Risky Business: Avoiding, Transferring and Mitigating Risk in Property Management

As discussed in RealWorld 2018 sessions  Operating a property management company today means exposing your business to risk in a variety of forms. Not having a safety net—a true risk protection plan—could be the biggest risk of all. Of course, risk means economic loss—the kind that erodes gross revenue and NOI. According to LifeLock®, while just 7% of all identity theft is loan or lease fraud, it adds up to millions of dollars lost each year. Loan or lease fraud occurs when a borrower or a lessee uses someone else’s information to obtain the loan or lease. While risk is a harsh reality of property management, it’s important to know that you have control over how to manage it. This includes measures that go beyond risk mitigation. By definition, mitigation is “a lessening the force or intensity of something unpleasant” (dictionary.com). If you wait to mitigate, you’re only addressing one-third of a responsible and effective risk management strategy. Here’s why: There’s a risk of a kitchen fire or accident at the property, a result of a careless resident. You can’t calculate that risk and mitigate an accident or even the behavior of your renters. There’s a risk that a new renter isn’t even the person that’s referenced on the credit application. You can’t calculate risk and mitigate what you don’t know about a prospective renter. There’s a risk that a renter will skip out on the last few months of their lease, leaving you with bad debt. You can mitigate this risk, but at what cost to your occupancy? Risk management sometimes gets confused with mitigating risk, which is reducing the impact of an event or cause that can’t be avoided or covered by another party. Risk mitigation really is just one component of the greater risk management approach, which provides solutions for not only mitigation, but avoidance and transference of risk as well. [A...