Property management fees are real estate’s necessary evil. Real estate investors would rather not have them, but they are a must for keeping income properties up and running.
It is obviously in every investor’s best interest to maintain property management fees at a reasonable level. Being too stingy to save a few bucks in the short term will only lead to cashing bigger checks in the long term. On the flipside, spending too much on management fees will swallow up a huge amount of a real estate investor’s cash flow. The topic of this blog deals with reducing the latter extreme: What are the best ways to minimize property management fees?
Find the Source and Solve It
Typically, when operating and management fees are through the roof, there seems to be a single source causing the high fees. More often than not, the source is in the maintenance aspect of residential property management, and not in others such as finding tenants, showings, and screenings. So, what is the solution? Find the source and deal with it! It could be likely that a faulty pipe is causing those expensive water bills.
Sometimes, however, the issue is not directly related to residential property management. Instead, the problem could be lack of positive cash flow. A real estate investor could be paying reasonable property management fees but with low rental income, which leads the investor to believe the property management fees are too high. The solution to this is to find out how much rent you should be charging, which you can do by clicking the link below.
Related: Renting Out Your House? How Much Should You Charge?
Renovate and Repair to Prevent Future Fees
Sometimes spending in the short term helps you save more in the long term. This is very true when discussing property management fees of both active and passive income properties. To piggyback off the previous point, regularly inspect the investment property and repair accordingly. Bathrooms and kitchens are the main rooms to constantly check up on.
Also consider renovating every once in a while. Renovations not only increase the value of the real estate property, which justifiably leads to increases in rent, but they can also prevent common maintenance problems.
Replace Only When Necessary
A general rule, not just for residential property management, but for essentially owning anything, is to not replace something if it can be fixed. At the same token, do not give anything a ‘cheap’ fix. Painting over mold instead of getting it removed will definitely not sit well with your tenant, or your lawyer. Only replace something if it is less expensive than repairing it, or if a replacement is way overdue.
Hire Professional Property Management
It might sound counterintuitive, contradictory even, to suggest that hiring professional property management helps minimize property management fees. But hey, it’s true. Professional property management can reduce management fees in a number of cases.
Related: Professional Property Management: When Is It Worth the Money?
If an investor is investing in passive income properties and has a full-time job, dealing with management and its fees could be especially tiresome. Management duties and fees would drain the real estate investor energetically, which can also lead to inefficiency and even more management fees. The solution? Hire professional property management to save time and money, since time is money. As a bonus, the investor could spend the added time to invest in more income properties for even more cash flow!
Professional property management can also help reduce fees while an investor is a novice. Beginning real estate investors may not be very comfortable with property management duties. The lack of experience could also lead to mistakes, which leads to even more fees. This problem is easily solved with professional property management because, as the name suggests, professionals will be taking care of the property.
Demand a Security Deposit from Tenants
When a tenant damages part of the rental property, management fees magnify. To ensure that your fees do not increase because of this, demand that tenants pay a security deposit. The deposit is used when an investment property is significantly damaged or when a tenant fails to pay rent.
Security deposits are an important part of landlord-tenant laws. To learn more about security deposits and laws, click the link below.
Related: Landlord-Tenant Law: Basics Every Real Estate Investor Should Know
Build a Healthy Relationship with the Tenant
Security deposits help reduce residential property management fees in case of damage, but they also lead to a broader point in reducing property management fees. Security deposits, among other things, help foster good relations with tenants, which can help reduce management fees for income properties.
Great relations with tenants can help you save on residential property management fees in many ways. The most obvious way this happens is when vacancies are reduced. Tenants desire landlords who listen to their concerns and actively seek to improve their rental experience. Thus, when tenants do have these kind of landlords, they have little incentive to leave them. As a result, the landlord experiences less vacancies (and lower property management fees).
Take Preventative Measures
The final way to reduce management fees is to take preventative measures. The best way to reduce residential property management fees is to make sure they are not expensive in the first place!
On the level of the tenant, a great way to avoid expensive property management fees is to screen for the best-fit tenant for your rental property. Ideally, your tenant will commit long term and not cause any problems, especially physical ones that lead to a ton of management fees.
On the level of the property, make sure its functionality is fine and has no issues before buying it. Inspections are vital for this reason. Take your time inspecting the investment property for sale and ask real estate professionals for help.
Property management fees are unavoidable, but they do not have to be painstaking. With the tips mentioned in this blog, you will be able to minimize your management fees to reasonable levels.
For more on how to purchase and run active or passive income properties, visit Mashvisor!