The Price of Property Management

[Tyson Scheutze]

In this week’s post, I am turning it over to Brent Voepel.

I got into a conversation recently with people in the industry about the price of property management. In this discussion, we all agreed that for one property unit, the expected rate will be 10% and then it can decrease as the client adds more units or volume. As we were agreed to the normal rates in the business, I added a comment that made the group pause. What if management is horrible? Then what is the price?

Property Management is a tough business made up of various challenges that affect the managers and their ability to perform. In this ever changing world we live in, property management and business owners must adapt and change on a regular basis to keep up. Just look at the past 4-5 years. The industry has dealt with new technology geared at improving workflow and resident tours, a world-wide virus has come and gone, interest rates have drastically changed the environment and there have even been some major legislative changes that have impacted our industry. Property managers must take on these challenges if they want to realize the clients goals. These are some of the ways the clients could be affected by property managers who are not prepared:

Extended Vacancies

• Inadequate marketing strategies and tenant screening processes can result in prolonged vacancy periods, translating into substantial lost rental income.
• High tenant turnover due to poor resident relations further exacerbates vacancy losses.

Inadequate Maintenance and Repairs

• Neglecting preventive maintenance and delaying necessary repairs can lead to accelerated property deterioration and higher long-term repair costs.
• This can also negatively impact tenant satisfaction, contributing to higher turnover rates.

Legal and Compliance Issues

• Lack of knowledge or disregard for landlord-tenant laws and regulations can expose investors to costly legal disputes and penalties.
• Failure to properly handle security deposits, evictions, or fair housing practices can result in significant financial liabilities.

Ineffective Financial Management

• Inaccurate budgeting, expense tracking, and financial reporting can lead to uninformed decision-making and missed opportunities for cost savings.
• Failure to optimize tax strategies and leverage available deductions can further reduce net returns.

Diminished Property Value

• Inadequate maintenance, high vacancy rates, and poor tenant screening can negatively impact a property’s perceived value and appreciation potential.
• This can significantly affect the long-term return on investment when it comes time to sell the asset.

While a 10% management fee may seem reasonable for a well-performing property manager, the cumulative impact of mismanagement can quickly escalate the effective cost to investors, potentially outweighing any perceived savings on the management fee itself. Ultimately, selecting a competent and reputable property management company is crucial to safeguarding the profitability of real estate investments.