Property Management & Business Management: Equal, Similar, Different?

If you were type the word management into a Google search, one of the first results that would pop up would be a Wikipedia article on the meaning of the word management and the various textbook theories on management that are taught at the university level. Wikipedia defines management as, “the means to coordinate the efforts of people to accomplish goals and objectives using available resources efficiently. Managing comprises planning, organizing, staffing, leading or directing, and controlling an organization or initiative to accomplish a goal.” This definition sounds technical and meant for the classroom of a business school, but regardless if a person is managing a Fortune 500 company, a small business, or investment properties, the basic definition of management describes it all. If this is the case, then why do most real estate investors overlook the importance of their property manager?

Whether it be a dry cleaning service, a restaurant, or a convenience store, some business owners decide to run things themselves. Others find value in having more free time by turning over the operation to someone who is experienced, educated, and qualified to run their business for them. That business owner usually checks in regularly with the manager they hired and holds that manager accountable for certain results. Often times, the actions of the manager directly effect the performance of the business. For example, a store manager may hold a sale on a particular product in order to drive traffic and a restaurant manager may tell the wait staff to push sales of a certain dish that is most profitable.

The role of a property manager is no different. Regardless if the property is a one bedroom condo that is being rented for $850 a month or a 50 unit 5 story building that is bringing in $60,000 a month, the owners of both have to look at each property as a business. Therefore, the manager of those properties plays a vital role in the performance and should be chosen wisely, held accountable, and checked in on. One of the best advantages of investing in real estate is the ability to control property. Unlike investing in the stock market, an owner can virtually control the performance of his or her real estate investment just like any business. For example, a property can be improved in order to demand a higher rent. Or rent can be reduced to fill a unit that has been vacant for too long. On a larger scale, a modest rent increase of $20 a month on each unit in a 50 unit building can change the valuation of that property tremendously, but that in itself is a topic for a whole other article.

The bottom line is this, many time I see investors (especially newer investors) overlook the importance of good management. They may overlook the cost on their financial analysis, or they may budget it out correctly and hire the manager only to talk to them once a year and wonder why their property isn't meeting their expectations. This goes back to the definition of management I mentioned at the beginning, “...planning, organizing, staffing, leading or directing, and controlling an organization or initiative to accomplish a goal.” The property owner's goals and the property manager's goals must align and communication is the key to getting there.