The True Costs of Poor Property Management
Specialization
Successfully managing investment properties requires a specialized set of skills and expertise. Many licensed agents and investors don’t have specific knowledge of landlord-tenant laws or other important issues regarding property management. Most people are not capable of managing their own properties well and often create unanticipated problems. This may lead to longer vacancies, less tenant retention, legal problems, expensive maintenance issues, or other problems. These things greatly affect the Return On Investment. Various groups of people offer property management services, but not all services are alike.
DIY Landlords
Real Estate Brokers/Agents
Several years ago, the real estate market changed. During this time Real Estate Agents and Brokerages found themselves in a difficult position. Homes were not being sold and purchased on the retail marketplace. The Realtors were unable to make a living through their commissions. They decided to supplement their business by managing rental properties for people who were unable to sell their homes. Unfortunately, property management is not nearly as profitable as a single commission. Most properties in Indianapolis will only pay about $1000/year for property management but a realtor is likely to get $3000-4000 in immediate commission for brokering the sale or purchase of the same property. As the housing market continues to stabilize the Brokerages who once offered property management services are moving back to the more profitable business of brokering real estate transactions. This means that most Realtors are putting more effort in their brokering services than property management services. Likewise, they are not typically equipped with the proper staffing, experience, and technology like a specialized property management service should be.
Real Estate Investors/Rehabbers
True Property Management Companies
A true property management company specializes in working with rental properties. Their number one income source is in management fees and their incentive is to create long term relationships with homes owners and investors that are productive and protected. They should create a business model that creates synergistic success and performance for the Home Owner, the Property Manager, and the Tenants. While there is a cost to using a property management service, these costs are tax deductible and frequently a higher quality and lower costs than a home owner or investor can obtain themselves. A sophisticated property management company will have:
- Access to technology that will streamline many services like marketing and showing vacant properties, screening tenants, rental collections, accounting, and maintenance calls.
- Documentation processes to secure your position regarding any legal issues
- Email documentation
- Phone records
- Photos
- Work orders/invoices
- Policies and procedures in place to take care of maintenance and rental issues even on nights and weekends.
- In-house maintenance team to stabilize maintenance costs.
- Negotiated rates in place from licensed contractors for larger repairs
- HVAC
- Excavation
- Roofing
- Mold remediation
- Structural/engineering issues
- Licensed Plumbing/Electrical
- Periodic inspections to properly protect your home and ensure lease compliance from the tenants.
- Familiarity with State and Local tenant-landlord laws and safety codes.
- Legally enforceable leases and other documents.
Working with a true property management company helps ensure that your investment property is priced properly, marketed effectively, prospective tenants are screened well, and the home is protected at peak level for optimal performance. They have all the pieces in place for your tenant to have a great experience so they will stay year after year keeping your vacancy rate low and your costs down.
Costs of Poor Property Management – Profits and Cash Flow
If you have read my article on Rental Property Nightmares then you will understand that there are a variety of things that can go wrong at a rental home. Each of these can create new expenses for your investment properties and affect your overall performance and return on investment. People have lost thousands of dollars trying to do things themselves or save money with a “value-brand” property manager.
Vacancy and Rehab Costs
Personal Time
Showing your Vacant Home
When managing a home yourself, how much is your time worth. Time lost by marketing and showing your vacant home. Often times, only 40-50% of scheduled showings and open houses actually make the appointments wasting time that you could be spending with your family or other activities.
Maintenance Availability
There is also time invested in making yourself available when problems arise at your rental property. Time spent to take care of those problems. Maintenance calls will never come at a convenient time… because you are never just waiting for the calls. You are living your life and those calls just interrupt those activities. A professional property manager will have employees available during office hours and an emergency maintenance line available after hours. Their time is designated to being available for these kinds of issues so your is not. They will also have trained maintenance staff who will take care of issues quickly and communicate any potential concern back to the property management team.
Inspecting properties
Do you or your property manager know what is going on at your home? Are there unauthorized pets or occupants? Are there any preventative maintenance issues that need addressed at the home? Inspections help protect your home. By ensuring that small problems are addressed in a timely manner, they are much less likely to turn in to major problems later. Many “value brand” property managers do not do inspections or have in-house maintenance staff to communicate these things back to the property managers. Unfortunately, the owners are left paying for the problems that could have been easily mitigated by a little diligence.
Late Rents
Saving personal time and providing convenience and peace of mind has a different value to different people, but it is always valuable. How much does losing tenants costs? Maintenance and communication is one of the biggest contributors to tenant retention. Is their property manger available to take care of their needs? Are any issues handled in a timely manner? Losing tenants at a higher frequency means more vacancies and more costs. Saving $10 or $20 a month for a “value-brand” property manager will often cost you thousands. I have seen all the profit from a portfolio get wiped out by high tenant loss, improper maintenance and inspections, and evictions. We specialize in helping to make rental properties profitable.
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