As an inexperienced first time CRE owner, I feel like I really need an expert to look over the leases, expenses, and cash flow to see if recources are being properly utilized. How do I go about this?
Long story short, my mom died and she was my only parent. My sister and I were surprised to see that she left behind 10+ suite Commercial property that she was on the brink of losing. This was a pretty big shocker because she never really talked about it, and she was seemingly broke. We were both young when she died, currently we're both in our early 20's. Suddenly my sister and I got thrusted into this massive responsibility because we decided to keep it instead of sell it. It was in poor condition, needed a lot of work done, and was only 40% - 50% occupied. After 5 years, the property is finally 100% occupied, and for the first time there's no big immediate issues that need resolving. 

Being so young with such a massive responsibility, we quickly learned that a lot of people would try to take advantage of us when the oppertunity is presented. We've had people lie about their credentials, the previous owner of the note falsely claimed we owed an Immediate payment of $50,000+, (our first lawyer recommended we pay it to avoid a lawsuit, our third lawyer was able to prove we did not owe any such fee.) And we had someone we fully trusted, a mentor of sorts, try to manipulate us into selling him the property. I'm not trying to give you guys a sob story, I'm just trying to explain where I'm coming from in regards to my inexperience, and why I feel like I need an expert to verify whether funds are being properly allocated or not. 

For example, how do I know if my current management team is properly utilizing the cash flow, How do I know that no "funny business" Is going on? With my current experience and knowledge, it wouldn't be at all hard for the manager to fraudulently make up an expense. I can't track every single little thing, there's just so much. Is the right word for what I'm looking for an "Audit"?
[{"id": "hlfblft", "text": "Do you have an accountant that specializes or has experience in real estate create quarterly and annual financial reports? Does your property management group do this for you. Do you review their expenses and the invoices?", "replies": [{"id": "hlfep6p", "text": "Yeah, the accountant works for the CRE management team. Would you say this is standard, or do most people hire a CRE accountant separately? But I also use a tax CPA who works alone and is not affiliated with management. \n\nEvery month the CRE accountant sends me a financial report which contains that month's cash flow, expenses, checks, balances, etc. It looks pretty thorough, but what do I know? Out of curiosity I compared the financial statements to some old financial statements from my moms management team that she used before she died, and it looks like the current statements are just as thorough, if not more. Only difference is, the upkeep and maitnence is way more expensive. But in all fairness, when my mom was alive not much money was being generated and the management team had to cut a lot of corners, now the property has a much stronger cash flow so there's more to work with. \n\nOne thing I noticed is that every month, there seems to be money spent on things like  \"door locks, lock boxes, security locks, keys\". It's things like this that make me think \"damn, is that normal to constantly replace locks every month?\" \n\n\nexcept I don't recieve invoices on larger expenses beforehand, for example if a few HVAC units need to be replaced, I don't approve the expense, they just do it and then list the expense on the financial document at the end of the month. Is this something I should change? Like any expenses over $5000 need to be sent over and approved by me beforehand?", "replies": [{"id": "hlg1zk5", "text": "First red flag is that you really need to change that all major expenses other than emergencies need approval or consultation. Second lock and key are normal but not every month for a 10 unit property unless there is constant turnover of tenants. Also that expense line item for those should be minimal. You may want to hire an account that specializes in real estate investment properties you should at least minimally analyze these monthly statements and look for trends or variances in monthly and annual expense line items. If you see a huge variance ask why it occurred. You should also request invoices for larger repairs, 3rd parties and such. Hope this helps I own a bunch of units and do this for a living.", "replies": [{"id": "hlhgd2e", "text": "I agree with this. I work for one of the larger real estate firms and most of our clients/building owners have a set amount we can spend before needing approval. You can set this to whatever you want. Also, for something like an HVAC replacement, while it is important to quickly replace they should be getting 3 bids as that is best practice. \n\nDefinitely look into the locks situation further as stated above, it is odd.", "replies": [], "depth": 4}], "depth": 3}, {"id": "hlhhpdz", "text": "As others said, 100% set an expense threshold beyond which they need your approval.\n\nBeyond that, are you paying extra for the accountant at the management company or is included in the base fees you pay?\n\nYou should definitely have a third party accountant audit the statements once a year IMO if you\u2019re using a third party manager. Doesn\u2019t need to be a formal audit, just review to get assurance everything is kosher.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hlfdz2a", "text": "Good on you for sticking it out and turning things around. \n\nDo property management companies over charge and under deliver on services? Yeah usually. Do *all* of them act that way? No. \n\nDo you need to see every single receipt and memo to ensure they are doing their job? Probably not. \n\nBut any pm that isn\u2019t willing to share their books with you should be fired on the spot. That\u2019s my opinion. I don\u2019t care what excuse is given as to why they can\u2019t. \n\nI have done audits like this personally and for friends and family, but I don\u2019t know of any small companies that do this specifically who don\u2019t charge thousands of $$. You could also ask for the budgeting/reporting and redact it and send to other local pm companies to get their opinion.", "replies": [{"id": "hlfhyeg", "text": "Thanks I appreciate it! I had no idea it was going to take so long to get everything on track, but I'm glad all the hardest stuff is over with and a lot of the stress has subsided \n\n&gt;Do you need to see every single receipt and memo to ensure they are doing their job? Probably not. \n\nOkay thanks this is exactly what I was wondering, because of my peticular situation I don't know what is normal, and what is not.