The Benefits of Hiring a Third-Party Property Management Company

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Hiring a property management (PM) company to take care of your property or portfolio can be very beneficial. However, the risk/reward is slightly different depending on whether an individual or a couple of partners are investing who aren’t focused primarily on real estate or a professional investment company that is hiring the PM company. Nevertheless, in this post, we will cover the benefits of hiring a third-party PM company and in a future post, we will cover the drawbacks.

When we first started JP Acquisitions, we were under the impression that we would hire a third-party PM company, however, we ultimately decided against that. We found that our company was in a unique position in which we had the connections to build a PM arm for our company. Admittedly, we’re lucky to have the team that we do and acknowledge that many other investment companies have to outsource their property management.

What stops investment companies similar to ours from building a PM team or company is how time-intensive and unprofitable property management companies can be. The cash flow margin is very slim (i.e., the profits are slim) due to how hands-on and labor-intensive the business is. The fees made from the properties under management mostly go to funding the salaries and benefits of the property managers. Yet, like every business, the profits increase with scale due to the synergies created from the abundance of resources.

We wrote a blog post some time ago in which we covered the difficulties we’ve faced as we’ve been building out our property management team. I’ve linked that post, in addition to a few other posts relating to PM, below:

Without making this intro too long, let’s jump into the benefits of hiring a third-party property management company.

Note – The definitions of the technical terms in any of our posts can be found in the glossary section of our website.

Expertise and Efficiency

Property managers have a good understanding of the local real estate market and can help set appropriate rental rates. The market knowledge that property managers have is important because real estate is hyper-local, which means that the characteristics of any given property are heavily dependent on the area that it’s in. Property managers can ensure that your property is competitive and attracts quality tenants based on the market dynamics. Additionally, property management companies stay informed about current market trends and legal regulations, helping you navigate changes in the industry. PMs are well-versed in local, state, and federal regulations governing rental properties. They can help ensure that your property complies with all applicable laws.

Property managers also coordinate and oversee maintenance and repairs, ensuring that issues are addressed promptly to maintain a property’s value and keep tenants satisfied. The more established the management company is, the more likely it is that they have established relationships with reliable maintenance professionals and contractors, potentially getting better rates for services. Those PM companies that are scaled, and thus can afford to do so, will have their maintenance personnel on staff which increases efficiency in terms of timing. As we’ve experienced at JP, the timeliness of maintenance requests plays a huge role in tenant satisfaction and retention.

Tenant Relations

Property managers act as intermediaries between landlords and tenants, handling communication, addressing concerns, and ensuring a positive relationship. While this may seem simple, PMs have to deal with their fair share of less pleasant tenants. Most tenants tend to communicate once in a while for justifiable comments or concerns, but there will inevitably be those tenants who somehow manage to have an issue every week. Quality PMs deserve an incredible amount of respect as they could lose their cool and snap, but often stay calm and collected when handling situations. For those of you reading this who have worked in customer-facing roles, especially in lower-level positions (e.g., retail or customer service positions), you likely know exactly the situations and people I’m referring to. All their work on the communication front benefits the property owner by minimizing vacancy and reducing the financial impact of unoccupied units. PMs also market units that are ready for lease which can drive down vacancies.

If the PM company is really on top of its game, it will push for property managers to implement creative ways to go above and beyond to increase tenant satisfaction. For example, our team is hosting a Christmas door decoration competition at one of our properties where the person who decorates their door with a Christmas theme the best wins $100 to go towards whatever they please. Another example for a larger property would be to host a holiday party at a property’s community room and supply food as well as encourage the residents of the community to provide food as well. These simple happenings enhance the living experience for tenants and help to create a warm sense of community. In addition, they help to build a connection and respect between the tenants and the PM.

Financial Management

In terms of finances, property management companies are responsible for keeping your expenses and income organized, collecting rent, and working to stay on budget. Property managers work to provide their clients financial reports to keep them informed about the performance of their investments. With scale, financial management becomes increasingly difficult and more dependent on systems and processes to maintain. Thankfully, PM software does most of the heavy lifting when it comes to rent collection, expense management, maintenance request tracking, and more.

Financial management is especially important at the time of sale. The more organized the books are for any given property or portfolio, the easier it is to justify a specific price. For example, let’s say that a seller reports expenses at $100K but their books were not organized, and the expenses sum to $110K. If I’m the buyer, it’s my responsibility to catch that, and knowing how thorough our team is at JP, you can bet we’re going to re-trade the deal or potentially walk away. Our books at JP are incredibly organized and our PM team does not skip a beat when it comes to that.

Conclusion

Knowing that your property is in the hands of qualified professionals can provide significant peace of mind. This allows you to enjoy the financial benefits of owning rental properties without the daily responsibilities and potential headaches. Managing a property can be extremely stressful between leasing, maintenance requests, tenant communication, expense management, and more. This is why PM companies charge significant fees, they are truly justified. As a reminder, before hiring a property management company, it’s crucial to thoroughly research and choose a reputable and experienced firm that aligns with your specific needs and goals. I want to take a second here to shout out our PM team, if it wasn’t for you guys, we would not be performing how we are today!

If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via our contact form, by emailing a member of our team, messaging us on LinkedIn, or signing up for our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck and happy holiday!

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About the Author

Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, investor relations, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.

Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.