Price and Value in Property Management

Posted on Wednesday, July 2 2014

Warning: If you don’t care about return on investment or about money, then you will have no interest in this.

 

During an evaluation between different property management options, you may wonder why the difference in price between various companies you’re considering.

Are you looking for the cheapest service or the best value?

After all there are companies that offer their property management services at a very low price, and in many cases the reasons for the lower price are not at all obvious.

• How do you know if a company offering to provide “the best service in Palmerston North, maybe the world” for “6% of rent, but if you smile again it will be 5%” will actually do a good job?
• Will there be a difference between the firms that have been around for longer but charge more?
• What will the differences be?
• Do you have to use both companies for a year each so you can compare?

The easy way might to look at what the main areas of cost are for a property management firm. These overheads, plus a reasonable profit for the service provider represents the fee that they charge.

The area of greatest expense when offering a service like property management is staff costs. Property management is labour intensive in that there are many issues that only trained people with the time to attend to them can do. Nothing gets done by itself, so you have to have the staff on board to ensure things get done.

So the first thing that must be looked at if you want to reduce the fee passed on to landlords is to reduce the number of staff per property. This will then mean that the remaining staff will either have to work longer hours or become more efficient, or will have to cut corners.

In Property Management Cutting Corners Is Very Easy

So often we do things that in hindsight we didn’t need to do!

Let’s consider the case of Mr and Mrs Smith. They’re new tenants of ours in a nice home in Kelburn.

If we knew that Mr and Mrs Smith who were moving into the $500 per week Hokowhitu property were in fact fastidiously clean and couldn’t live with themselves if they damaged the property, we wouldn’t in fact have had to take the 187 photos of the interior and we would have skipped documenting the chattels because Mr and Mrs Smith looked after them better than their own.

Also, we would never have bothered doing the triple checks on them (2 reference checks and 1 credit check) because one of their references, Father Davey, said “I’d trust them with my life”. Why did we bother checking if they had paid their rent? We could have skipped that too!

We wasted so much time inspecting the property – once every 13 weeks! Madness considering Mr and Mrs Smith are Olympic Gold Medal holders in vacuuming! The house is a model of tidiness! We also didn’t need to do any training regarding the Residential Tenancies Act, or retain the services of one of New Zealands foremost experts in the Act, because Mr and Mrs Smith have never complained or raised a fuss about anything in their lives (“generations of Smiths have gone to the grave without making a fuss” says Mr Smith).

So many things we did that we didn’t need to do! Maybe we can get away with doing less – then we can reduce our salaries bill, reduce our fees, and we’ll be swamped with new customers!

Now, Back To The Real World: Inevitably, and unfortunately, not all tenants are like the Smiths.

HOW The Lowest Price Service Can Be The Most Expensive

If we reduced our staff numbers per property inevitably corners will be cut and the property owners’ interests will be put at risk.

If we didn’t inspect the Smiths property we could never be certain that it was being looked after. If it wasn’t being looked after and we didn’t inspect it the tenants of poorer quality to Mr and Mrs Smith may be mistreating it at your expense. If we didn’t check the rents by 8:30am every morning we may find that by the time we discover they’ve missed 4 rent payments the amount outstanding is so large the tenants can’t pay it back. If we didn’t make a comprehensive chattel list we may find that over time the chattels just seemed to disappear.

A comprehensive property management service one where corners are never cut!

Where the same tried and tested processes are followed so that the property is very closely watched and where if something unexpected does happen there are staff who have the training, the time and the systems to deal with it immediately.

There is no “grit your teeth and hope” involved, because the property management firm leaves nothing to chance. This means that your asset is kept in good order, and is ready for re-tenanting without the downtime and cost of repainting, without the need for you to be interrupted to enquire as to what course of action you would like to take in terms of repairs etc. so you can avoid un-necessary requests for a decision.

In Summary

If you are a property investor you are running a business.
Any profitable business relies on keeping costs down.

The value of a comprehensive property management service is that you will have reduced maintenance costs, reduced vacancies and reduced rental arrears. These must be kept low if you want to maximise your return on investment.

Any profitable business relies on keeping income maximised.

You will receive rents more frequently as they will have systems to pay it out to you on the same frequency as
paid by the tenants, so you may even have a reduced interest cost depending on your mortgage type.

Any profitable business relies on accountability and measurement.

You will be able to check on the financial transactions online, and it will be up to the minute, like the information you expect from your financial institution.

Any profitable business relies on reducing risks immediately.

If there is a problem, your property manager will have had specialist training in the Residential Tenancies Act, and the firm will have a specialist Lawyer a phone call away should they be required. They will take more photos than is usually necessary, they will always document chattels, will advertise the property for rent well in advance of the current tenants leaving so you don’t suffer loss of rents. Importantly they will have the time to communicate with you so you can feel comfortable that your very highly valued asset is being watched very carefully.

 

One Response to “Price and Value in Property Management”

  1. a1propertyfinder says:

    Excellent article. Few property managers do the job to the standard those who do proper property management expect. It is a very time and skill intensive business that is generally sold for too lower price to the marketplace. A great property manager is worth a lot more to an investor than the premium fee paid!

Expert's Bio

Richard Gardner - Allways Property Management

All Ways Property Management is a company founded by Richard and Maxine Gardner in April 2009. Servicing the Manawatu – Palmerston North, Feilding, Ashurst, Aokautere And the Tararua region – Pahiatua , Woodville. At All Ways Property we believe: Diligent tenant selection, regular inspections, market rent, and high occupancy equal maximum return on your Investment. (This best describes who we are and our focus is in what we do) Find Richard on Google+

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