3 Hidden Costs of Property Management

[Nick Mertens]

Hi - I've been in property management for many years--initially outsourcing to other property managers to manage my portfolio and now running a property management firm. I've compiled a list of what I've experienced as the 3 biggest costs of PM, which if done right, can actually be the 3 biggest value adds of PM. More details are below. Let me know if you agree or think there are others. 

1. Vacancy

2. Liability

3. Asset Preservation & Maintenance

1. Vacancy

• Potential Cost - $100-$9999
• Time Factor - How long does it take to have a new tenant in the unit?
• Marketing - Is your property manager pre-marketing the unit so there is minimal downtime between tenants?
• Vendor Costs - Is your property manager using someone that is quality, affordable, and efficient?
• Rent Rates - Are the rents they are charging in line with current market rates? If they aren't, are they adjusting prices to meet market demand quickly rather than waiting weeks or months at a time?

2. Liability

• Potential Cost - $1000-infinity
• Preventative Actions - Is your property manager building strong customer relationships? Having strong relationships means you're less likely to be sued. Also, is your pm regularly checking the property to make sure it is safe and in good shape?
• Litigation - Did your pm put a strong lease in place? Are they current with legal issues and fair housing laws?
• Background Checks - Do you know who you're putting in your building? Has your pm appropriately vetted each tenant?

3. Asset Preservation & Maintenance

• Potential Cost - $10,000-Infinity
• Consistent Inspections & Evaluations - Is your pm properly evaluating the property to maintain and/or improve its value (not just checking but documenting areas for improvement)?
• Budgeting for Larger Repairs - Is your property manager budgeting for larger repairs and anticipating the timing of expenses accurately?

BIGGEST VALUE = Goal Alignment through Good Stewardship

• Are you property managers' goals aligned with your own? Is your pm consistently giving attention to the three items listed above? Do they own their own rental income-producing properties and understand your perspective firsthand? Experience is one of the most valuable traits an effective property manager will have.