Successful property managers know how to improve the value of a property in three areas; income, expenses and systems.
Income: The value of a property is not based on the asset itself, but rather on its financial performance.
A badly managed property that is run down will attract a lower rental income, bad payers and vacant occupation. It is essential to correctly value a property which may be done by using a capitalization (cap) rate which you should be able to get from any knowledgeable broker. The equation looks like this:
Net operating income ÷ market cap rate = value
By knowing what market related properties in the vicinity are realising and getting your property to the level that it earns maximum rent, you are increasing your property’s financial health.
Occupancy: One basic method to create better occupancy is to have a good base of residents who take good care of your property and who do not move often. This is done by properly screening every occupant. In a rush to fill vacant units this basic function is often overlooked. High vacancy creates higher expenses with increases in maintenance and advertising amongst other things.
Expences: This is the area one has least control over. Typical expenses are for advertising and marketing, repairs and maintenance, management fees, utilities, property taxes and insurance. Property tax, insurance and utilities are the costs you simply cannot control. The cost of not running a credit report and a criminal background check is very high. Additional expenses resulting from high turnover due to poor management will lead to a lower overall property value.
Systems: A good property management company will have good systems in place for; valuating of rental return, strict tenant occupancy standards, trained staff that would handle the maintenance and upgrades, and an approved operating budget with monthly goals. Vacant units would have been ‘rent ready’ within three days of vacant occupation. The lack of all these systems equal lost income.
You get what you pay for: too often people want to save money and they balk at the fees a management company charges. Don’t. If a fee looks too good to be true, it probably is .Every investment in the world, if it is managed, cost you money. With property management the fees should be clearly explained. A good property management company will be worth its fees and will know what is going on with your property’s operations as well as the finances of it.