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Advantages and Disadvantages of Using a Property Management Company

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A property manager showing properties to her investor client - Express Capital Financing

Commercial real estate investors typically have multiple properties in their portfolios. Whether it is flipping houses, renting out office space, or building a grand hotel, CRE investors are focused on finances and projects.

Since commercial real estate investors cannot be in all places at once, they often resort to property management companies to take care of details and keep things running smoothly.

But what exactly do property management companies offer that makes them so attractive?

In this article, we’ll cover all the main advantages and disadvantages of using a property management company so you can be best prepared to partner with one.

What is a Property Management Company?

A property management company is a business that provides rental and property management services for landlords and investors. They assume responsibility for the day-to-day operation of properties, including rent collection, maintenance, and tenant relations.

These companies specialize in taking care of all aspects of managing the property, including tenant screening, rent collection, maintenance, and more.

Advantages of Hiring a Property Management Company

A property manager with a tablet in a rental property - Express Capital Financing

 

At Express Capital Financing, we know that hiring a property management company can have numerous advantages for property owners. Let’s take a look at a few of the top reasons why hiring one is a sensible idea for anyone serious about expanding their rental portfolio.

Time Savings for Owners and Investors

The life of a property portfolio owner is a full-time job. For owners and investors of rental properties, working with a property management company can be a great way to save valuable time.

From tenant communication to rent collection and repairs, the property manager can handle a whole range of time-consuming tasks on behalf of the owner or investor.

This frees up time so that they can focus on other important matters such as finding more investment opportunities or managing other investments without having to worry about the daily grind of managing a rental property.

Maintenance and Repairs

When you use a property management company, they can take on the responsibility of handling routine maintenance and fixing any issues that may arise with your property.

Property management companies make sure rental properties, storefronts, office spaces, and more are fully functional. They will take care of plumbing, electrical work, minor construction, and other maintenance to keep tenants happy.

Industry Expertise

Property management companies have extensive experience in the industry and can often attract higher-quality tenants, resulting in reduced vacancy rates and increased rental income.

Marketing

Owning a number of commercial properties will not generate revenue if no one is occupying them. Most rental property management companies will take care of promoting available spaces to bring in prospective tenants. Additionally, property management will take care of processing applications, running background and credit checks, and ensuring the people and businesses renting your spaces are trustworthy and financially sound.

Rent Prices

Property management companies are constantly reviewing rent in a given area, to ensure commercial real estate investors get fair and competitive revenue from their properties. They will also monitor market changes, and increase rent – usually on a yearly basis – accordingly.

Laws and Regulations

Laws and regulations play a crucial role in property management, ensuring the rights and responsibilities of both property owners and tenants are protected. Property management companies understand the importance of staying informed about rental property regulations and comply with them to maintain successful operations.

The ever-changing nature of rental property regulations poses a challenge to property owners. Laws and regulations can be updated frequently, requiring you to stay up-to-date and adapt your practices accordingly. This includes changes in landlord-tenant laws, health and safety regulations, fair housing ordinances, and more.

By staying informed and complying with rental property regulations, rental property management companies provide peace of mind to property owners and tenants. They navigate the complex legal landscape, help property owners avoid legal pitfalls, and ensure that tenants’ rights are upheld.

Expertise in Leasing Agreements

Lease renewals can be complex and time-consuming, requiring an in-depth understanding of landlord-tenant law and the ability to effectively negotiate with tenants. Property managers have the experience and know-how to handle these negotiations, ensuring that the terms of the lease are favorable to the property owner while maintaining a satisfactory relationship with the tenants.

The expertise of property managers in negotiating lease terms is invaluable in protecting the rights and interests of both parties involved. They work to strike a balance between maximizing rental income for the property owner and meeting the needs and expectations of the tenants. By doing so, property managers help create a positive and harmonious rental experience for all parties..

Bookkeeping

Bookkeeping plays a crucial role in the operations of property rental management. It involves the systematic recording, organizing, and tracking of all financial transactions related to rental properties. It’s time-consuming and sometimes arduous.

A bonus of employing a property management company is they keep track of rent owed by tenants for you and will handle any issues if residents have outstanding balances.

They can also provide financial reports, offering property owners transparency and peace of mind.