\n\n&gt;Do property management companies over charge and under deliver on services? Yeah usually. Do all of them act that way? No. \n\nYeah I almost switched to a new management company because I'd have to bend over backwards to get them to check on certain things, also their communication isn't very good. Sometimes the team manager wouldn't respond for a few days during crucial times. At the same time, they're a lot cheaper than some other managers I've looked at, so I guess I get what I pay for\n\n\n&gt;But any pm that isn\u2019t willing to share their books with you should be fired on the spot. That\u2019s my opinion. I don\u2019t care what excuse is given as to why they can\u2019t.\n\nGood to know, I'll keep this in mind for the future \n\nAppreciate you keeping it simple, I have a tendency to overthink and over complicate things to the point where I just stress myself the hell out.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hlgdut7", "text": "The easiest thing to do is shop a couple of property management groups. Bring your files and have them give their opinion of what could be done as well as ask for a price for management.", "replies": [{"id": "hykz3pf", "text": "Okay thank you.\n\nThats a good idea. My current property management team doesn't even follow a budget. I feel like I've been normalized to a bunch of bullshit that's probably not okay, is crazy not to follow any kind of a budget?\n\nMy current management team seems pretty hard to work with, I'm not sure if it's me or them that's the problem. I set up a meeting last year so we could come up with a budget, she didn't seem to know how to estimate a budget at all. And when I ask thing like \"how can we cut down on expenses?\" the answer is usually \"we're already at the minimum amount of expenses\" and I wonder, well how do we know? We don't have a budget to go off of. \n\nIt's strange because the property is pulling in the same amount of net income it did when we were struggling and only 60% occupied. For years, the plan has been \"in 6 months the property should be in a position where we can start putting a small amount of monthly income into our personal accounts\" to this day, I haven't actually seen any personal income from the property, I'm thinking of selling it.\n\nMay I ask, do you know any good recources for someone like me to get a better grasp of CRE?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hlglole", "text": "You say it is a 10 suite property: is that 10 apartments, office suites or something else?\n\nIf it is office, are the leases modified gross or triple net (or maybe something else)?\n\nI'd consider \"cash flow\" to be whatever is going into your pocket each year.", "replies": [], "depth": 1}, {"id": "hlhf4re", "text": "Surely you guys didn't think about step up basis?", "replies": [], "depth": 1}, {"id": "hlhw974", "text": "I had my lawyer look over my parents\u2019 lease for a $500k pa rental cre. Other stuff (sub $100k) I just take the agent\u2019s leases. Besides in most western countries, the leases are mostly preordained by the local regulators for smes", "replies": [], "depth": 1}, {"id": "hli4yig", "text": "How do your rental rates compare to what others are asking in the market?\nDo your leases have escalations that would be expected in the market? \nDo your leases have renewal options that might not be favorable? \nWho pays the taxes, insurance, common area maintenance and utilities? Do tenants reimburse or is it the owner\u2019s responsibility? Is that similar to other lease agreements? \nWhat kind of debt is on the property? Is the interest rate similar to what you would get now?", "replies": [], "depth": 1}, {"id": "hlrkgbj", "text": "Great job sticking with this and sorting through the hurdles presented. You might consider approaching this as an desire to learn how the property \"works\" from the current property manager (PM). Most firms should be more than willing to spend a few hours and supply you with the requested details. If you are interested, you might start with:\n\n\\-**Copies of the existing leases**: These can be used for you to come up with a rough approximation of the rents, and reimbursable property expenses (if any these are super important) that should be paid this year. Don't worry about getting this to the penny or for all leases - but compare this to what is actually getting invoiced by the PM, the corresponding amount that is entered as received in the accounting system (**usually general ledger report**), and the amount received in the **actual bank statement**. Going through a few of these and asking the PM to explain where these amounts hopefully tie out will be a great start of money coming in. \n\n\\-Read the **property management agreement.** Depending on the property type and location most that I've seen are for a duration of a year and can be cancelled with notice. This should outline responsibilities and what you should be getting, authorizations to spend money and enter into contracts, and how fees are calculated. It may be a percentage of gross rent plus a markup of costs for projects and improvements. \n\n\\-Ask for and read the **operating statement** \\- prior year (if they were managing), year-to-date, and budget for next year. Ask questions about anything you don't understand and don't hesitate to ask for invoices on amounts already spent or proposals for larger planned expenses. Start with the locks/key expense because its top-of-mind. Is it an ongoing (operating) cost or a capital expense? Can any part of it be charged back to tenants individually or as part of common area expense? This depends on property type and more importantly leases.  \n\nYou are asking to become a better owner, not because you are predisposed to think they are doing a bad job or wasting money. \\*\\* If you do suspect something is fishy than an outside accountant should take a full look \\*\\* The PM probably uses a bookkeeper and not a CPA, who is licensed and held to a higher standard. \n\nHave fun learning!", "replies": [], "depth": 1}]