Pros and Cons of Residential Property Management
The health and well-being of a property comes down to how effectively it's managed, and this tremendously multifaceted task requires an arsenal of knowledge that spans across people management, facilities, problem-solving, collections, accounts receivables, operations, and beyond. To do, or not to do; that is the question, and when owners finally take the leap in deciding to hand over properties to a company or person, a second decision awaits that impacts their investment significantly. Weighing the pros and cons of hiring a solo property manager versus a full-scale management company is a necessary step since both options have essential considerations that should be thoroughly analyzed.
Understanding the Property Management Role
From a property owner and investor perspective, the crux of a property management role is the ability to successfully strike a highly fluid balance between tenant relations, vendor management, and property income generation. This may sound simple, but each category is its own body of knowledge, and finding well-rounded management precision can be a challenge.
Property Management Company Pros:
One of many pros in working with a management company is that a larger group would have more resources to tap into to meet the full set of needs and challenges that come with managing a property. Proper licensing, and insurance coverage will likely also be more robust with larger companies. Many management companies are also equipped to cover the cost of evictions and can handle more complex finance and legal functions of property management.
Cons: Larger management companies often work more autonomously, but this could be either a pro or a con depending on how involved property owners want to be.
Solo Property Manager Pros:
Hands-on property owners who still want to be involved in some of the day-to-day property goings-on would likely be happier with an individual property manager. Even though this likely wouldn't altogether remove the owner from overall operations, it would still be a highly beneficial relationship and take the edge off of having to be on call 24/7. This would also allow property owners to get real-time data and insight about their properties.
Cons: Taking on independent contractors as property managers can be risky, and hiring an employee is a significant investment. Independent property managers may also be stretched between numerous properties and have fewer resources to handle legal issues and high-level finance duties. In a worst-case scenario, if a manager becomes unavailable, then property owners must be ready to take up the reins.
Weighing Your Options
Property owners should ensure critical criteria that could impact the property's integrity are heavily deliberated and then reconciled against the cost. Core competencies that are deal-breakers would consist of the following, and each category is potentially cultivated more precisely by either management companies or lone property managers.
Ability to fill vacant units quickly: Management companies have the upper hand here and often have access to a wide range of market data, listing services, and communicative closing processes.
Acumen needed to set the correct market price: Management companies have the upper hand here yet again because of the advanced data that is more accessible to enterprise customers.
Vendor negotiation skills: Individual property managers win this category. Agile indie managers can discreetly get the best price, can spend more time building relationships with vendors, and will be able to leverage all of the perks smaller vendors have to offer. Larger companies may be restricted by labor laws, have pre-selected strategic partners, or have bulkier RFP processes that may or may not be in the property owners' best interest.
Responsiveness and accessibility: Either category could win here, but a larger management company may have backup options to provide if, for some reason, a property manager becomes unavailable. Otherwise, property owners would need to pick up the slack.
Elite tenant management relation skills: The success of this competency all comes down to finding the right person or the right company. Both need to be dedicated to tenant service.
Impeccable attention to detail: Finding a rockstar individual property manager that is passionate about their work can add a special touch to your property.
A Formula for Success
Going with either a property management company or an individual manager for properties will ultimately come down to how much involvement the property owner wants to have and the complexity of the property portfolio. A potential formula to use (depending on budgetary restrictions) could be:
High portfolio complexity + less owner oversight = Property Management Company.
Medium portfolio complexity + less owner oversight = Employed Full-Time Property Manager
Low portfolio complexity + increased owner oversight = Individual Property Manager (could be a contractor)
Putting together a matrix based on the current market climate that plots out the legal, marketing, and financial needs your property or properties currently require and may need in the future is the last piece of the puzzle that can provide finality and help property owners come to a final decision.