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How a Discount Property Management Company Can Cost You
Do a Google search for "Property Management Companies," select one, hire them, and be on the road to real estate riches. It's that simple; right?
Unfortunately, one of the most common misconceptions in real estate investing is that all property management companies are the same in managing an investment property. The truth is that the property management company you select is the #1 indicator of how profitable your rental property will be.
In this post, we outline a few of the key items that you should lookout for when hiring a property manager, or when managing your property yourself. Either way, paying attention to these details could increase your profits by thousands of dollars per year, and we hope they do!
HOW A DISCOUNT PROPERTY MANAGEMENT COMPANY CAN COST YOU
What you don't know can hurt you. This is the lesson that has been learned by many of our owners, who were losing significant amounts of money due to the mismanagement of their property by their prior property management company. The worst part is that some of these losses were subtle and went unnoticed. Recently, we took over a small portfolio consisting of an 87-unit apartment complex and a set of 16 four-bedroom townhouses. The owner of these units had hired a discount property management company in an effort to reduce costs and to maximize the profits for these units. Unfortunately, this plan backfired, costing the owner tens of thousands of dollars per year. It was fortunate that the pre-existing property management company attempted to increase their rates, spurring the owner to search elsewhere for a new property manager.
Upon meeting with the owner and looking over the property financials, utilities, and management plan, it was apparent to Trilliant that these properties were being mismanaged in several ways. We compiled a list and outlined the shortcomings of the management approach with the owner, explaining how they had been losing more than a hundred thousand dollars per year due to mismanagement by the prior company.
These are just a few of the problems that we found with the property during our analysis and are some of the most common issues to look out for:
- Lost Revenue due to Low Rent Rates: Setting rental rates too low is a trap many property management companies fall into, as they try to simply get the units rented as quickly as possible.
The 16 townhouse units were renting out at $495/month below the market rates, resulting in a loss of $95,040 in lost potential revenue annually! Additionally, the 87 apartment units were renting out at an average of $50/month below market rental rates, resulting in $52,200 in lost potential annual revenue. Setting the rental rates too low is a trap that many property management companies fall into, as they attempt to simply get the units rented as quickly as possible. Something many owners don't consider is that an unusually high occupancy rate may actually mean rents have been set at submarket rates. Unfortunately for this owner, the preexisting property manager struggled to maintain low vacancy rates, even with the submarket rents due to poor marketing.
- Lost Revenue due to Excessive Vacancies: One of the most critical aspects of property management is the presence of a rigorous marketing plan.
Unfortunately, the previous property management company was lacking in this department. They were unable to consistently keep all of the units rented, even when they had set below market rental rates. Trilliant pointed this gap in marketing out to the owner, explaining how an effective marketing strategy could readily shore-up this gap.
- Lost Revenue due to Slow Tenant Turnovers: Many property management companies are sluggish, taking several weeks if not a month or two in order to turnover and rent out a unit after an existing tenant moves out. This is a massive problem, as when it comes to turnovers: time is money. Every day that the unit is not rented represents money that is left on the table.
At Trilliant, we pride ourselves on fast turnovers. We begin marketing the unit as soon as we receive the notice that the current tenant is vacating, allowing prospective tenants to reserve the unit even before the existing tenant moves out. Additionally, we pride ourselves on a rapid turnover between tenants, always striving to have unit turnovers take less than a week. This fast turnover coupled with our preemptive marketing has enabled us to maintain extremely low vacancy rates, maximizing our owners' profits.
- Expenses due to Utility Mismanagement: Overcharging is rampant in the utilities industry.
Trilliant pays attention to the details, because we know that is where the profit is made. One of our initial priorities when bringing on a new owner is to analyze all utility contracts in order to ensure they are not paying for anything that they do not need and are not paying too much for the utilities.
- Expenses due to a Lack of Vendor Negotiations and Proper Maintenance
Prior to Trilliant coming onboard, the maintenance and upkeep plan for these units were incomplete. In fact, the property management company did not properly maintain the HVAC and boiler systems, resulting in several boilers needing replacement and major spikes in the utility bill, costing tens of thousands of dollars extra over the course of a couple of years.
THE RIGHT PROPERTY MANAGEMENT COMPANY CAN INCREASE YOUR PROFIT
Upon hearing our detailed analysis of the property the owner decided to hire Trilliant Property Management to oversee the property. We immediately began working on the owner's behalf to rectify the existing issues with the management of the property. The most important and time critical piece of the initial takeover plan was ensuring the tenant payment management was transferred over seamlessly, ensuring that the owner maintains seamless cash flow from their property. Once the tenant payment processing was transferred over and put into place, it was time for us to focus on solidifying the management of the entire property.
These are some of the solutions and outcomes brought about by Trilliant Property Management and that can easily turn a property around from mismanagement:
- Increased Rental Rates: We increased all rental rates to be in-line with the market, resulting in an increase of $147,240 a year in potential annual rental.
- Increased Rental Revenues via Effective Marketing: We market all of our units at least 30-Days prior to them becoming vacant and year-round for larger properties with recurring vacancies, enabling tenants to get on a waitlist and put down deposits for units in advance. We market 24/7/365 on over 70 online rental websites, ensuring that all of our units achieve maximum market exposure.
For these units, we were not only able to achieve nearly 100% occupancy, we also created a waitlist for the units and have numerous tenants signed-up.
- Implemented Rapid Turnovers: At Trilliant we strive to complete all turnovers in a week or less, including all cleaning, maintenance, and repairs between tenants.
- Renegotiated All Utility Contracts: Trilliant negotiated with all vendors of the properties including the elevator company, the internet provider, the phone provider, and the trash provider, resulting in over $4,000 in annual savings.
- Implemented A Rigorous Annual Maintenance Plan and Negotiated with Vendors: The quality of vendors is critical for maintaining a property. Vendor screening and selection is truly a place where the wrong decisions can cost you in the long-term. At Trilliant, we require all of our vendors to be licensed, bonded, and insured, protecting you and your property. Additionally, make sure that your property is taken care of from top to bottom, ensuring that the entirety of the property and property subsystems (ex: HVAC, electrical, etc.) are all properly maintained. Not all property management companies take the same approach, frequently leaving out major portions of a property maintenance and upkeep plan.
We implemented a rigorous annual maintenance and upkeep plan, as well as a 10-year major maintenance plan. We also renegotiated with all of the vendors to achieve the best rates possible.
Overall, in taking over this property, we were able to create over a hundred thousand dollars in increased revenues (and consequently profits) for this owner. This is not uncommon. At Trilliant Property Management, our goal is to maximize our owners' profits.
With the proper diligence and implementation of the items discussed here, you can turn around your property and increase your profits immediately. Choosing the right property management company can have exceptionally good results for your investment!