How Important Is Property Management?
Yeah, it's kind of a big deal. Well, it's only important if you invest with success in mind. If you plan on having your investments fail, property management is not that important. Failure is virtually guaranteed without proper management, and here's the simple logic that explains why.
- A successful investment has to produce more than what it started out with. We can get into semantics about what your investment is intended to produce for you to consider it a successful investment, but for simplicity sake, let's assume for this case that success equals financial profit.
- Financial Profit(P) happens as a result of Revenue(R) minus Expenses(E). R - E = P.
- For P to be positive, R must exceed E. Simple, right?
- For P to continue to get larger, at least 1 of 2 things MUST happen. R increases and/or E decreases. Either way, P will increase.
This is where management comes in. It is our job, our mandate, to make either or both of those things to happen on your behalf. How do we do that?
The primary means of a property generating revenue is through rent. There are others, but this is the biggie. Rent is largely a function of supply and demand in the marketplace. Part of our job as your manager is to monitor the market rents for your property and increase revenue as appropriate. Sounds easy, but hold on a sec! Raising rents arbitrarily can cause quality tenants to look elsewhere. Vacancy is a huge expense. Trying to increase rents too much can actually increase expenses. That's bad. So managers must be in touch with the tenants and the marketplace to make sure good tenants are happy and paying equitable market rents, without overpricing a property and creating a costly vacancy situation.
Expenses are a reality of owning any property. Keeping those expenses reasonable is key to preserving substantial gains made on the revenue side as well as providing a lifeboat during lean revenue times. Having a manager that keeps a close eye on expenses is vital. Expenses range from mortgage debt, taxes, insurance, utilities, hoa/condo fees, and maintenance. Most expenses are fixed and can be very predictable. Maintenance is the wild card and is what managers must pay particular attention to. There are managers that just don't want to hear anything from a tenant. When a tenant calls with a maintenance request, money is thrown at the request just to keep them quiet. That's owners money, btw. A good manager will consider the cost of maintenance ahead of the silence of a tenant. At the same time, properties need to be kept safe and habitable for tenants and in the condition expected at time of rental. A managers best ally can be a vigilant and proactive tenant that keeps a manager informed about both current and upcoming maintenance requirements. When it comes to maintenance, there is a necessary balance between responsiveness to tenants and stewardship of the owners money.
Whether you have a single property or several dozen, using the services of a quality property management service can greatly increase your chance of success. TriStone Group was founded with property management in mind. We started as owners, just like you. If you are considering property management for your real estate investing we would love to talk to you.
How important is property management relative to investment real estate? We think it's pretty dang important. But don't just take our word for it. This guy thinks so too!