ARM (IREM) common mistakes
ARM · Understand the traps and how to avoid them.
Reports occupancy by dividing occupied units by total units and stops there, presenting a property as 94% occupied even though concessions, delinquency, and vacancy loss put economic occupancy near 86%.
Physical occupancy is the headline number that owners and managers see most often, so candidates reach for the simple unit count and never reconcile it to rent actually collected.
What to do instead
Calculate economic occupancy as rent collected divided by gross potential rent, then reconcile the gap to vacancy, concessions, bad debt, and model/employee units. Present both figures side by side in any property status report.
Approves a capital repair, waives a fee, or signs a multi-year landscaping contract without checking the management agreement's authority limits.
Day-to-day operational autonomy feels like full authority, and candidates assume 'I run the property' means 'I commit the owner's money.'
What to do instead
Know the management agreement's spending authority, competitive bid thresholds, and owner-approval requirements before acting. Route capital and multi-year commitments to the owner in writing and document the approval.
Writes ad copy such as 'perfect for young professionals,' 'quiet adult building,' or 'no children please,' and uses photos showing only one type of resident.
These phrases feel like ordinary descriptive marketing rather than statements about protected classes, and they are copied from other ads the candidate has seen.
What to do instead
Describe the unit and its amenities instead of the desired resident. Know that familial status is protected, keep a written record of all advertising, and review every ad for references to age, family status, or any other protected class before release.
Quotes a lower deposit, a waived application fee, or a relaxed screening standard to one prospect while strictly applying the written criteria to another.
Vacancy pressure and the instinct to 'close the deal' with a likeable prospect override the uniform procedure.
What to do instead
Apply a written rental criteria sheet identically to every applicant, quote the same rents and deposits from a published schedule, and document any legitimate exception with the business reason and approver.
Builds the annual operating budget with a roof replacement or paving project as a monthly line item, spreading the cost across the year and inflating operating expense.
Every dollar leaving the property feels like an expense, and candidates have no working definition of a capital item.
What to do instead
Apply the property's capitalization threshold consistently. Route nonrecurring capital items to the reserve or capital budget and fund them through reserves, keeping the operating budget to recurring expenses.
Calculates net operating income after subtracting mortgage interest and depreciation, or compares a cash-basis property statement to an accrual budget and then flags variances that are only timing differences.
Personal-finance intuition treats 'what is left after the loan payment' as profit, and candidates do not check which accounting basis each document uses.
What to do instead
Compute NOI as revenue minus operating expenses, before debt service, capital expenditures, and depreciation. Identify the basis of every statement and budget before comparing them, and convert or reclassify timing items first.
Schedules a January no-heat call or a sewage backup into the next business day queue alongside a dripping faucet because it arrived first in the ticket system.
First-in, first-out ticketing is easy to operate, and candidates do not have a written definition of what makes a work order an emergency.
What to do instead
Classify work orders by urgency: emergency items are those threatening health, safety, habitability, or property damage, with defined response times. Triage every incoming request against that list and escalate to on-call staff immediately.
Advises the owner to 'just buy more insurance' for every identified risk instead of distinguishing avoidance, reduction, transfer, and retention.
Insurance is the familiar tool, and the four risk management techniques sound academic until a real exposure appears.
What to do instead
Know the four techniques and match them to the exposure: avoid the activity, reduce frequency or severity through maintenance and policy, transfer through insurance or contract, or retain with a funded reserve. Recommend the mix in writing.
Deposits resident security deposits and owner rent collections into the management company's operating account and pays company payroll and supplies from that same account.
It is administratively convenient and solves short-term cash flow, and candidates do not connect account structure to fiduciary duty.
What to do instead
Hold owner and tenant funds in a separate trust or escrow account as required by state law, keep distinct owner and tenant ledgers, and never use those funds for company obligations. Treat commingling as a fiduciary breach, not a bookkeeping shortcut.