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The Costly Myth of “Passive” Real Estate Investments

Industry Insights

Why Real-Time Operations are your key to preventing lapses in Quality Assurance that lead to huge legal settlements

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So you’re an owner of or investor in Multifamily real estate and have hired reputable property management companies to handle day-to-day operations. Now you can sit on the beach, drink in hand, and watch the income from your rented assets roll in as predictably as the tide, right?
You might think, as long as management keeps costs down, you’re better off directing your attention to only the most pressing issues as they arise — if and when management notifies you.

But as Bracha Investments LLC discovered firsthand, ignorance isn’t bliss. Quite the contrary. In 2015, “four days into a jury trial over dangerous living conditions, about 100 tenants reached a $2.18-million settlement with Bracha regarding hazardous and unsanitary conditions such as “exposed electrical wires, peeling lead paint and cockroaches” that crawled into residents ears and burrowed into furniture and electronics according to court documents.

When resident maintenance requests were actually (but belatedly) honored, inspectors noted the landlord’s repairs in the “poorly maintained” apartments sometimes left residents worse off than before, like when a repair crew “left a hole in the kitchen wall of an apartment close to a sewage line that gave off a ‘sulfurous putrid odor’ and made a 2-year-old child sick.”

Gavel next to roll of money

The financial damage suffered by Bracha due to these potentially criminal infractions, not to mention the reputational damage that results from being labeled a “slumlord” by media outlets, illustrate how a negligence settlement can cost you. In fact, 95 percent of pending lawsuits end in a pre-trial settlement and over 90 percent of cases that do go to trial end in victory for those who brought the suit.

As Black’s Law Dictionary notes, “this suggests that pre-trial settlements may be in the best interest of defendants who lack strong evidence to defend themselves against the charges that they face. In straightforward personal injury cases, the outcome of a trial can hinge on the testimony of a single key witness or the examination of certain pertinent records.” Therefore, rock-solid documentation is not only paramount to protecting your residents from dangerous or unhealthy living conditions; it’s critical to saving you from negligence claims like those entangling Bracha.

Gavel next to roll of money

The financial damage suffered by Bracha due to these potentially criminal infractions, not to mention the reputational damage that results from being labeled a “slumlord” by media outlets, illustrate how a negligence settlement can cost you. In fact, 95 percent of pending lawsuits end in a pre-trial settlement and over 90 percent of cases that do go to trial end in victory for those who brought the suit.

As Black’s Law Dictionary notes, “this suggests that pre-trial settlements may be in the best interest of defendants who lack strong evidence to defend themselves against the charges that they face. In straightforward personal injury cases, the outcome of a trial can hinge on the testimony of a single key witness or the examination of certain pertinent records.” Therefore, rock-solid documentation is not only paramount to protecting your residents from dangerous or unhealthy living conditions; it’s critical to saving you from negligence claims like those entangling Bracha.

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"95 percent of pending lawsuits end in a pre-trial settlement and over 90 percent of cases that do go to trial end in victory for those who brought the suit"

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This isn’t to say Multifamily Management companies are lax or not doing their jobs, they’re often just swimming along as they always have, in a sea of outmoded paper-and-pen inspection workflows that yield little visibility. And therein lies the problem. It’s 2017. The surging technology that has revolutionized consumer culture also manifests as new solutions for enterprise, quickly recasting the lead roles in the national and world economy. Yet many Multifamily Owners and Managers have been slow to adopt new tools like mobile inspection platforms with data insights that will raise their compliance standards portfolio wide and provide automatically cataloged cloud-based inspection records, including time-stamped photos that serve as the best possible legal defense.

Management and quality illustration

Similar to property issues with fire hazards, bedbug infestations, unsafe pools, and other negligence pitfalls, if your building isn’t up to code or your inspection system fails to inform you of critical vulnerabilities on your properties, you can be held responsible in court. So you absolutely must ensure active monitoring of your assets to avert both unsafe units and liability.

Of course, compliance means more than just brand management and quality assurance is more than just maintenance. Your employees are integral to operational excellence, so improving accountability across your portfolio with visibility into workforce performance is also vital for property owners and managers trying to keep turn low and NOI high.

Similar to property issues with fire hazards, bedbug infestations, unsafe pools, and other negligence pitfalls, if your building isn’t up to code or your inspection system fails to inform you of critical vulnerabilities on your properties, you can be held responsible in court. So you absolutely must ensure active monitoring of your assets to avert both unsafe units and liability.

