10 Ways a Property Manager Saves Money

Landlording — if you choose to do it yourself — is a lot like Donald Rumsfeld’s definition of war: What you do not know can hurt, or even kill your investment plans.

New landlords often try to maximize their profits by managing their own properties, but the do-it-yourself approach can actually cost you money. That’s because you do not have the experience, expertise or resources that a professional property management company does. Here are 10 ways hiring a property management company can actually save you money:

No.  1 — Reduced vacancy lengths

Every day a property sits vacant, it costs you money, so the less time your property remains vacant, the better for your wallet.

In fact, Brenton Hayden, founder and chairman of the board of Renters Warehouse, lists vacancies as the No. 1 reason owners hire the company to manage their properties. Using a property management service that has a marketing budget and the engines in place to get maximum exposure for your property can mean the difference between months on the market or just a few days, Hayden says.

Broker Brian Horan, owner of Top Dog Property Management in Southern California, points out that property managers actually have a pool of prospective renters from which to draw. With a property management company, renters are actually trying to find you; you don’t have to go looking for them.

Plus, well-managed properties tend to retain tenants, so you have fewer vacancies in the first place. The typical vacancy costs at least one month’s rent, plus the additional expenses of cleaning, changing the locks, painting damaged walls, possibly installing new flooring, making repairs and other improvements, marketing and more. If you can reduce the number of vacancies you have, you save money.

No. 2–  Higher quality tenants

What can make a vacancy even more expensive? A bad tenant. Unpaid rent, eviction costs and extensive damages can add thousands of dollars to what you would pay for the average, no-drama vacancy. (Legal fees alone for an eviction run from $300 to $1,000, according to Real Property Management.) String three or four bad tenants in a row, and no matter how well you initially invested, your property could suddenly be a money loser.

“You make no money when the property is vacant, but you can actually lose money if you lease to the wrong tenant,” says Mike Petty with JMZ Property Management in Detroit. “Getting the wrong tenant in the property is the biggest money loser that there is.”

A good property management company will conduct a thorough tenant screening, including a criminal background check, verification of employment and review of his or her rental history. Petty says the manager will actually call the employer and previous landlord and ask the right questions, and because he has experience with countless applications, he will see the warning signs often are overlooked by a landlord who just wants to stick a warm body in the property.

In addition, hiring a property management company to screen your tenants helps protect you against rental scams from “professional tenants” who don’t pay but are hard to evict and from discrimination lawsuits resulting from inconsistent screening processes.

The legal costs of defending and even proving you are right, based on an alleged Fair Housing violation, can exceed the value of the property. A professional property manager is cheap insurance against such a possibility.

No. 3 – Reduced maintenance costs

When your property has a maintenance issue or needs a repair, you can benefit several ways by working with a property management company.

First, assuming the company has one, you get access to its in-house maintenance staff. Often, their services are included in your monthly fees, saving you this expense altogether. You pay nothing extra.

If it doesn’t have a maintenance crew or if the crew doesn’t provide the services you need, the management company will turn to its network of licensed, bonded and insured contractors. These will be contractors with whom the property management company has a good relationship, so you know they do quality work, something you can’t be sure of if you try to find a handyman on your own. Shoddy work eventually will cost you when the repair needs to be made or the work redone entirely.

Also, since the property management company deals in volume, it can usually secure reduced rates for the contractor’s services. You end up paying less for the work, and depending on the repair, that discount could save you several hundreds of dollars, Petty says. You don’t have to save much on the repairs to recoup the money you pay the property management company for its services.

No. 4 – Increased buying power

Volume discounts aren’t limited to contractors’ fees. Name a service, and your property management team will probably be able to offer it for less than the market rate either because it has someone on staff, like an in-house attorney, or because the company gets a volume discount. Obvious examples include cleaning services, carpet cleaners, pool maintenance, lawn care, attorneys, accountants and insurance representatives.

Other discounts and savings might surprise you. For example, property management companies should be able to secure reduced banking rates if a lot of their clients open accounts with a particular bank. The do-it-yourself landlord probably won’t get a discount at all.

You also don’t have to spend money on office equipment, office supplies or specialized software for accounting or property management. The property management company buys these items, and you only pay for a small portion of it.

No. 5 – Tighter rent collection process

If you let them, some tenants will walk all over you, especially when it comes to paying the rent. Since consistent cash flow depends on collecting the rent on time every month, you need to be firm — late is late, regardless of whether the tenant has broken up with her boyfriend or lost her job.

When you hire a property manager, you put a buffer between yourself and the tenant. You don’t have to listen to the excuses, chase down the rent or, if it becomes necessary, evict the tenant — the property manager takes care of all that.  And, because he has been trained to handle difficult tenants, a property manager isn’t going to be susceptible to a hard-luck story. He is simply going to enforce the lease.

The do-it-yourself landlord, on the other hand, usually has a more difficult time sticking to the terms of the lease and tends to be more susceptible to excuses, which could lead to skipped rent payments and a delay in the eviction process. Using a property management company mitigates this potentially disastrous situation.

Property management companies also renew leases in a timely manner, something individual landlords are not as diligent about. Renewing the lease — instead of allowing it to go month-to-month — allows for an adjustment of the rent rate. If you charge less than market value for the property, you aren’t collecting what you should be for rent, and you are losing money.

No. 6 – Fewer legal problems

National, state and local laws govern the rental market. Failure to adhere to these laws, especially the Fair Housing Act, can result in significant monetary penalties —we’re talking hundreds of thousands of dollars. Unless you’re a real estate attorney, you’ll have a difficult time as a do-it-yourself landlord knowing what laws apply and keeping up with changes in the law.

A good property management company knows all applicable laws and may even have an attorney on staff. Policies will be in place — and strictly enforced — so that laws are not violated. For example, the property management company will have set guidelines for qualifying tenants to avoid a perceived violation of the Fair Housing Act.

Sometimes, though, a lawsuit is unavoidable. When you do have to go to court, a property management company can refer you to its in-house counsel or to another experienced real estate attorney. Their expert legal guidance can save you from a negative outcome or, at least, minimize your exposure.

“In this litigious society, a good property manager can really save you a lot of time and money in the courtroom,” says Oliver Overton-Morgan, president of Absolut Realty in central Florida.

No. 7 – More time for you

Time is money, and your time can be more profitably spent at your day job or finding other investment properties. (And, although the profits aren’t as tangible, your time can be better spent with your family on the weekend or sleeping instead of taking a midnight phone call for an emergency repair.)

A property management company can lease your property, qualify tenants, collect rent, field phone calls, handle repairs, renew leases, enforce the lease, evict tenants and so much more for a comparatively low fee. One lawsuit avoided, one eviction averted, even one less month with a vacant property can cover the cost of hiring a property management company.

“Most of our clients come to us because of our leasing and management knowledge but also because they don’t have the time to deal with the day-to-day management of their portfolios,” says Overton-Morgan.

Property management companies offer peace of mind, the assurance that you can go on with your life without having to worry about your property. That is priceless.

No. 8 – An ironclad lease

A management company’s lease will be pro-property owner, potentially saving you hundreds of dollars. For example, if the lease doesn’t specify that the tenant is responsible for certain repairs or require them to pay a service fee, they may call you out every time a light bulb needs to be changed. Those little calls can add up.

No. 9 – Competitive rent rates

 Overprice your property, and it could stay on the market longer than necessary. Under price your property, and you leave money on the table. A property management company will study local market data to determine a competitive rate.

Read more at real estate investing

You must be logged in to post a comment Login