I’ve watched the way owners approached their property rental management for almost twenty years. During that time I have noticed some unmistakable principles for succeeding or failing with rental properties. Most prominent is the issue of greed versus reason. Some owners don’t recognize it as greed, they prefer to call it frugal, but scrooge’s penny pinching attitude is just as much greed as the person who takes undue advantage of others. The most successful rental owners operate from a position of rationality rather than greed or fear.
It often starts when a rental owner looks for a property management company. They tend to look for the company with the cheapest rates. What owners don’t realize about management companies is that it takes a certain amount of dollars to provide an effective and quality management service. Property management is highly labor intensive. It requires a very skilled and diligent communicator to meet the needs of the owner and the tenant. Let’s say you hire the least expensive property management company. In order to make a profit, that company has to spread its resources thin in order to manage its properties. Because they are overloaded in their duties, they tend to short change individual owners in the communication process. We often get calls from rental owners wanting to change management companies because of some kind of communication failure. The property manager forgot to tell them about a repair or that the tenant was going to be late with their rent. They often don’t recognize the direct relationship between the fees they are paying and the service they are getting. Rational owners look not only look at the fees but at the quality of service.
The second area that greed effects rental management is in the rental price of the property. Owners want to get as much rent as possible from the rental property. Greed often defeats reason because the owner does not recognize the pitfalls of an overpriced rental. When a rental is priced over the market there are only two possible outcomes. The first is that the property sits vacant for a longer period of time and thus reduces the owner’s overall effective rental income. The greatest loss in rental properties is due to vacancy. A second possibility is even worse. The owner accepts a less than stellar tenant. This is because all the tenants with good credit and good income are able to rent more affordable properties. In a few months the inevitable happens. The tenant fails to pay rent, has to be evicted and leaves the property in a damaged condition. Now the owner not only faces more vacancy but has to invest a large amount of money in restoring his property. The few dollars he made at an overpriced rental rate are more than swallowed up in his losses. Juxtapose this against the owner who prices his property below the rental market and gets a highly qualified tenant. The tenant stays for a longer period of time and takes great care of the property. The outcome for the rental owner is a higher overall rental income. By renting at a lower rate, he has found a better tenant, reduced his vacancy rate and his maintenance costs and made more money off his rental investment.
Greed kills, rationality succeeds.
Weldon McMath – McMath Realty Property Management