To property owners and real estate investors, a property manager is a necessary investment that can lead to higher profits and fewer headaches for the property owner. Property managers understand how to increase the property’s value over time, keep capital projects under budget and deal with legalities. Landlords can hire a property manager to handle all management responsibilities or contract for specific services.
What does a property manager do?
The seven main responsibilities of property managers include the following:
- Rent management
- Tenant management
- Maintenance and repairs
- Landlord/tenant legal issues
- Supervision (employees and vacant properties)
- Budgeting and record-keeping
- Tax compliance
Of these seven main areas of property management responsibilities, rent management tops the list because a landlord goes under quickly if rent is mismanaged. Property managers must guard against mass vacancies and a high percentage of defaults. Landlords often delegate this responsibility to the property manager – and for good reason.
Managing rent is about much more than processing payments, which in today’s online world is easier than ever. The landlord needs a professional property manager with expertise in setting the right rent level. Setting the right rent level is the property manager’s most important job because it ultimately determines the property’s profitability.
How property managers set the right rent level
There is a bit of art and a bit of science in determining the right rent level. Data like comparables provide the raw numbers that determine a range; a professional property manager then must use this data to determine the right balance between higher profits per unit and the vacancy rate.
Using comparables to determine the rent level
When choosing comparables, property managers look for properties in the same and similar neighborhoods that have the same number of bedrooms and bathrooms and are the same property type. Property managers may also ask realtors for a pricing opinion. They generally find comparables in online ads or by visiting apartment complexes and taking a tour.
Landlords adjust rent according to the amenities included with the property and unit because tenants are willing to pay more for properties with these characteristics:
- A view, especially of skylines, mountains, beaches, gardens, and parks
- Updates, such as new appliances or hardwood floors
- Square footage: People like having room to spread out
- Layouts: Open spaces are in vogue; railroad style layouts are not
- Floor level: In elevator buildings, higher floors command a higher rent. In walkups above three floors, the opposite applies
- Balconies make units more desirable, especially in warm, dry climates like Phoenix
- Extra closet space makes tenants’ lives easier
- Apartments with lots of windows are more desirable, especially when combined with a nice view
- The pool facilities are a big deal in hot places like Phoenix
The right rent level leads to profits
Making profits on an apartment complex on a monthly basis takes attention to detail and daily management of expenses and revenue flows. Many property owners don’t see a profit on a monthly basis and make money only after selling the property. This is disadvantageous for several reasons:
Without positive cash flow, the property is more vulnerable to a high vacancy rate or swing in the market that sends rents tumbling. A property with positive cash flow has protection against these downside risks.
- Negative cash flow may force the landlord to sell the property at the wrong time just to stem the losses.
- Positive cash flow can provide an interest-free resource for property improvements.
Typically, landlords see a zero to 6% profit each month. A 6% profit provides landlords with plenty of room to absorb vacancies or weather economic downturns. High profitability also makes the property more valuable when sold. Because the property is operating with a healthy profit margin, the landlord can sell when the market is most ripe.
Managing an apartment complex for positive monthly cash flow is an important property manager job duty that requires experience and constant vigilance. For that reason, many landlords opt to hire a professional property manager who can handle the day-to-day decisions while following a plan to increase rents and value.
The aggregate rent collected each month must cover the following:
- The PITI mortgage payment
- Maintenance and repairs
- Vacancy losses
- Employee compensation
- Renovation
- Advertising
- Legal expenses
Property managers work to reduce these costs and squeeze out a profit each month.
Rent adjustments
Rents need periodic adjustments. Property managers work hard to ensure that rents continue in the upward direction due to improvements in the property but can also recognize when market forces make a reduction in rents more advantageous because of excessive vacancies. The property manager must balance any rent increase against the possibility that tenants will move out. Rent increases are never worth triggering long vacancies. Because getting this balance right is challenging, many landlords opt to let a professional property manager handle these adjustments.
Property managers follow a set of procedures when adjusting rent. State and local laws generally have requirements and failing to follow these regulations can invalidate a rent increase. Most rent increases are in response to changes in fair market value. In these cases, chances are good that if the tenant moves out because of the increase, the property manager can rent the unit quickly.
In other cases, rent increases may become necessary because of an increase in expenses. Property managers will try to limit these types of increases because if the tenant must pay above fair market value, there is a good chance that he or she will decide to move. With the unit priced high, a protracted vacancy may result.
Property managers handle rent increase notifications. Most state and local laws require the notification be delivered in writing within a specified time period before the lease expiration, usually at least 15 to 60 days in advance.
Determining the proper rent level makes or breaks a property. Analysis of the current market requires studying all comparables and weighing the property’s strengths and weaknesses against them. An important part of a property manager’s job description consists of conducting this important analysis and setting a price intended to fill units without unnecessarily sacrificing revenue. They closely monitor the number of showings units receive and adjust the price downwards in response to scant traffic. Managing rent always takes precedence for property managers; landlords rely on their skill and dedication.
LCI Realty helps landlords find commercial properties with the highest potential in the Phoenix area. Finding, purchasing and managing apartment complexes is a rewarding but time- consuming endeavor that requires a team of experts knowledgeable about the local market. LCI Realty provides that expert team that is so vital to commercial real estate investing success.
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