property managers giving “free rent” in exchange for being the on site presence. While this may work in the short run, it is playing with fire. If you terminate your onsite person and they file for unemployment, the Employment Development Department (EDD) will be looking for the wages and taxes paid to show up on their database. If they do not find anything, it may well trigger an audit. This could entail EDD going back up to four years for back taxes and penalties. Beware if you own a property management company as such an audit will not be restricted to just the property that triggers it. It may well expand to cover all properties you manage and have managed over the past as well.
As the owner you are also responsible for having workers compensation insurance in place to protect your employee in case they get injured on the job. This policy is based on wages earned and includes 100% of the apartment market value no matter what you actually calculate it at per the above restrictions. With employment agreements in place, time cards completed and collected every two weeks, and pay based on at least the prevailing minimum wage, you should be well on your way to successfully managing a larger apartment building. Short cuts do not work and should not be considered. A nice feature of hiring a reputable management company is that they take care of all these details and the on site manager is considered the employee of the property management firm, not the owner. This can further reduce the owner’s risk.