As an investor, one of the first decisions you need to make is whether to manage everything yourself or hire an investment property management firm. Property management is a service with varied approaches reflecting the diversity in commercial real estate. While this typically includes leasing, maintaining, and operating the property, there are differences among property managers depending on the location and the specific market.
Each strategy presents a unique set of advantages and disadvantages. Managing a rental property on your own may be financially rewarding but requires significant time and effort. Property management services can relieve you from daily responsibilities, though they require a financial investment from the investor.
Whether you are considering investing in rental properties or have an established portfolio, managing those properties is an important part of a successful strategy. It can be financially rewarding, but it does require time and effort.
A property manager is a person or company that oversees the daily operations and maintenance of an investment property, generally on behalf of the owner, for a fee. Commercial and industrial properties are the most common types that utilize property managers. whereas, residential investors often choose to manage their properties themselves.
Notably, the cost of hiring a property manager may be tax deductible. Investors who manage their properties often track expenses incurred during maintenance and write them off at the end of the year. Similarly, when an investor hires a property manager, they can still take a deduction for those fees.
In some regards, property managers may act as advisors. Usually, managers are well-versed in local regulations and procedures and will have a list of contractors available on-demand in case of repairs. While investors can do everything listed here, the learning curve, time burden, and stress are often deterrents.
Unlike investing, property management requires scale and a preference for process and structure over the apparent spontaneity and freedom of investments. If you are fortunate in selecting a good individual or company to manage your property, you will likely hear little about the property management process. A good company ensures there is little to report to the investor regarding maintenance or sudden expenses.
Regardless of what company or manager you choose, communication is key. The burden of communicating thoroughly, regularly, and in an easy-to-understand way is on the property manager. Communication can take many forms, but a quality property manager will ensure investors know what is happening with their property.
When you first work with a property management company, the manager in charge ideally sets expectations for:
The cost of investment property management is a significant consideration, but your investment in this service can pay off in several ways. Excellent property management companies can quickly provide a greater return that more than justifies the cost.
Every manager or management company is unique, but most will work to keep your property rented and ensure that the property is well-maintained. They can also handle all the billing and communications on your behalf. Property managers will also:
Source and vet tenants. Property managers want to keep your site occupied, so they work diligently to ensure this happens. This means listing the property on relevant websites and sharing it across various media when it is vacant.
It may seem easy, but there is a lot of work that goes into sourcing and vetting tenants prior to leasing a property. Good management companies often cover the costs of marketing for tenants, showing units, and screening prospective renters. Once the manager has a pool of interested applicants, they will often vet them for you, likely by running a credit and background check. These methods will help find the best tenant for the property.
Collecting rent is one of the primary tasks of a property manager. If rent collection were the only duty of a property manager, then it might seem easy enough to handle on your own, especially with the rise of online payment portals. However, having a property manager becomes valuable when things go awry.
When rent is due, managers are there to ensure it gets paid. This can mean anything from processing the check to sending a notice of past-due payment. They may also deal with tenants who are defaulting on their rent and often have working knowledge of landlord-tenant laws when things get complicated, such as during eviction.
Handle regular property maintenance. Managing maintenance and repairs is the biggest reason investors hire a property manager. Maintaining routine maintenance is time-consuming, and tenant complaints can be an additional challenge.
Sometimes, their needs are urgent and come at inconvenient times. This can irritate a landlord and potentially lead to tension between tenants and landlords. Because rapid and responsive customer service contributes to a rental property’s desirability, it may be best to delegate these responsibilities to a neutral third party.
Property managers can handle these requests, freeing you from the burden of managing it all yourself. Smaller requests may be handled internally, while larger and more complex issues may be delegated to outside specialists. Some investors may authorize their property manager to handle repairs up to a certain dollar amount without needing express permission. This streamlines the process and ensures issues don’t get worse if you can’t be reached. Some property managers might even include a proactive maintenance plan that keeps the property well-maintained and reduces surprise costs.
During the lease term, managers will also routinely inspect the property to ensure it is in good standing and being used appropriately. This includes outsourcing regular tasks such as lawn care, pressure washing, or preventative maintenance. An investor is then free to focus on their tasks, such as ensuring the property is performing as it should be, without the hassle of handling tenant needs.
Negotiate leases, oversee move-ins and outs, and deal with defaulters. After finding a tenant, the manager will also ensure the unit or property is ready for the tenant to move in. This includes ensuring the property is empty, clean, and usable. Within this process is handling all the paperwork related to creating a lease agreement.
Managers will also coordinate with the tenant when they move in or out of the site. This includes inspecting the property for damage and ensuring it is treated carefully during the process, documenting existing damage so they have a record of any damage caused during the tenant’s stay.
Another benefit of hiring a property management company is that they can also handle problematic tenants. This includes dealing with slow payers or those who breach their leases. If a tenant is more than a month past due or jeopardizing the condition of your property the manager can intervene to resolve the situation. Sometimes, this may involve simply speaking directly with the tenant, but for more serious issues, legal action might be necessary. A property management firm can manage this process for you, saving you a significant amount of time and stress. They often have the resources and expertise to document notices, take preventive measures, and consult legal services to address the situation effectively.
Bookkeeping. Just as important as the other tasks is bookkeeping. For many investors, this is likely the least enjoyable aspect of the commercial real estate investment. However, accurate bookkeeping and invoice handling are crucial for minimizing taxes, maintaining good relationships with vendors, and ensuring steady cash flow. If your property manager offers to run the books at no or low cost to you, it may be advantageous to take advantage of this service. It also helps maintain the ‘passive’ nature of passive investments.
Managing a rental property can be rewarding, but as your investment portfolio grows, so does the amount of time spent juggling responsibilities. Many investors might choose a hands-on approach but find it increasingly difficult as they acquire more properties. This is where the benefits of rental property management companies become more apparent.
For investors with one or two properties, self-management might seem the path of least resistance. DIY property management allows for direct control over the daily operations and eliminates the cost of hiring a third-party manager. This approach is especially popular among investors in multi-family or residential real estate.
For those who invest in commercial or industrial properties, however, the DIY approach can lead to more problems. To manage a property effectively, the investor must familiarize themselves with federal, state, and local laws and regulations that might affect their investment. This is a time-consuming process and one much better spent managing a portfolio than a property. Property management companies have the expertise and ability to handle multiple properties simultaneously while ensuring each is maintained to the investor’s standard.
Adding assets to your portfolio can then become a highly streamlined process, with a property manager overseeing your properties. They handle tenant communication, property maintenance, and financial matters, allowing you to focus on strategic growth. As you acquire additional assets, the workload will not multiply at the same rate, creating a more efficient, sustainable, and profitable investment model.
Not every private equity firm offers property management services. Avistone is different. We are a commercial real estate investment firm specializing in acquisition and management in the multi-tenant industrial and warehouse industry. Since our founding, we have acquired and managed more than 4 million square feet of flex-industrial properties nationwide, including California, Georgia, Ohio, Texas, and Florida.
Our executive management team also has more than 160 years of combined experience in acquisitions, dispositions, operations, structured finance, appraisal, land use, and asset/portfolio management. We have the unique ability to integrate extensive capital market knowledge with boots-on-the-ground real estate expertise to acquire and operate properties successfully. These assets can potentially provide investors with a good yield and total return on their investment. Contact Avistone today to learn more about our current offerings.
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