Why Some Property Management Companies Fail
Why Some Property Management Companies Fail

Why Some Property Management Companies Fail

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Property management is a $77 billion industry here in the US. With low entry barriers, and many companies with only a few employees, finding success can be a challenge. Many property management companies close shop just a few years. Here are 7 of the most common reasons why property management companies fail—and what managers can do to avoid this.

Reason #1 Offering Below Market Management Fees

One of the ways that some property management companies try to gain new clients is by offering below-market-rate management fees, but this is a costly strategy. Property management companies rely on management fees to fund all aspects of their operation. Companies cheap market rates aren’t able to provide the same high-quality service as top competitors.

To avoid this mistake, spend time getting analyzing your operating budget. How much do you need to charge in order to cover your operating expenses (and still make a profit)? Then, evaluate your staff capacity. Do you have room to add new units to your portfolio without hiring additional help?

Reason # 2 They Expand Too Quickly

One reason why property management companies fail is because they add too many units to their client portfolio too quickly. They successfully bid on large management contracts they may have thought they would get, they acquire other property management companies and takeover operations and suddenly have no way to manage that influx of units successfully. Go back to reason #1 and they don’t have enough capital to hire more staff for all of the properties they now manage.

It doesn’t have to be that way. If you’re considering growing your property management portfolio, take a step back and review your staff’s capacity. Bring on and train new hires as soon as possible. Put systems in place to streamline operations. Start using property management software that can support your company’s growth. Integrate new technology to lift some of the weight off of your property managers’ shoulders.

Reason #3 They Don’t Know Their Market

We know that property managers are busy, but it’s critically important to keep your finger on the pulse of your local market conditions. At least once a quarter, scope out comps in the areas you serve to ensure that your rents are still competitive. If investors catch wind that you’re undercharging, they might decide to work with another management company.

Reason #4 They Manage Too Many Properties

In order to be a successful property manager, you need to learn when to say no. If you’re over-eager to add units to your profile, you could end up managing properties that are more of a hassle than they’re worth. After all, which is easier: Managing a 40-unit complex, or 10 different properties with 4 units each?

Reason #5 They Don’t Adapt To New Industry Technologies

There are so many ways that property managers can take advantage of new technology to save time, money, and (perhaps most importantly) unnecessary headaches. For instance, you might try VR software to showcase an empty unit to prospective renters without needing them to go there (or yourself). How about using smart lock technology to allow prospective renters to tour the property on their own? This allows prospective renters to feel at ease while viewing a property and saves you from wasting time and gasoline.

Reason #6 They Overpay For Maintenance

Maintenance is one of the biggest costs for property management companies. Some property managers add fees to contractor estimates to cover the “management” process. Some companies enter into exclusivity agreements with their contractors to secure lower rates.

Regardless of the strategy your company uses, it’s important to know the going rates for contractors and various repairs and maintenance costs in your area. For instance, renovating a unit for $12,000 might seem like a bargain initially; but what if found other contractors could do the same work, at the same level of quality, for 30% less? To run a successful property management company stop overpaying your contractors.

Reason #7 They Try To Do Their Own Accounting

Some property managers think that they can handle all of their accounting in-house by themselves. However, most property managers aren’t trained accountants; and as a result, they don’t properly handle their books.

Property managers not only need to understand their own accounting, but they need to be adept at managing their clients’ books as well. One reason why property management companies fail is because the accounting that they do for their clients is too loose. This results in income discrepancy, missing or inaccurate expenses, late payments to vendors, inaccurate rent rolls, etc. Either hire a dedicated in-house bookkeeper, or outsource your bookkeeping to a professional. There are even accounting software’s specific for property management that can help you with accounting.

If you can successfully manage to avoid these pitfalls, you’ll be headed in the right direction.

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