Posted over 1 year ago

Property Management Costs and Opportunity

Property Management Costs and Opportunity

Most landlords view Property Management costs as just another expense eating away at their bottom line.

Most investors view Property Management costs as an investment which increases their available time and their bottom line through time leverage and playing to their strengths.

In real estate there is often much talk about leverage when speaking about money but there is not as much talk about leverage when speaking about time. Time and Money are the two things we all need more of in order to grow as investors and maintain quality of life. Time is traded for Money and vice-versa.

All of the real estate gurus and veterans will stress the importance of your “team” - your attorney, accountant, contractor, real estate agent, underwriter and property manager. These are the core competencies required to run a successful real estate investment business. You may start off with only yourself or one other person covering all the bases. You will soon outgrow this model as you add units and the risk of burnout magnifies.

Burnout will typically occur when you no longer feel like you are being successful or when all of your time is spent putting out fires instead of moving your business forward. Once burnout sets in it can be very hard to overcome. On the flip-side, delegating the responsibility of those stressors which cause burnout feels amazing. I speak from experience on this.

I love being able to delegate responsibility for those “burnout” tasks. The best part is that once you experience this feeling, delegation evolves into a larger task all its own - it becomes your focus. You begin to see your true potential as an investor once the menial, day-to-day distractions are no longer your responsibility. You will begin to remember why you started investing and you will return to doing what you love to do - both in the business and personally. You get to have your cake and eat it, too.

Property Managers are often subject to a number of stereotypes and often viewed negatively instead of as a valued team member. The truth is that a greatproperty manager can often pay for themselves while covering many significant bases in your business and here are 5 strong reasons why this is the case:

1.RENTS: A Property Manager will know the rent market and sub-markets. This has obvious benefits in the form of always knowing the best case rents for your home. It is their job to know the market. As a manager, I am constantly checking rental rates in the direct vicinity of any vacant property to ensure the best return at that time. Increasing rents is in the best interest of you and your Property Manager because it can result in pay raises for both parties.

2.AGENCY: Property Managers create a “buffer” between you and your tenant. In many cases, relationships between owner and tenant result in lower-than-market rent leases that go on for many years. The lost revenue on these leases far exceeds any management fee that would have been paid to a Property Manager commanding market rents. I frequently have properties come online that are $100 or more under market. Even after just one year, the rent lost on such a lease could pay for Property Manager and eliminate the possibility of a “friendship” impacting your business.

3.SCREENING: Another benefit of a Property Manager, which adds tremendous value, is their attention to detail when screening tenants. We all know that a well screened tenant presents the least amount of risk in terms of unpaid rent, damages and liability. If you are not currently screening your tenants you have a lot to gain from hiring a great Property Manager. Turnovers will decrease in cost-per-occurrence and time between turnovers will increase. This fact alone will simultaneously add to your revenue and decrease your expenses - resulting in significant increases in your annual net income.

4.TIME LEVERAGE: Aside from the cash-flow effect of hiring a Property Manager, your time is increased as well because you have leveraged the time of your Property Manager, their software, systems and their entire team. Placing a cost on your time can be difficult but you probably know what your time is worth to you - if not in dollars then definitely in lost opportunities. More travel, more time spent with your kids, more time focused on driving your business forward and more time fishing, golfing, sleeping - you name it.

You should be able to feel successful and be successful in the time that you spend doing any given thing. If you are spinning your wheels just staying on top of the “little fires” you are not going to be happy for long and you definitely will not be successful.

5.TECHNOLOGY LEVERAGE: Let’s face it - if you or your manager is/are not leveraging technology, you AND your manager are losing money. When you hire a great Property Manager you benefit from all the latest technology being used in today’s market. This has a tremendous impact on your relationship with your manager, your tenant relationships and, ultimately, your bottom line. A Property Manager which is on top of the technology market is efficient and cost-effective which results in savings to you as their client.

When you consider the fact that a great Property Manager will increase your overall rental revenue, increase your available time and quite possibly not cost you a (net) dime it is easy to see the benefits a great Property Manager can offer to your real estate business.