Cost Savings

Hiring a property management company can provide significant cost savings for landlords.

Reduced maintenance Costs

One of the main advantages is the ability to save money on maintenance issues, as mentioned earlier. A property management company has a team of professionals who can handle any maintenance requests promptly and efficiently. By staying on top of these issues, the company can prevent small problems from turning into larger, more expensive ones.

Ensure Timely Rent Payments

They can also help ensure on-time rent payments from tenants. This eliminates the need for landlords to spend time and money chasing down late payments or dealing with the eviction process. The property management company will have systems in place to enforce payment deadlines and handle any late fees or notices.

Avoiding Legal Issues

When it comes to renting out properties, landlords can potentially face various costly legal issues if they are not knowledgeable about landlord-tenant laws and regulations. However, hiring a rental property management company can help avoid these legal troubles and provide peace of mind for property owners.

Property management companies also provide regular financial reports and keep comprehensive records of operations and transactions. This documentation is crucial in case legal disputes arise, as it can serve as evidence to support the property owner’s position.

Lower Operating Costs and Overheads

Hiring a property management company can help lower operating costs and overheads in property management. While there are indeed disadvantages to consider, the advantages in terms of reduced expenses are worth highlighting.

Property management companies often have full-time, salaried employees who are responsible for handling various aspects of property management. These employees have the expertise and experience needed to efficiently run day-to-day operations, such as finding potential tenants, handling maintenance requests, and managing lease agreements. With a dedicated team in place, property owners can save time and focus on other aspects of their investment properties or pursue other ventures.

Streamline Diverse Portfolios

Most property management companies handle a lot more than one piece of real estate at a time. Since commercial real estate investors are big on portfolio diversification, most management companies are equally agile.

A single rental property management company will usually handle multiple residential, office, retail, and even healthcare properties, for multiple investors.

This can be a great advantage because it means having one entity to manage different assets, which saves time and makes communication much easier. This also allows you to save money because of the economies of scale – multiple units managed by one company are more cost-effective than multiple companies managing multiple properties. 

Disadvantages of Hiring a Property Management Company

 

A sign stating 'property management' - Express Capital Financing

While hiring a property management company has the potential to help landlords and homeowners manage their rental properties more efficiently, there are still some disadvantages to be considered.

Costs

The most significant disadvantage of hiring a property management company is cost. Experienced property managers typically charge an initial fee to set up the account and then collect a percentage of the rent each month.

This can add up to a significant amount of money over time, and it is important for property owners to factor this into their budget when considering whether or not to hire a property management company.

This being said, we find that the costs saved usually significantly outweigh the cost of a management company.

Loss of Control

Another disadvantage of hiring a property management company is the potential for loss of control. When you hire a property manager, they will be in charge of all aspects of the rental property and may make decisions that you would not have made yourself.

This can be a difficult situation for some landlords and homeowners, as it can be hard to relinquish control of something you have worked so hard to build.

So, Should I Hire a Property Management Company?

Property management is a cost, but for most individuals, the advantages outweigh the disadvantages. If it’s something you can factor into your budget, it will almost certainly result in less stress and more income overall.

If you own office space, and would like to have someone manage multifamily rentals, or any other commercial real estate, then browsing the various property management companies in your area could save you both time and money.

Not sure where to start with property management? Talk to the Express Capital Financing team today!

Get in touch.

FAQs

What are common weaknesses in property management?

When it comes to property management, there are some weaknesses that should be taken into consideration. Property management companies can provide a great service and benefit for landlords, but there are also some drawbacks to using them.

One of the biggest downsides to using a property management company is the cost. Depending on the size of your rental properties, you could end up paying a considerable amount in fees to the property management company.

Additionally, you may not have as much control over the properties when they are being managed by a third-party. This can be an issue if you have particular standards and expectations for your tenants and rental units.

Finally, some property managers may not provide as high of a quality of service as expected, which could lead to complaints and problems with tenants.

What is the most challenging part of property management?

The most challenging part of property management is dealing with tenants.

Property managers must manage tenant relationships, handle security deposits, collect payments, and respond quickly to maintenance and repair requests. In addition, a property manager must have the skills to mediate disputes between tenants. There can also be challenging legal issues that arise such as evictions or discrimination complaints that a property manager will need to handle appropriately.

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