08222017Headline:

Focus on Profitability over Volume Lends to Successful Property Management

iStock 000000206062Small 300x222 Focus on Profitability over Volume Lends to Successful Property Management

It is not surprising that the general public can’t grasp these differences. What is surprising is that many of us as property managers and landlords can’t even make this distinction within our own companies and portfolios. I’m not pointing fingers here, as my company was as guilty as any other only a couple of years ago. Our management portfolio consisted of hundreds of single family units, multi-family buildings ranging from the worst of areas to the best, multiple commercial properties, as well as some associations. We had spent years building up our volume of managed properties without any regard for the type, quality, or location of the properties that we were taking on. We were happy that our unit count was growing steadily, but no matter how many units we added, it seemed that we were not making any additional profits month over month. It was frustrating, to say the least, so we made an effort to find out what the issue was.

After taking a long, objective look at every single property we had under management, it turned out that 40% of the units we managed actually lost us money. This was due to the additional overhead necessary to deal with those properties on an ongoing basis. As our management agreements expired for these properties, we made a conscious decision to terminate or not renew service for them. We also have narrowed the profile for the properties that we are interested in managing, and we continue to become a more profitable company overall. We have no interest in volume for the sake of volume. As I continue to communicate and network with other successful managers throughout the region, it is becoming clear that many of the successful companies have figured this out as well.

Property Location

This seems simple enough, but it is very tempting to stray outside of your normal service area when you know that a new deal can easily close. However, once the property is on your plate, you need to lease, manage, and maintain that property, which could require some excessive window time in the car. It can also mean that your current vendor network may not be willing to travel to service that location. If this turns out to be a difficult property, it can easily become a losing proposition as the miles and time needed to track down outside vendors stack up.

Property Owner

This is many times the most overlooked and underestimated factor when taking on a new property. Every time that a new account is taken on, we need to consider how interactions with the property owner will go. While there is no way to predict the future, you can get a pretty good idea of a property owner’s personality and attachment to their property within a couple of conversations. If the property owner’s needs and expectations don’t fit with what you offer, then it is best to let him or her know that and pass on the business. A high-maintenance and overbearing property owner can drain the profit out of a management deal faster than any other factor.

Property Condition

This is a personal/business decision, as there is no right or wrong answer as to what properties are “best” to manage, but it does seem that many successful companies are only really good at managing a specific range of property conditions. The company that is great at managing dilapidated 6-flats in depressed areas is generally not the same company that should be managing a pristine million dollar single family property. The methods for marketing, maintenance, and tenant relations are completely different. The vendors that will service the properties are likely different. The owners that own the properties are probably very different as well. We see successful firms focusing on their niche within the business and becoming experts within that segment of the market. If you are not well equipped to handle a poorly maintained property, it can be an incredible drain on your time and should be accounted for when deciding whether or not to take on a property. On the other hand, if you are experienced and equipped to handle a true mess of a property, there is opportunity to take on that business, as there is no shortage of subpar property to try to turn around.

Property Type

I touched on this previously, but there are very few companies who can pull off successfully managing every type of property. That’s why an increasing number of firms are focusing solely on their strongest and most profitable sector. Many companies that now only serve HOAs once managed investment property and vice versa. Most management companies will still take on a huge range of property types, from a tiny low rent apartment to a high end home or apartment or building, but the industry seems to be becoming much more specialized, as successful companies are focusing on very specific markets and property types. As our client base is becoming more demanding regarding service, it is increasingly important to become experts within our respective markets and market segments.

No matter where our strengths lie, the most important question that we need to ask ourselves when we consider taking on a new account is, “Will we be better off twelve months from now by taking this property into our portfolio today?” If the answer is not clearly a yes, then it may be time to reassess our position and the profitability of that deal before committing to managing the property. Taking on volume for the sake of a higher unit count is not only costly, but can take a long time to remedy once you decide that you’ve moved in the wrong direction.

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