6 PILLARS OF PROPERTY MANAGEMENT SUCCESS
OK … you’re a seasoned residential real estate investor … or seriously considering to be one. If you are the former, you know that once the property is acquired, the real work begins – managing your investment to maximize your ROI. First-time and “wannabe” landlords … listen up. There is a lesson here for you as well.
For openers, let’s agree that your residential rental property or properties are a business. As such it’s critical to recognize your tenants as your “customers” who must be served by you to their satisfaction. Your payoff: Managing and profiting from a successful venture that thrives in today’s competitive and often unstable economic environment.
Businesses are built on critical pillars that support their success. That said, it’s important to recognize that if one isn’t sound, it will impact the load on others and ultimately force all to fail over time. As we’ll see, these pillars are internal systems and strategies that support your staff (even if that means you alone) and deliver for your tenants/customers every time.
The 6 pillars of property management success are:
1. Leasing & Marketing
2. Maintenance
3. Operations
4. Accounting
5. Crisis Management
6. Compensation
Win in managing these 6 pillars to create a solid foundation that drives consistent growth and financial return on your residential rental property investment. Let’s look at each of the 6 pillars in more detail.
Leasing & Marketing
Properly conducted, leasing and marketing generates cash flow, raises property values and increases profits for owners. That means that the dreaded word “vacancy” is significantly eliminated.
The two major thieves of rental property profits are vacancy and turnover. Vacancy steals by depriving you of rent payments. Vacancy can be more expensive than repairs, maintenance, and upgrades combined, so minimizing that exposure is critical.
Turnover inflicts higher costs in readying the property to be rented again and again. Maintaining occupancy rates at a high level protects your revenue streams and minimizes your management commitments.
The antidote to turnover is replacing vacancies with quality renters. That means you must mentally prepare for the demands on your time unless you have staff support or an outsourced property management resource. As a frame-of reference, KRS Holdings guarantees to lease your home in 21 days to a long-term resident or give you ONE month of management fee free.
Maintenance
Most properties require at least some sort of maintenance over the course of a year. Your job is to either be a full-service property manager equipped with an in-house maintenance team specializing in smaller repairs … or have trusted relationships with licensed subcontractors with a proven track-record of responsiveness and preferred pricing. To help with budgeting and choices of trade resources, identify what are predictable preventative maintenance issues and expectations for frequency and costs to be addressed.
Even good tenants will want your full and immediate response when their toilets back up or there is a major break in a water line. That’s your moment-of-truth … how will you respond promptly and with maintenance resources that don’t break the bank?
Operations
The primary objective of operations management is to safeguard your investment by ensuring full contractual compliance by tenants. That often means demonstrating respect and consideration of tenants when financial difficulties, illness and other factors impair their ability to meet their rent commitments.
That does not include excusing tenant behavior that endangers other renters or your rental property. At the end of the day, all property managers whether individual landlords or professional firms, must pursue any and all legal avenues to obtain fair compensation for a breach of contract and further safeguard the owner’s investment.
Accounting
The accounting function is to properly manage your rental investments. That means employing critical checks and balances to protect the property assets, ensure accurate entry of financial data and provide needed documentation at tax time.
To fulfill these reporting requirements, real estate property management companies will process transactions, identify accounting events plus prepare and update documents and reports. That will include the following four processes:
- Accounts Receivable: collect rents to maintain a steady stream of income.
- Accounts Payable: pay invoices.
- Accounting Management: oversees all financial reporting, making sure financial transactions are properly authorized and recorded.
- Tenant security deposits: practices to refund at time of vacancy.
Ideally, you will prepare or have prepared a monthly profit and loss statement documenting and reconciling income and expenses for the previous month. This combination generates the data needed for management decision making to maximize profits and avoid any financial malfeasance.
Crisis Management
Crises come in many forms and severity is determined by who is bearing the burden of the frustration, inconvenience or perhaps even tragedy. Attention to the above discussion regarding maintenance is valuable in recognizing that “being prepared” to meet the unexpected is the guiding principle.
The C-19 pandemic offers a teaching moment in dealing with a calamity that impacted thousands of Virginia tenants and their ability to pay rent. Most legitimate reasons were driven by a bread-winner being unable to work due to Covid or layoffs. Clearly, this was a financial crisis for both tenants and landlords … renters facing the specter of eviction, landlords the victims of cash flow disaster.
To support and ensure housing stability across the Commonwealth, Virginia provided financial assistance for past due rent or mortgage payments. That’s the good news … the less than good news … the overwhelming majority of tenants were intimidated by the application process and took no action.
In response to this lack of participation, the rules were amended to permit landlords to apply for assistance on behalf of tenants who owe back rent. KRS Holdings responded immediately with no concern for whether it was its job or the tenants’ … if nobody does the work, everybody loses. The upshot of KRS Holdings initiative, over 500 Virginia families received combined rent relief approximating $1.5 million!
Said another way, KRS Holdings has been a partial “bread-winner” for hundreds of Virginia households … with a corresponding benefit to our property management clients and tenants in our rental units.
The foregoing relief program expired last year. As the pandemic continues unrestrained, in early January 2022, Virginia launched a similar Mortgage Relief Program to help ease delinquencies, defaults and foreclosures due to the pandemic. KRS Holdings will once again offer free support to our eligible customers at no charge.
Compensation
To determine your compensation as a landlord, your investment strategy and objectives will govern. For example, your intent may be to:
· Seek rent that covers your mortgage and maintenance expenses to break-even and anticipate future profits from appreciation in the value of your property.
· Enjoy a monthly positive cash flow over and above expenses.
· Some combination of the two above plus tax considerations.
So, your rent pricing must include debt service, maintenance and emergency reserves. In addition to that, you’ll need to factor in “sweat equity” if you are a DIY landlord, or the services of a property management firm.
The most common compensation model for property management firms serving the residential rental market is a percent of rent. Typically, a property management company will collect rents, retain 10% and remit the balance to you, the property owner.
Takeaways
This article is intended to “de-mystify” the elements of effective, profitable property management. Whether becoming a landlord was a choice or a result of circumstance, it doesn’t change the fact that managing any property comes with its challenges… and we want to help. At KRS Holdings, we stand by our core principles to always be straightforward and honest in every situation.
We strive to make our clients the most money possible. This all starts with getting you the right tenant. KRS is unmatched in quickly filling properties with quality renters. We’d love to talk more about how we can make your property profitable.
Whether you are a DIY landlord or someone that needs property management services … or a combo of the two, KRS Holdings is here to help!
Give us a call or drop an email. We’ll respond promptly and
relieve your stress to evaluate your property management options.