A very wise person once said, “A cord of three strands is not easily broken.” This saying is definitely true when it comes to property management. For large multi-tenanted properties to be well managed it requires three levels of oversight:
- the on-site manager
- the off-site property management company; and
- the owner.
Smaller properties with less tenants do not need an on-site manager. But apartments with 20+ units and very large retail, office and sometimes industrial properties with many tenants may need an on-sight manager. For these properties, on-site managers will maximize a property’s performance.
In the previous two blog posts I have focused on those circumstances when you should fire your on-site manager or your off-site property management company. If you haven’t read those two articles I suggest you do now. Click the links below:
In today’s article I want to focus on the impact, you the owner, have on your property’s performance.
We have met the enemy and he is us
Comic strip character Pogo once said, “We have met the enemy and he is us.” That is certainly true when it comes to owning commercial real estate. We can be our own worst enemies by how well we manage our properties. Whether we self-manage or whether we employ the services of a property management company either approach can have positive or negative consequences to the bottom line. There is no right answer to which option to choose. It all depends on how much time and effort a property owner wants to spend on their property.
For those who self-manage their properties I say more power to you! I’ve always believed that the best tool in my tool box is my checkbook. I’ve learned the hard way over the years that I should avoid doing things that others can do better, faster and sometimes cheaper. Property management falls into that category. I leave it up to the professionals so I can focus my time on things that I’m better suited for.
My experience managing apartments
In a former life I was both an on-site and off-site property manager for new Class A apartments located in Nashville, TN and Atlanta, GA. Metaphorically speaking my three years of property management experience was like “drinking from a fire hose.” I learned so much about human nature, how to manage people, how to keep a property running smoothly and most importantly how to keep my tenants happy.
I have nothing but respect, bordering on awe, for those on-site property managers who do their job well. It’s a tough job and unfortunately most property managers are not paid well. I recommend when you find an excellent on-site property manager pay them 120% of what is considered market. In the long run paying a little bit more for your on-site manager will be more than offset by the improved cash flow that is generated by having a well managed property.
You get what you inspect, not what you expect
One of the most important lessons I learned while I was a property manager was, “You get what you inspect, not what you expect.” Not until I started inspecting whatever task I requested did my employees realize I meant it. Sure they would go through the motions and do whatever I asked but most of the time it was not to an acceptable level. But when I started inspecting their work all of a sudden the quality of their performance improved significantly.
The same was true with my kids during their formative years. If I asked them to clean their bedrooms, their performance was barely passable at best until ol’ Dad inspected their rooms.
#1 mistake property owners can make
Why am I talking about, “You get what you inspect, not what you expect?” Because the number one mistake commercial real estate owners can make is doing a very poor job overseeing their on-site managers and/or the property management companies whom they contract with.
I believe strongly that a property owner can significantly improve the performance of their properties by doing a better job overseeing the property management. Conversely, passive owners are asking for trouble. It isn’t by accident that out-of-state owners are more likely than in-state owners to have poorly managed properties. As the saying goes, “When the cat’s away, the mice will play” is also true with property management. If the property manager knows that the owner will rarely visit the property, that property will suffer the consequences.
What proactive property owners inspect
So how are you doing as an owner overseeing those who manage your property? Do you think there’s room for improvement? Here are some suggestions for becoming a more proactive property owner:
Inspect the property regularly, preferably without letting the on-site manager knowing you’re coming.
- How presentable is the staff? Do they look professional?
- How is the curb appeal? Is the landscaping well maintained with minimal garbage strewn about?
- Is there any obvious deferred maintenance?
Review the property’s operating statements.
- Ask questions. Be curious. If an expense seems particularly high ask why?
- Review the rent roll. Ask when the last time rents were raised. See if there are any units whose rents are significantly below market. Ask why?
How well you oversee those who manage your property will in large part determine how well your property performs. Truly, you get what you inspect, not what you expect.
Oversight by the owner is key to optimizing a property’s performance
When it comes to property management there are three levels of oversight. The third level, i.e., the oversight by the owner, is the critical linchpin to successful property management. Why? It is the owner who keeps the on-site manager and the off-site property management company on their toes. With the proactive involvement of the owner the performance of the property is optimized.
What do you think? What have I missed? Can you be a passive investor and be successful?