Starting a property management company is one of the best ways of building wealth in real estate. In 2019, the US property management industry produced about $76 billion in earnings, with the figures expected to rise in the coming years. However, becoming a property manager does not mean that you will automatically succeed. Many people that start property management companies end up shutting down within a few years.
Related: 8 Things the Best Property Management Companies Do (That You Should Do, Too)
Many things can go wrong when managing property and running a company. Here are some of the common reasons why even the best property management companies experience failure:
Why Property Management Companies Fail
1. Not knowing their housing market
At times, property managers get so engrossed in the daily activities that they fail to keep track of local housing market conditions. Technologies, marketing strategies, demographic trends, rental market demand, government restrictions, and interest rates are always changing. Not being aware of such changes could mean missing out on opportunities for generating property management leads and growing your business. Property managers can stay up-to-date by regularly reading property management blogs and newsletters, following industry experts, setting up Google alerts, and attending industry events.
2. Having a poor online reputation
Nowadays, potential property management clients can conduct a quick search of your company and form their opinions based on your website, discussion forums, social media pages, and online reviews. This means that your online reputation can make or break your property management business. One negative review could seriously affect your property management lead generation efforts. It is therefore important to keep track of what people are saying about your company online. Addressing negative reviews quickly will minimize the damage and protect your reputation.
Related: How to Handle Bad Property Management Reviews
Another way of countering negative reviews is by flooding the internet with positive content about your business. This could be client testimonials, news about company CSR activities or information about new offers. Such content will build trust in your company and enhance the chances of attracting more property management clients.
3. Not having repeatable systems
Property management companies need to have processes in place for routine activities such as property management marketing, sales, operations, accounting, and information systems. To enhance your chances of success, you need to make these systems repeatable. When an employee decides to leave, they will leave behind a process that is well documented. This will make it easier for new employees to take over smoothly without compromising productivity.
4. Expanding too fast
Many property management companies and property managers fail because they attempt to add too many rental properties to their portfolio too fast. Due to lack of capacity, they find themselves overwhelmed by the added responsibilities. Before scaling your business, take a step back and evaluate your capacity. You might need to hire and train new employees before expanding your portfolio. Your property management team should not only be qualified but also have good work ethics, adaptability, and flexibility.
Related: 7 Tips to Build a Great Property Management Team
Besides getting new employees, you might also need to start using property management tools which will facilitate your business growth. Mashboard is one tool that helps you find new, profitable investment properties for your clients and leads. Learn more.
5. Spreading too thin
Many property management companies fail due to having units that are too spread out. Managing single family homes that are located miles from each other can be very costly and time-consuming. Your employees will have to drive long distances to deal with tenant disputes, regular maintenance, home inspections, and emergency repairs. This means additional expenses which will eat into your profits. You can avoid this workload and expense by focusing on multi unit properties.
6. Not making use of property management tools
To be a successful property management company, you need to leverage property management technology (proptech) in your business. Property management software such as Mashboard, Buildium, Appfolio, Re-Leased, FantasticStay, and Rent Manager can come in very handy for simplifying day-to-day operations and lowering the cost of running a property management company. For example, instead of having traditional home showings, you can use 3D technology to give potential tenants a virtual tour of the rental property.
However, many property management companies are stuck in the traditional way of doing things. Failing to incorporate new technology will lower your productivity and make you less competitive in the property management industry.
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7. Charging too little
Some property managers charge below-market-rate management fees as a way of attracting customers. Though this strategy could win you new business, it is not viable. The operations of a property management company are funded by the management fees levied. When you charge a low fee, you might not be able to offer the same level of service as your competitors. You will find it difficult to hire new employees to handle the increasing workload. To avoid this mistake, make sure your management fees are enough to cover your current expenses and still leave you with a profit.
8. Paying too much for maintenance
Maintenance is an unpredictable expense that is difficult to budget for. There is usually no way to foretell when things will need to be repaired or replaced. If maintenance costs are not controlled, a property management company could find itself operating at a loss. This is why it is important to find contractors and vendors that will give you good service at the best price. Forming long-term relationships with such contractors and vendors will result in even more discounts in the future.
9. Poor bookkeeping
Many property management companies attempt to handle all their bookkeeping in-house. Since most property managers are not trained in accounting, they are likely to end up mismanaging the books. Inaccurate rent rolls, overpayments to vendors and contractors, and missing income will ultimately result in the failure of the property management company. This pitfall can be avoided by outsourcing bookkeeping to a professional accountant or hiring a dedicated accountant in-house.
Conclusion
Running a new property management company is not easy. There are many pitfalls that could cause your business to fail. However, you can be proactive and take steps that will minimize the risk of failure and boost your chances of success.
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