Management of a building is not just handling problems as they arise and renting units, it is making the asset more valuable to the owner by concentrating on every aspect of the property. Some owners of very large income properties still do not take professional property management seriously and fall behind in values.
The professional property manager is keenly aware of all of the recurring costs of a property and how they can effect the bottom line. The owner may applaud and give attention to a one-time saving on a “high-cost” item such as insurance on the property while overlooking the multipliers in the number of units.
For example, a $6,000 reduction on that annual insurance premium is a big item. However, it is only a $6,000 item once a year. A change of $10 per month per unit in a 400-unit apartment, either in rent increase or expense savings, can add $4,000 a month to income, or $48,000 a year. This small $10 per month could add $600,000 in value to the property in a sale ($48,000 increase in rents divided by 8% capitalization rate). Using the same capitalization rate, the $6,000 savings in cost of insurance would only increase the value by $75,000.
The Down Side
The manager must also be aware of the multiplier effect in downward changes in income and the possibility of changing a marginally profitable property into an investment loss. For instance, a seeming insignificant increase in the price of janitorial service in a 250,000 square foot office park could significantly decrease the cash flow and adversely effect the resale value by hundreds of thousands of dollars.
The larger the property, whether in square footage or number of rental units, the greater the significance of the multiplier effect.
Strategies should be defined and stated in a management plan developed by the owner and the management company.
Another important goal of property management is to ensure that tenants live, work, shop, and play in a safe and clean environment and have their real estate-related problems attended to promptly.