You get what you pay for. That’s true whether you’re shopping for a new pair of shoes, a new car, or a new property manager. Many low-cost items or services actually end up costing you more over time, and the same can happen with property management.
The difference between a high value property manager and a low-cost property manager can be significant. Adding value through the property management function requires active and full-time participation in the rental process.
Here are some highlights on what makes a property manager “high-value”:
The first way a proactive property manager can add value is by reviewing the property to assess its rent readiness. A proactive, high-value property manager will take the time to tour the property upfront and identify any issues that could prevent you from getting top dollar in the shortest amount of time. (Tip: one simple, common example owners miss is functioning lightbulbs in every socket – including fixtures with multiple sockets where one bulb is out.) The next step in the property assessment is reviewing the rent in detail with the owner to help them understand the rental trends in the area. This is not just a discussion of price but days on market as well. A high-value property manager will help the owner understand the impact pricing will have on days on market.
It seems obvious that effectively marketing a property can help it rent faster, but not all marketing of rental properties is the same. Many property managers take for granted that since they are in a low margin business, they are going to market the home in a low margin way. Poorly lit, poorly shot photography with limited words to attract tenants can limit your interest. Only marketing on one or two websites further reduces your exposure.
High-value property managers recognize that today’s tenant has a different mentality and set of expectations: Today’s tenant wants high-quality photography, a thorough description, a virtual tour and a floor plan of the property. And today’s tenant will find the property online, but it has to be everywhere to be seen. A high-value property manager understands this and spends the time and money designing and executing a marketing program to attract high-quality tenants quickly. When tenants see you care about the presentation of the home before it’s even rented, the onus naturally shifts to them to treat the home with care after they have moved in.
What’s even more expensive than a vacancy? A bad tenant. Unpaid rent, repairs to damaged property, and eviction costs can add up quickly. After two or three bad tenants in a row, you could be in the red. A high-value property manager makes sure you don’t end up in that boat by conducting a thorough screening on all prospective renters including a criminal background check, verification of employment and a review of his or her rental history. And, because we’ve been in the business so long, we often pick up on warning signs that new landlords may overlook or miss.
Wait, didn’t we just talk about Tenant Screening? Yes, we did, but tenant screening and tenant placement are two different activities. Once you have screened a tenant and accepted their application, it’s time to onboard them and orient them to the expectations of their tenancy. It is critically important to the success of any relationship that expectations be set up on the front end.
A high-value property manager will spend the necessary time reviewing the items that tend to be points of friction with the tenant, including the payment of rent and management of maintenance items. More tenants choose not to renew their leases due to their perception of mishandled maintenance requests than leaving over rent increases. A high-value property manager will explain the process upfront so that tenants know what to expect and will want to stay in the property and share in the maintenance and preservation of the home.
We touched on this above with tenant placement, but one of the most effective ways a property manager can add value to you as an investor is by encouraging the tenant to renew. The most expensive time in the property lifecycle is tenant turnover. This process almost always involves some level of repairs, a period of vacancy, and tenant placement costs. If a property manager is not working with your best interests in mind, they will seek turnover. Why? Simply put, the property manager makes more money through the tenant placement fee. A high-value property manager understands the importance of tenant renewal and has designed their process to encourage the tenant to stay in place.
If you hire the right property manager, not only will they relieve you of many of the headaches associated with self-management, they will also help you to protect you and your investment from liability. A high-value property manager should assist you in confirming you have appropriate insurance coverage. Additionally, the property management agreement should allow the property manager to “step into your shoes”, meaning the property manager signs the lease on your behalf. Finally, the high-value property manager will have designed their lease in a manner that offers the greatest level of protection for you, the property owner.
If you own a fairly new house with a new roof and new hot water heater, it’s fair to assume that you won’t have to make repairs on a regular basis. But if you own an older property with ancient plumbing, outdated wiring, or older cooling and heating systems, there will likely be maintenance requests from your tenants. A high value property manager is going to add value by managing your maintenance needs in a manner that reduces cost. This is accomplished by encouraging the tenants to appropriately troubleshoot and providing quick tips, and maintaining a network of local, reliable and quality driven contractors. Property managers are typically able to leverage their books of business to provide vendors with a volume of service that results in competitive costs for their investor clients.
Bottom line – there are many times within the lifecycle of real estate investment where additional costs and fees can come up. An initial low-cost property management company may ultimately result in higher fees over the lifecycle of the property if they are not working proactively in their client’s favor. Rental properties are a great investment, but managing them takes time, care, and experience. A savvy investor will choose a high value property manager, realizing they will see more of their investment money back in their pocket long-term.