Investing in commercial property can be very lucrative and provide a steady and substantial revenue stream for owners. I emphasize the words, “can be,” because plenty of commercial property owners have lost money in failed investment attempts. The two most critical factors that determine whether or not a commercial property investment will be successful are the structure of the leases and solid property management. In this article, I’m going to examine the advantages of hiring a reputable property management company (PMC). I’ll write a follow-up article later this month that focuses on lease structure and explains why choosing one company to handle your leasing and property management is a good idea.
Is self-managing a wise business decision?
When an individual or group decides to invest in commercial real estate, one of its first tasks is to determine whether to hire a company that specializes in property management or to self-manage. Some of the main reasons investors may try to manage property on their own include:
- Avoiding the cost of hiring a PMC in the hope that they will save money.
- A fear of giving up control and relying on someone else.
- The idea that they have plenty of free time to manage the property based on the mistaken belief that the process is as simple as collecting rent, answering an occasional tenant call, and paying the bills.
Let me take a moment to acknowledge that there are some commercial property investors who have been able to successfully manage their own properties. These investors are most often full-time real estate investors who have the staff to perform necessary duties. Self-management success stories by an individual are very rare. With very few exceptions, most investors greatly underestimate the time, effort and expertise required to effectively manage a commercial property. It is very common for new investors that start out self-managing to quickly realize they’ve gotten in over their heads and suddenly understand the value of hiring an experienced PMC. Those that are not willing to admit they’re not qualified and to relinquish control to experts usually fail to remain profitable. Ask any seasoned commercial real-estate investor and they will tell you that a good PMC is a smart investment that pays for itself many times over.
There’s more to property management than you might think
Effective management of commercial property involves thousands of details, variables, tasks and potential pitfalls of which inexperienced investors are unaware. The following are just a handful of examples that demonstrate the importance of leveraging a competent PMC.
- Tenant Screening – Reputable property management companies have a comprehensive, proven and legally defensible screening process that will help you identify reliable and trustworthy tenants who are more likely to pay on time, rent for longer durations, and take reasonable care of your property.
- Legal Issues – Every state has its own set of complex and dynamic landlord-tenant legal regulations. Property safety, tenant screening, evictions, inspections, rent collection – the list of potential legal liabilities goes on and on – but a good PMC understands the latest laws and knows how to minimize risks.
- Filling Vacancies – Vacancies are inevitable, but as long as spaces remain empty money is being lost. A quality PMC has the resources to quickly make cosmetic alterations and necessary property repairs. They understand how to calculate leasing rates that are attractive to potential tenants and profitable for property owners. In addition, they have the experience and resources to market available spaces and the volume and relationships to do it cost effectively.
- Rent Collection – Timely rent collection is critical to success. Tenants will walk over a property manager who doesn’t know how to enforce the terms of the lease. A reliable PMC will ensure timely payments, chase down late payments, administer penalties as needed, and evict tenants when necessary.
- Maintenance and Repairs – Regular maintenance and timely repairs are crucial to ensure satisfied tenants and preserve the value of your property. Maintenance and repairs are a constant responsibility that can become expensive and time-consuming when not properly managed. An experienced PMC typically has its own in-house maintenance staff, as well as a reliable network of licensed, bonded and insured contractors who charge competitive rates and do quality work.
As I’ve mentioned, these examples are just the tip of the iceberg – there are literally thousands of details to manage and experience is the only possible way to manage them all efficiently and effectively.
Own your freedom
Choosing to self-manage comes with a lot of stressors, such as trying to collect late rent, emergency calls both day and night, property damage and repairs, evictions, filling vacancies, bills and paperwork, and much more. Having a PMC you can trust will not only increase the value of your property and your bottom-line profits, it will also alleviate the countless stressors and provide you with freedom. You may use your free time to focus on other investment opportunities or spend it with your family and friends. It doesn’t matter how you spend your free time, it only matters that you have some free time available.
Grayson Powell is a Managing Partner at Coldwell Banker Commercial SunCoast Partners (CBCSCP). CBCSCP leverages the vast experience of highly-skilled real estate professionals and developers and specialize in selling, leasing and managing retail, commercial, and investment property. To learn more about CBCSCP, visit www.cbcwilmington.com or call 910-350-1200.