Investment Properties: What is the ROI of a Property Manager?

The qualitative benefits of having your property professionally managed are numerous. From handling tenant payments, to fixing maintenance issues in a timely fashion, a property manager can help reduce many of the stresses that often come with renting out your investment property. However, these benefits come at a price; the property manager’s fee.

The question then arises: “what is the ROI of a property manager, and is it worth it?”

In this post, we will discuss some of the different types of value that an experienced property manager can provide, and look at specific examples of how that value can improve your bottom line as a landlord.

 

How Can A Property Manager Add Value To My Investment?

There are two basic types of value that property managers can provide: monetary and non-monetary. When it comes to monetary value, property managers can provide quantifiable returns by increasing income, cutting costs and providing valuable insights among other things. A few fundamental ways in which a property manager can help improve the return on your investment are by
maximizing rental prices, reducing vacancy times and implementing cost-effective maintenance solutions. Let’s take a look at some of these benefits in more detail:

Maximizing Rental Prices

When it comes to renting out a property, it is typically in the best interest of a landlord to secure the highest price possible (more to come on why this is not always the best option) for their property. That being said, it is your goal as a property owner to secure the highest possible price for your property in the rental terms.

In addition to having up-to-date knowledge on average rental prices and other competing properties in the area, a property manager will also have a list of prospective tenants who are actively seeking a rental property in your area. Going back to basic economics, more prospective tenants (the demand) for you property equates to higher rental prices for your property (the supply).

The Value of Increased Rental Prices

For example, let’s say that you list your property on Craigslist for $800 per month. After responding to inquiries and showing the property, you end up with three offers. Your best offer is for the $800 that you were asking for, while the other two offers are a bit lower.

While this is great, a property manager will help you analyze the current market conditions and set the optimal price based on those conditions, which may be much different than what you had in mind. Additionally, a property manager will be able to market your property to the most amount of prospects, resulting in an increased interest in your property.

In some cases, increased demand for a property can actually result in a higher rental price than you had originally offered. When multiple people are interested in a particular property, it is possible to receive offers which are higher than your original offer price, as serious demand can create a bidding war. In our example, let’s just say that the property manager helps you secure $900 per month for your property instead of the original $800. That would equate to an extra $1200 in income over a year!

Minimizing Vacancy Times

While a higher monthly rent is typically a good thing, you must also keep in mind the importance of minimizing, or even eliminating, vacancy times if possible. In fact, the benefits of additional income generated by higher rental prices can quickly become irrelevant with longer vacancy times. An experienced property manager can provide value by helping you keep an optimal balance between maximizing prices, while minimizing vacancy times.

The Value of Reduced Vacancy Times

For example, lets say that you currently rent your property at $800 per month, but would like to increase the monthly rent for your next tenant to $1,000 because you’ve recently renovated parts of your property. This will allow you to generate an extra $2,400 of income per year! Not so fast though…

While the increase in price may be completely justified, you must also make sure that it does not negatively affect your property’s vacancy, or the amount of time that it takes to get your next tenants to sign the next lease. In this example, you would have exactly 3 months (3 mo. x $800 = $2,400) to find a new tenant before the higher rental price is no longer beneficial. Ultimately, a property manager can help you cut down or even eliminate vacancy at your property by providing you with a list tenants who are actively seeking a property in your neighborhood.

Providing Cost-effective Maintenance

Many property managers will either contract maintenance out to a firm or have an in-house maintenance team to fix property-wide maintenance issues. Either way, a great property management company will have the the necessary specialties and resources to provide cost-effective maintenance. Maintenance issues can be a huge. Additionally, when maintenance issues are not taken care of immediately, they can have a significant impact on the long term value of your investment property. Quality maintenance can be especially valuable for landlords who are not familiar with housing repairs such as plumbing, wiring, etc.

The Value of Cost-effective Property Maintenance

Aside from relieving the stress associated with resolving maintenance issues, quality maintenance can have an indirect impact on your bottom line in many other ways. For example,

How Can a Property Manager Add Non-monetary Value?

Value is not only measured in dollars and cents. In fact, some of the most important ROI factors for many property owners are non-monetary. There are several ways in which an experienced property manager can provide non-monetary value, some of which include saving you time, reducing/eliminating stress, improving the quality of tenants and providing years of experience. Let’s examine some of these non-monetary values in more detail:

Saving You Time

One of the most fundamental ways in which a property manager can add value is by saving you time. From collecting and processing monthly payments, to providing routine maintenance on your property, the time can start to add up. This can be especially true for property owners who own several properties or live far away from their properties.

The Value of Your Time

For example, let’s just say that hiring a property manager saves you an average of 3 hours of work each week. It may or may not be easy to assign an exact dollar value to your time, but let’s just hypothetically assume that you value your time at $50 an hour. By these standards, a property manager could save you $150 in time each week, not to mention the stress.

Reducing Stress

In addition to taking up a lot of your time, effectively managing a property can add unwanted stress to your life. For some owners, this is absolutely the most valuable benefit of having a property professionally managed. As with many endeavors in life, managing an investment property can be very stressful and the stresses can quickly become compounded with bad tenants, maintenance issues and others factors.

Processing your rent checks, paying your utility bills and fixing maintenance issues can become a full time job. By handling these processes, a property manager can provide you with the ability to generate the monthly income associated with an investment property without worrying about all of the logistics involved. We’re not just talking about adding a few dollars here, we’re talking about adding years to your life!

Obtaining & Retaining Quality Tenants

Obtaining and retaining quality tenants are two of the most overlooked and underrated factors by many landlords. These factors alone can have a serious impact on your bottom line as the owner of an investment property.

The Value of Good Tenants

A property manager will have the necessary resources available to properly screen prospective tenants before they sign the lease. Knowing that your tenants have a healthy credit score and no criminal background can be critical to successfully operating a rental property. Not only do quality tenants pay their bills on time, but they are more likely to respect your investment property and retain its value.

Additionally, by professionally managing your property,  you have the best chance of retaining each tenant for longer periods of time. Retaining tenants can save you the time, money and hassle involved with re-listing your property on the market as discussed above.

Providing Years of Experience

Experience is something that can only be achieved with time. By providing years of experience, a property manager can help you get the most out of your investment property and will help you side step many of the common mistakes that property owners experience.

Handling Legal Issues

Many landlords know that it only takes one bad tenant to create a nightmare. Many times, disputes regarding payments and other factors can end up resulting in legal action. One of the goals of screening tenants is to avoid legal issues, however, sometimes they do arise.Fortunately, an experienced property manager will be knowledgeable of the latest landlord-tenant laws and will help you to settle any legal disputes in a professional and cost effective manner.

Contact An Experienced Property Manager

Ultimately, each situation will be different and the amount of value that a professional property manager can provide will depend on several factors including the location of your property, your experience as a landlord and many other factors.

However, they can all have a serious impact on your bottom line as a property owner and may even add a few years to life! If you own a property and are interested in renting it, contact XCEL Property Management today to discuss some of the advantages of having your property professionally managed.