Of course, compliance means more than just brand management and quality assurance is more than just maintenance. Your employees are integral to operational excellence, so improving accountability across your portfolio with visibility into workforce performance is also vital for property owners and managers trying to keep turn low and NOI high.

Management and quality illustration

In the LA case, the property management staff harassed tenants, “pounding on doors late at night, screaming at them and stealing their rent money.” You don’t want to be oblivious to the performance of your staff. Rather, inform both staff and residents regarding how to keep a lookout for problems and prevent them. Be attentive to resident maintenance requests and complaints and encourage residents to report unsafe conditions to management.

There’s a long list of violations that can be classified as premises liability issues and result in negligence claims. Multifamily apartment units and community areas can harbor mold and bacteria like Legionella, that have been linked to severe health problems. Carbon monoxide and other deadly gases can accumulate if chimneys or furnaces are leaking, or if unvented kerosene and gas space heaters are used in interiors. Lead paint and asbestos can also present grounds for a claim. Then there are common building issues like inadequate outdoor lighting that can contribute to injury in parking lots and on sidewalks; and plumbing leaks that can damage the structural integrity of flooring (creating a physical threat) or at the least produce a slippery surface that’s almost begging for an accident. Even dog bites can present serious liability concerns. A claims package will include a settlement demand for pain and suffering, medical bills, lost wages, lost vocational capacity and evidence of damage and liability.

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Most Common Types of Premises Liability (Negligence) Cases:

a. Dog Bites
b. Slip-and-Fall
c. Inadequate Security
d. Asbestos Exposure
e. Roadway and Sidewalk Defects
f. Poorly Lit Staircase
g. Iced Entranceway to Premises

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Most traditional inspections — paper-based forms or or Excel spreadsheets — don’t create the kind of rigorous documentation that owners need to stave off large settlements and judgments. And they rarely include relevant time-stamped photographs to prove that areas are kept safe, secure and aligned with health codes on a regular basis.

Conventional pen-and-paper and excel-based inspections don’t provide ownership or management with visibility into onsite operations, making it far more likely important inspections aren’t completed consistently by property staff; and paper inspections often return illegible handwriting and inconsistent information, making identifying health, safety and quality issues almost impossible. Before our customers like Equity Residential and Yellowstone Club began employing a mobile inspection system, they weren’t able to see which of their properties hadn’t completed mandatory inspections. Taking advantage of their new platform’s online management console offers them critical insights into their data — improving accountability organization-wide and identifying trends for corrective action.

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"This isn’t to say Multifamily Management companies are lax or not doing their jobs, they’re often just swimming along as they always have, in a sea of outmoded paper-and-pen inspection workflows that yield little visibility"

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Home inspection on Happy Inspector

Real-time, property-level monitoring means you no longer need to risk big operational missteps that negatively impact resident comfort, or worse, threaten life and limb. You can now anticipate needed changes based on mobile inspections to maintain safety and quality across every location, and head off issues before they result in legal claims; documenting each step with time-stamped inspection photos organized in reports.
Mobile platforms can help owners and managers standardize inspections across properties, reduce the cost of operations and increase resident damage recoveries. By performing regular inspections and maintenance, and logging everything for easy reference on a mobile inspection platform, property owners can drastically reduce the risk of a massive settlement.

Home inspection on Happy Inspector



Real-time, property-level monitoring means you no longer need to risk big operational missteps that negatively impact resident comfort, or worse, threaten life and limb. You can now anticipate needed changes based on mobile inspections to maintain safety and quality across every location, and head off issues before they result in legal claims; documenting each step with time-stamped inspection photos organized in reports.

Mobile platforms can help owners and managers standardize inspections across properties, reduce the cost of operations and increase resident damage recoveries. By performing regular inspections and maintenance, and logging everything for easy reference on a mobile inspection platform, property owners can drastically reduce the risk of a massive settlement.

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Keep your residents and your assets safe.

To learn more about how mobile inspections and data insights with HappyCo help you inspect and monitor quality and safety across your portfolio, request a demo

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About the author

Avatar

Ben Chadwell
Marketing Manager

Ben hails from the gentle, rolling hills of Pennsylvania, where he achieved a BA in a degree program of his own design - a combo of Conservation Biology, Spanish and International Business - at West Chester University. He brings his background in nonprofit development and writing to the transformative work of HappyCo and especially enjoys crafting thought leadership pieces. When he isn’t creating content and collateral, Ben delights in reading, doing improv theatre and blues dancing.

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