Post by Rob Minton
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In the previous blog post, I shared 10 lessons learned from an experienced property manager. In this blog post, I'll continue with 10 additional property management lessons. Understand that these lessons are geared towards a real estate agent who manages property for investors as a seperate income generation activity. You can read part one of this post here.
11. Consider paying bonuses to your property management staff for tenant retention.
Create a system to reward your property management team for keeping units rented. Things that are rewarded have a tendency to get repeated.
12. Charge higher property management fees for properties further away from your office.
This makes sense because you have to spend additional time managing these properties. This additional time investment should be recovered through a higher monthly management fee.
13. Have everyone in your property management company get licensed, including the maintenance person.
If everyone on your staff has a real estate license, they can help you fill vacancies. If for some reason, vacancies spike in a month, you can have your entire team showing units available for rent. This will help you expand the property management business because you'll have flexibility in your staff.
14.Know your numbers on the cost to repair items in your managed properties.
You should have a good idea what it costs for routine repairs. Don't let contractors gouge your investors. Help your investors minimize their repair and maintenance costs.
15. Consider a small incremental increase each year in your management fee.
This increase could be anywhere from 3 to 5%. Include this annual increase in your initial property management agreement and increase your fees accordingly each and every year. This is very important because you'll be afraid to increase your fees over time. The financial impact of this system will be powerful when combined from year-to-year.
16. Don't take unprofitable properties into management.
Don't take someone else's problems. If the investor needs too much monthly rent than the market will support, don't accept this property into management. You'll put your self in position of never being able to make the client happy. Make sure you can fill the property based upon current marketing conditions. Or if the house needs a lot of work to attract a quality tenant, don't take the property into management. Rig the odds of success into your favor by accepting the right properties.
17.Structure leases of managed properties to renew in May/June/July/August.
These are the best times of the year to fill vacancies. Alternate your leases with terms of 12, 14, 16, and 18 months to spread out lease expirations. This helps prevent having too many vacancies in any one month. Also, have your leases automatically convert to month-to-month upon expiration.
18. Know your break even point and get their as quickly as possible.
Let's assume you'll need to hire a part-time person to work 20 hours a week. Let's also assume that this person costs you $2,000 a month. Figure out how many homes you need under management to cover this monthly fixed expense by dividing the monthly cost by the average monthly management fee received. If you charge $100 a month to manage a home, you'll need 20 homes under management to break even. Otherwise, you'll be negative each month running this business. Remember the leasing agent's commission is paid for by the investor. In this example, you would need to get 20 homes under management very quickly to absorb the $2,000 cost of the employee. Each property after the 20th should bring additional net income to your business.
19. Register all properties for city rental inspections if required in your area.
I realize this might seem like a hassle, but it protects you and your investors from liability. Do this right or you'll end up paying the price down the road.
20. Solve problems systematically, not personally.
Create systems in your property management business that your staff can follow to solve problems. Don't allow your staff to come to you with every problem they encounter. Empower them to follow the systems you've put in place.