Why (Almost) All Property Management Companies Suck…And What To Do About It
If you are a real estate investor (not a ‘flipper’, not a ‘landlord’….a serious real estate investor), you have most likely used one or more property management companies and the majority of them have most likely sucked.
This is a chronic, industry-wide epidemic. There are economic realities that create and perpetuate this seemingly ubiquitous challenge and it is arduously frustrating in its consistency across markets.
It is important to understand WHY (almost) all property management companies suck and what we, as real estate investors, can do about it.
I should clarify at the outset that Maverick Investor Group does NOT offer property management services, but we do specialize in investment real estate and have helped many of our clients successfully navigate the age-old property management conundrum. I will share some of our findings, strategies, solutions and analysis here.
WHY (Almost) All Property Management Companies Suck
· Simple Economics. Property Management is the least lucrative sector of the real estate industry. Getting paid 10% of the gross monthly rent (with virtually no potential of getting paid more than that) simply does not light a fire in somebody’s pants to jump out of bed and devote their day to maximizing YOUR net operating income.
· More Simple Economics. The smartest, most ambitious and talented people in the real estate game typically go into sectors that provide them the potential to make a lot more money—such as being a real estate agent, developer, or investor. Since property management is the least financially rewarding sector of the real estate industry, the least talented and least motivated people who are unable to succeed in those other sectors, tend to fall into it.
HOW Maverick Has Helped our Clients Transcend the Property Management Problem
Change the Financial Incentives in a Major Way. Maverick Investor Group provides our clients with access to turn-key investment properties in different markets—fully renovated single family homes with tenants and local property management already in place. The seller of the turn-key properties usually owns the property management company or is affiliated with it. In this scenario the incentive structure is entirely different from the economics of the traditional property management company outlined above…and so typically are the results.
Let’s compare. For the sake of round numbers, let’s take a $100,000 property with the following assumptions:
- The seller makes a $10,000 net profit on each sale
- The property generates $1,000 per month in gross rent
- The property manager is making 10% of the gross rent
Now consider the economics in each of the two scenarios:
- Traditional Property Management Scenario. The property manager makes 10% of the gross rent which is $100/mo or $1,200/yr with virtually no potential to make more.
- Turn-Key Scenario. The seller knows that the average real estate investor buys 2 properties PER YEAR. So, if the seller can ensure (through rock star property management services) that YOUR property performs as well or better than expected and YOUR net operating income is maximized, then YOU are statistically likely to buy a property every 6 months. That means the seller is likely to net an average of $20,000 a year PER CLIENT on sales, plus the property management fees on those two properties ($1,200 x 2 properties = $2,400) for a total of $22,400 a year PER CLIENT on average.
The turn-key scenario HAS THE POTENTIAL to generate over 18 times more income than the traditional property management scenario, BUT ONLY IF the property performs as well or better than expected.
So, the lynchpin to making $22,400 per client instead of $1,200 per client is delivering rock star property management services to make sure that YOUR net operating income is maximized.
How is THAT for an incentive for someone to get out of bed in the morning and make sure that YOUR property performs?
Your Comments inspire ME to get out of bed in the morning, please leave one below and let us know what you think!
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