When considering an investment in an apartment building, one factor that deters investors from making that purchase is the idea of having to manage the building, and all that it entails. Its the fear of revolving around tenants and maintaining the building in tip top shape that holds them back.
While keeping this in mind, if you are faced with similar fears, know that there is a way to overcome it. To avoid all the daily hassles of managing an apartment building, investors and owners hire capable property management companies. In this way, you wouldn't have to talk to a single tenant, or even hire a painter, plumber, or a janitor for the upkeep.
As an owner or investor of a building, it is important to realize that your primary duty is to manage and produce a liquid cashflow for the smooth functioning of the building. You have to provide sufficient resources rather than getting your hands dirty doing all the legwork yourself in maintaining the physical structure, which is probably not your forte. It is always beneficial to outsource these minimal day-to-day tasks to a company that efficiently manages property as its function.
An average property management company charges between 5% and 6% of the gross income that the apartment building generates in a year. The gross income encompasses the various ancillary incomes generated through the amenities you provide around your building, including your laundry room, your rent, storage units, and parking charges. Lets assume that you're building manages to net $120,000 in gross income; then you will be charged about $7000 per annum.
Now that you have an idea of what a property management company is, we will discuss what they can do for you. The pros outweigh the cons, but to keep you well informed, both of these are as follows:
Pros of synergy between property owners and property management companies
As specialist in the property management business, they are experienced and know how to get the job done efficiently and effectively. With a network of dependable contractors, maintenance people, and leasing agents, your property will be well looked after.
You will not have to knock on doors, or send reminders every time rent is due. Your management company will deal with that at an interval specified for each tenant.
With a property management company on your payroll, your investment options will be vast and diversified. You will no longer have to be physically present to grasp at a profitable deal, in fact, you can scope out deals all over the country.
Local property management firms are well versed in the local real estate market; their knowledge encompasses the rules, regulations, and law governing that particular city and state. This is an added benefit, as they will know how to operate and manage a building better on a day to day basis.
When the building is purchased on a loan, most if not all of the commercial lenders and banks prefer that the property be managed by a reputed property management company.
Cons of the synergy between property owners and property management companies
Firstly, property management companies may be very efficient at getting the job thats outlined done, however, if you were hoping that they would go the extra mile for your building, it would be best to stop the false hopes there and then.
Secondly, if you were managing the building yourself, you'd pay attention to the little details, listen to the issues that the tenants are having; in short you'd treat it as if you owned it. However, in the hands of a management company; small things that contribute on a grand scale might get overlooked; an example of it might be the structural integrity, hidden leakages that may be damaging a entire section of the building, etc.
It is highly recommended that you try more than 2 companies before handing over the responsibility. Find the best fit for you and your building, ask around for their code of conduct, or any companies they may have had in the past. Be thorough in your search and put your mind at ease before settling on a property manager.
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