The Trainer
GETTING SITE FINANCIAL SNAPSHOT; MAINTAINING A/C SYSTEM
In this month's feature, we discussed how to get a good understanding of a site's financial condition before taking over the management of the site. We listed the types of financial statements to ask for and explained what to look for in them to spot possible challenges ahead. Knowing what problems may lie ahead can help you plan how you'll manage the site and prevent small problems from turning into big ones.
In our article on maintaining your site's air-conditioning system, we gave you inspection checklists that you can use whether your site uses individual A/C units or a central cooling system. Keeping cooling systems working well throughout the summer is important not only to ward off resident complaints, but also to avoid HUD inspection violations.
TRAINER'S QUIZ
INSTRUCTIONS: Each of the questions below has only one correct answer. On a separate sheet of paper, write down the number of each question, followed by the answer you have chosen—for example, (1) b, (2) a, and so on. The correct answers (with explanations) follow the quiz. Good luck!
QUESTION #1
To make sure a site's replacement reserve accounts are adequately funded, you should look at the:
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Statement of cash flow from operations.
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Income statement.
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Balance sheet.
QUESTION #2
When making sure that the security deposit accounts are fully funded, check that the balance in each account is equal to the amount of the security deposit payable in the liability section of the:
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Statement of cash flow from operations.
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Income statement.
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Balance sheet.
QUESTION #3
Some unethical owners take improper advances and misclassify them as prepaid expenses. To look for excessive or improper payments to the owner, look at the:
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Statement of cash flow from operations.
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Income statement.
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Balance sheet.
QUESTION #4
Excessively high rent receivables usually means:
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Management hasn't tried hard enough to collect back rent.
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Management hasn't taken necessary steps to evict residents for nonpayment.
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Management hasn't properly written off the bad debts of former residents who've moved or skipped out.
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Any or all of the above.
QUESTION #5
It can be harder evicting households for nonpayment of rent if the reason they're withholding rent is a broken air conditioner. True or falses?
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True.
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False.
QUESTION #6
You don't have to give advance notice to residents when seeking access to inspect air-conditioning systems.
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True.
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False.
QUESTION #7
Special training is required to service central air-conditioning systems. True or false?
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True.
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False.
ANSWERS & EXPLANATIONS
QUESTION #1
Correct answer: c
Make sure the replacement reserve accounts are adequately funded, as HUD rules and the site's regulatory agreement require. You'll need the site's reserves to fund any significant upcoming repairs and replacements. If there's not enough cash in the reserves to fund these repairs and replacements, the site is at risk of physical condition problems and poor REAC inspection results. Plus, low replacement reserves are a sign that the site may be having cash flow problems and using reserves to fund operations. Also, if the site has made withdrawals from the replacement reserves, find out whether it got HUD's permission to do so and what arrangements were made to repay the reserves.
QUESTION #2
Correct answer: c
If security deposit accounts aren't fully funded, the site could be improperly spending security deposits that it will have to repay—and could end up in big legal trouble for violating HUD, state, and local security deposit rules.
QUESTION #3
Correct answer: c
If you find questionable prepaid expenses, you'll need to make sure that those amounts are repaid to the site before you take over and, depending on the nature of the payment, reevaluate whether you want to do business with the site's owner.
QUESTION #4
Correct answer: d
Receivables with too many accounts that should be written off as bad debts could be a sign that the site is overstating its rent revenue. And that means you may end up getting less in management fees than you anticipated when you agreed to manage the site.
QUESTION #5
Correct answer: a
True. A household may successfully argue that you aren't entitled to rent because the broken air-conditioning system makes the unit uninhabitable and violates the lease.
QUESTION #6
Correct answer: b
False. HUD's model lease requires you to give “reasonable advance notice.” But it also requires households to give you their consent to enter to make reasonable repairs. If a household refuses to let you in, you have grounds to evict.
QUESTION #7
Correct answer: a
True. When inspecting and maintaining central air-conditioning systems, use only trained staff who follow safe work procedures, such as wearing protective clothing, installing protective guards around rotating pieces of equipment, and locking electrical disconnects in the off position.