In order to answer whether you should hire a professional property manager you need to understand your capabilities and capacity to perform in these six areas:
- Time commitment
- Property updates and repairs
- Customer service
If you have the time, a plan for repairs, a good CPA, can market your property, are good with people and problem solving, and can do all this for less cost than hiring a professional property manager, then you should not hire a property manager.
For most, the lure of cost savings is the primary driver to self-managing your property. After all, if you are skilled at many of the items in the above list, you can surely learn to be proficient in areas you need help? At least that was my thinking. What I found through my experience was additional information I should have considered that would have been helpful in making my decision.
Questions you should consider before you hire a manager:
Do I have what it takes?
- Knowledge of local laws– commercial real estate laws can be very complicated because of the volume and variety of laws. As a commercial real estate owner, you could be subject to federal, state, and local regulations. In addition, there are various types of laws including insurance, contract, and eviction. Unless you are a real estate attorney self-managing your property, make sure you engage one who can keep you out of trouble.
- Commitment to customer service– let’s face it, tenants can be demanding. Since tenants pay rent, the expectation of management is a prompt response to any property related issues. Having tenants is about a relationship, serving others, and making sure your tenant knows you care about the space they occupy.
- Negotiation skills–over lease structure, price, repairs, timing, and length, must be managed without offending your potential or existing tenant. Many times, property owners struggle in this area as negotiations tend to get personal over an asset you own. Some property owners use a real estate attorney to negotiate. However, depending on complexity, attorney fees can be quite high. In addition, attorneys can be more skilled at preventing business transactions than putting them together.
- Are you handy? – Maybe above all the questions that demand the most consideration is how adept are you in solving property related problems? When the call comes in that one of your toilets is clogged, or sink isn’t draining correctly. How about the foul odor that just appeared one morning or the temperature that’s always hot in the CEO’s office but freezing in the open office area? These are all potential issues that require different skill sets and various professionals. Without relationships that you trust in each area of a property, you can wind up eating up any profits quickly.
What is the condition of my property?
- Roof – In many cases, it can be cheaper to repair an existing roof than to do a full replacement. However, all roofs eventually fail and need replacing. Make sure you allocate dollars over time based on the current condition of your roof to allow for this expense. Begin making relationships in the roofing industry before you have a problem. Do annual inspections and keep up with repairs to avoid the cost of replacing before you should have to.
- Property Systems – knowing your building systems and the state they are in also determines your maintenance expense and profitability. Building infrastructure, electrical distribution, lighting, fire protection, heating, ventilation, air conditioning, boilers, plumbing, security, energy management, and emergency management are all areas where any property manager and building owner needs to be both knowledgeable and proficient.
- Exterior/Landscaping – I worked at a facility where the owner changed the landscaping flowers and plants in the spring, summer, and fall. If your property is in parts of the country with seasons, you’ll be considering the longevity of your parking lot. Plowing snow and salting ice all deteriorate parking surfaces quickly. Sprinkler maintenance, how many times you mow per week, and window washing are all considerations of the exterior of your property.
Are tenant improvements required?
- Who do you hire? – When it comes to tenant improvements, an architect is typically involved. The tenant or the landlord can hire the architect. Either way, the landlord approves all architectural plans.
- How much should improvements cost? – The cost will be determined by the complexity of the work being performed. Typically, tenant improvements are calculated into a lease package and paid for over the life of the lease.
- Construction management – Who manages tenant improvement construction is the most crucial factor. If the building owner is going to oversee and manage the construction, then a knowledge of the process is a must. Keeping a construction project on task and within budget is a challenge for seasoned construction managers. If you are choosing to do this yourself, make sure you have an understanding of construction, and if not, consider hiring a professional. Things can go wrong pretty quickly and fee’s skyrocket if construction companies know the person managing the project knows little about construction.
How much time can I commit?
All of the issues discussed so far point to the crucial factor of time commitment. How much time you spend on managing your property will be based on the following considerations.
- How far away is your property?
- Do you own multiple properties?
- Will this be your fulltime job?
- Can you do it all yourself?
Many secondary factors increase or decrease the amount of time you will spend managing. Any of these factors can dramatically increase your time commitment. If you own multiple properties and they are a distance apart, you will need to factor drive time. If your property is your only source of income and needs to be a full-time job, it makes more sense for you to manage yourself. As you begin calculating the time you spend managing ad an hourly dollar value based on your markets rates to determine if it would be cheaper from a time standpoint to hire a professional manager.
Also, if you are considering the purchase of another commercial property, a good idea would be to acquire the financial history of the building.
Am I a skilled marketer?
By what method will you use to fill your property with excellent, long-lasting tenants? If you are relying on a “for lease by owner” sign on the front lawn of the property, it could take you some time. A leasing broker is one area where most commercial property owners seek out an expert. A good broker will have a feel for your market and have relationships with potential tenants in your market that they can show and lease your building too.
Do I have a numbers strategy?
Property accounting is one of the most significant aspects of profitability there is. For example, making sure you are getting every tax advantage your property offers, calculating depreciation, and understanding revenue opportunities to add additional fees or save cost is what a good CPA should do for you. Having a good CPA who understands commercial property owners will add value to your properties bottom line.
Can I afford a professional manager?
After asking yourself these questions, and determining your situation, the question really becomes, “can I afford NOT to hire a professional manager?” Property management fees are typically based on a percentage of lease dollars. In addition, a professional property manager is a valuable resource if your property is struggling to fill or maintain vacancy. Their value largely depends on how they would have answered the previous questions. Make sure your management company is skilled in all aspects of your facility type if you decide the answer to the question “should I hire a professional property manager” is “yes.”
Based on the services provided, you can expect a typical fee to range between 4-12% of your gross lease revenue. For a good property manager or management company, this fee is well worth the cost. However, if you have relationships in the construction, HVAC, Roofing, landscaping, leasing, have a reasonably priced attorney (if there is such a thing), and the time resources to allocate, then self-managing your commercial property may be right for you. For more information see our blog How much do commercial property management companies charge?
Do you have thoughts on this topic or have a story of your experience managing a commercial property by yourself? If so, post in the comments below. We always welcome feedback.