Self Manage or Hire a Property Manager?
Let’s face it, there are a lot of things to consider before deciding whether to manage your property yourself or hire a property manager to manage it for you. While many owners have found success in self-managing to cut down on the cost to hire a manager, they are also surprised at the time and investment in takes to manage the properties themselves. Here are a few things that should be considered when weighing the benefits of hiring a property manager or self-managing:
One of the most basic, and time-consuming, functions of property management is handling building maintenance, including routine and emergency repairs, as well as preventative maintenance. It is important to take the time to create a detailed scope of work for your maintenance contracts to ensure that you are receiving and paying for only the services you need or desire. Determining the right size scope of work for each contract requires knowledge and experience – and vetting the marketplace through a competitive bid process for all contracted services can be a time-consuming process, but in the end, these steps will ensure that you are getting the best value for your money.
Establishing and implementing effective preventative maintenance programs can significantly increase the useful life of building components and reduce total life-cycle costs on your building equipment. Regular monitoring of the market for gas and utility rates will allow you to lock in the best per kWh for electricity and can significantly reduce the total electric expense for your property. These measures take time but are well worth the effort.
In any business, maintaining good relationships is extremely important. Establishing an ongoing rapport with tenants can often lead to better management of your property. Good communication can uncover issues before they escalate and help ensure things are working properly and the property is performing at its best.
Proactive management and setting reasonable service level expectations for response times go a long way toward keeping your tenants happy. But it takes more than a well-maintained building to create a positive tenant experience. Consider going the extra mile by investing in and hosting tenant appreciation events that will enhance the tenants overall experience.
Even properties with the best tenant retention program in place will experience vacancies. Because maintaining a high occupancy rate is critical to your investment, it is important to establish a solid leasing and marketing plan to attract and maintain a list of prospective new tenants. Today, a social media presence is expected, and while it requires a strategy and a little bit of effort to keep your posts fresh and interesting, you won’t regret it.
Of course, there are also the basic administrative tasks involved with filling a vacancy beyond just advertising the space and putting a sign up – be prepared to manage a high volume of phone calls, showings, screening of new tenants, and the associated administrative tasks including drafting leases and negotiating lease terms and rates.
Good tenant screening is paramount, and you may want an experienced leasing team that can assist with pulling credit reports, looking at a potential tenant’s history, and verifying income. Qualifying good tenants offers the best chance of having a long-term tenant that pays rent in a timely manner.
You’ll want to ensure that you have a good financial reporting system in place to stay on top of rent collections, timely payment of real estate taxes and mortgage payment, insurance, and payment of all other operating expenses such as water, electricity, etc. Factor in the time spent reconciling your bank statements, preparation of income statements and balance ledgers, and at the end of the year, tax return preparation. Other time-consuming financial tasks include rent collections and preparing accurate common area maintenance billings in accordance with lease terms to ensure that you are collecting all funds to which you are entitled.
Beyond the day to day accounting functions, you may want to take the time to benchmark how your property is performing against other commercial properties in your region on a price per square foot basis. Keep an eye on your real estate tax valuation and be sure to file for an abatement if you find it is out of line. Thousands of dollars can be spent unnecessarily if you are not paying attention.
Consider the volume of business you’ll be giving to your vendors and suppliers, and whether you have the purchasing power to leverage better pricing on goods and services vs. a property management companies with a large portfolio of properties under their management.
Self-Manage or hire a Property Manager?
So, what does it cost to hire a property manager? Typically, a management company would charge 5% of Gross Operating Income. When compared to the time investment of self-managing, it can be money well spent. In fact, you may find that the value proposition of outsourcing goes far beyond the direct expenses that can be eliminated such as salaries, benefits, payroll taxes, worker’s compensation premiums, tools, equipment, etc. Often times, the amount saved by a professional management company far exceeds the management contract amount.