Why Professional RE Management Can Increase Value

May / June 2019

Professional investors can usually spot a low-priced and unprofitable income property that can be purchased, then upgraded with little expense to become a positive cash flow property. The investor can then add the property to their real estate portfolio or quickly sell for a profit.

All owners want their properties to have increased income that will translate into an increase in value during their period of ownership. The first-rate property will command the highest price when it is sold. To achieve this goal, income properties must be properly managed. Major errors can be made by an income property owner trying to self-manage properties to save money. The professional investors know that enhanced value usually comes from professional management.

Professional management teams have experience and training in the field, increasing revenues and cutting costs. Since the value of a building is based on the condition of the property and its cash flow, professional management should increase value and keep it at its highest potential. The difference is the professional’s ability to define and execute management duties.

The key management duties are: tenant relations; finances; maintenance; and protection of the investment. To handle these duties, the professional management company will do the following:

  1. Plan rent schedules.
  2. Find tenants who can meet the rent schedule.
  3. Qualify tenants by a credit investigation.
  4. Prepare leases or rental agreements and get them executed.
  5. Prepare specifications for decorating, securing estimates, awarding the contract, and supervising the work.
  6. Purchase supplies needed for the operation of the building.
  7. Audit and handle payment of bills.
  8. Advertise vacant space through the proper media channels and with other brokers.
  9. Plan update and modernizing programs.
  10. Inspect vacant space in the property.
  11. Keep abreast of competitive market conditions so rent schedules are up-to-date.
  12. Maintain complete records so they are available for immediate reference.
  13. Prepare accurate and periodic financial statements and a complete accounting of funds handled.
  14. Pay insurance premiums and taxes and recommend tax appeals when warranted.

To put this into its simplest terms, real estate management means someone’s efforts to maximize income and value by:

  1. Preserving the physical desirability of the property (checking for ways to prevent physical deterioration; studying and anticipating functional obsolescence; being alert to interior and exterior maintenance needs); and
  2. Maintaining high standards of service to tenants (being conscious of tenant and public goodwill; valuing the reputation and appearance of the building; being proactive in extending services that will attract reliable tenants).

Standard Procedures

Professional property management companies will use written standard operating procedures to cover all aspects of operating and maintaining the property. They are used by the manager’s employees daily.

How a property manager carries out duties will vary, depending on the type of property involved and on the kind of manager hired. In addition to basic duties, a manager at a newly developed retirement community might consider safety and security systems his top priority item. In an old office building, this same manager might be much more concerned with physical aspects (heat, electricity, plumbing, painting) and with energy conservation measures (water use, non-centralized air conditioning, weather-stripping windows and doors). All properties will be examined in depth to solve particular problems inherent to that location and use.

Each property has its own set of problems and challenges for a management company. Each will be analyzed when the management contract is executed. The management company then sets up the procedures and goals necessary to increase the income from the property. By doing so, its value is enhanced in the most efficient way.

Computers have taken a larger role in the maintenance of properties, including the record-keeping aspects for budgets, income statements and rental statements. On-site managers must be educated and trained. This can be best handled by the professional company with a trained staff managing a number of properties.

Many owners with a number of large complexes often use a professional management company to manage all of their investment properties. The manager usually works on a commission basis, frequently a percentage of the gross income. The experience and know-how that a good manager brings to the table usually makes up for the cost of his services.

Like hiring any other professional in commercial real estate for acquisition, sales or exchanges, professional management is not a cost that will not be returned. It makes money for the property owner.

For more information about property management services by Metro East call Jon Whitcomb at 651.351.5005 or 651.283.4884.