Property Management Blog

Benefits of a Property Management Company

System - Tuesday, May 19, 2020

We are often asked "Why Should I Hire a Property Management Company?" or "What Benefits Would I See by Hiring a Property Management Company"? In today's video, we discuss how a Property Management company can get you more time and money - and provide two examples where we did just that.

Transcription Results:

Hello, and greetings from Colorado Springs. My name is Lance Kohler. I'm the broker-owner of the Cornerstone Real Estate team. Today, I'd like to talk to you about a few of the benefits of hiring a property management company.

Often, we hear owners of investment properties ask us, “Why should I hire a property management company? I'm managing it myself and I'm doing fine.” Or, “What benefits would I see from hiring a property management company? Again, I'm managing it myself and I don't have to pay anybody to do it.” So some common concerns are that hiring a property management company will be expensive or the owner won't make as much money or they won't make any money at all because the property management company is going to charge them fees for doing something that they're already doing themselves.

I understand those concerns. So today I'd just like to talk you through two examples of properties that we took over management and show you how hiring a property management company can actually make you more money. The first example we're going to use is a duplex. The owner had been managing it for five years. So it was owner-managed for five years, and rent was $700 per month per unit. The owner had not increased the rent during those five years because he had good tenants that paid on time and took care of the property. And he was concerned that raising the rent would cause them to leave. So he didn't keep up with the market increases. During that time in Colorado Springs, the market in some areas was going up 10% per year on rent rates. And the owner paid the utilities.

The utilities were not separately metered. The owner got one bill for the utilities and he was paying that himself. So what that looks like on a yearly basis is $1,400 a month equals $16,800 gross income, minus the utilities ($1,800) as an expense to that owner. So he's making $15,000 a year on the duplex. Two units rented at $700 per month. So after he turned over management to us it took us a few months to get everything turned over, meaning the leases that are in place were still in place. So we have to wait until the lease expires or comes up for renewal. And then we can adjust the rent rate and we can adjust the lease terms, like charging back utilities, et cetera.

So when we did our market analysis, we found that the market rent for these units in this duplex were really $900 a month per unit. So we changed the rent to $900 a month and the tenants are now paying utilities. It's billed back to the tenants. So we get the bill, we break it up based on square footage (typically), and we charge that back to the tenants. So now he's making $1,800 a month on those two units ($21,600 gross annual income), and no cost for utilities because we're charging the utilities back to the tenants. He does pay our 10% management fee, but now he's making $19,440 annually off of those same two units. So when you compare that year over year -- a year under his management vs. a year under our management -- it was costing him $4,400 per year to self-manage. And he was taking care of everything. It took his time. He was answering tenant phone calls. If there was a change in tenants, he was doing the leasing and he was filling out the leases. He was doing showings. He was responding to any repairs that were necessary. He was paying the bills. Now we do all that. He got all his time back AND he's making more money than he was when it was under his management.

The second example I have is a fourplex. Again, the owner was self-managing this fourplex. We took over management in August, and the total monthly income was just over $2,000 a month. And again, no income from utilities. The owner was paying the utilities bill. Again, they were not separately metered. There was one utility bill and the owner was paying it. So he was making an average of $531 per month per unit, giving him a gross annual income of 25,500. And the owner's concern was the cost of our management. So if he hired us to manage it, he was afraid he wasn't going to make any money and it was going to cost him money.

So let's look at the statistics of that for one year. So after one year of our management, (again, it takes some time to get the leases turned over and to get the rent rates up to where it's a market rent rate) he’s now making $2,500 a month in rent, and he's got income of $215 a month from the charge-back for the utilities, giving him an average of $697 -- almost $700 -- per month per unit. 

Now let me flip back really quick. He was making $531 per unit when we took over management. Now he's making almost $700 per unit -- just over $33,000 annually income -- minus our management fee. He's now making $30,123 per year off of the same fourplex, one year after we took over management, compared to the 25,500, he was making under his own management. So he made more money ($4,623 during that year) even after paying us management. And again, he didn't pay any bills. He didn't have to answer any phone calls. He didn't have to do lease renewals or sign paperwork. We sent him a monthly report and sent him an EFT deposit to his checking account each month.

Just to follow up on that fourplex statistic. After two years, now rent income is up another $500, utilities are now up to 250, to on average $731 per unit. So let me flip back: $531 when we took over. So now he's making $200 a month per unit, more than he was making under his own management, giving him a gross annual income of $35,000, almost $10,000 more than what he had been making two years prior.

So I wanted to present those as two examples of what hiring a professional management company can do for you. We'd be happy to take a look at your property. If you're interested, we'll do a free market analysis, run through all the numbers like we did here with your property and show you what we could do for you. 

I hope this was of interest and of value to you. If you have any questions, please reach out to us. We'd love to connect. Thanks, and have a great day!

Cornerstone Real Estate Team
685 Citadel Drive East, #325
Colorado Springs, CO 80909

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