Property Management… Why do real estate investors fail to achieve maximum potential?
Most of the property managers that I speak to self-manage. Either they do everything themselves or, if they own enough properties, they hire someone to oversee things and they manage that person. With both of these strategies, often real estate investors fail to achieve the maximum potential out of their real estate investments.
Why?
Unlike stocks, bonds or mutual funds, real estate investment is typically seen as an active-management investment. The vast majority of stock investors never think about taking over the company which they’re investing in because they believe that they will be better managers than the professionals. The vast majority of stock investors never even consider starting their own mutual fund because they believe that they can be a better fund manager.
Why do many investors see real estate differently than their other investments?
I believe that this is because of the lack of quality property managers out there and the perception that the investor can do a better job.
Here’s why I think they’re wrong?
- Leaving Income on the table – The average real estate investors fail to maximize their gross income and leave way too much on the table in many areas.
- Maintaining hire expenses – It’s not just the income side where property managers can help. They often provide just as much improvement on the expense side.
A. Vacancy – Because the average real estate investor doesn’t have access to, or doesn’t typically use, all of the marketing arenas available that property managers use, they often have a higher vacancy rate than quality property managers.
B. Tenant Quality – The average real estate investor doesn’t typically do the same type of due diligence checks such as previous eviction checks and criminal background checks that a property manager would do. They also are more likely to listen to a sob story and let in the wrong tenant.
C. Collections – Real estate investors are also more likely to accept a tenant’s excuses for not paying rent than a property manager. Since they aren’t as familiar with collection laws, they are more likely to make mistake which can often result in delayed evictions, leaving money on the table and even criminal action against the landlord if they violate the tenants’ rights.
A. Repairs – Since a property manager deals with more contractors, they can typically get more competitive bids and are less likely to get ripped off by a contractor.
B. Taxes, Insurance, Trash Removal & other expenses – Active property managers are constantly dealing with the same expenses over and over again on different properties. Because of this, they can more easily compare going rates on different items and make sure that they’re getting the best value for their money in every area.
C. Personnel Expenses – For real estate investors that have hired people directly to manage their properties, it can often be a large cost savings to hire a property management company compared to paying someone a full time salary.
With over 20 years’ experience in real estate, Ari Miller & Real Estate Management Advisors, LLC (REMA) is one of the leading & most effective property managers in the Philadelphia area.