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Property Management Blog

The High Cost of "Cheap" Property Management

Mendell Gosnell - Tuesday, October 6, 2015
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The High Cost of ‘Cheap’ Property Management

It is not the up-front cost that matters or whether your property is being managed for less than what most are paying…it’s the bottom line that matters. It is the check you receive along with the owner statement at the end of the month that shows your total profit that matters to owners. In this article, I am going to show you how an owner could make $3,402 in three years just by choosing the right property management company. We are going to look at a simple scenario that many unfortunate owners fall victim to when choosing a property manager.

You have a 3 bed 2 bath home. A company says they can manage your property for 4% and another company for 10%. In a 3 year span, the 4% company charges rent at $1200 all three years and doesn’t keep up with the rental market and their low costs mean they do not have enough staff to check on the property as often as they should, thus creating costly expenses for repairs that should have only cost a fraction if it was caught in time. At the end of each month, here is what the profit breakdown looks like with the 4% (Not even including repairs):

 4%                            $1,200  @  4%  =  $48  (management cost)

                                                $1,200  -  $48  =  $1,152 (total monthly profit)

In a three year span, the 10% company had rent set at $1,385 because they watched the rental market and set rent accordingly and caught all repairs sooner because of their quality oversite and infrastructure thus creating less expense. At the end of each month, here is what the profit breakdown looks like just with the 10% (Not even including repairs):

10%                     $1,385  @  10%  =  $138.50 (management cost)

                                                $1,385  -  $138.50  =  $1,246.50 (total monthly profit)

Now let’s take a look at the difference in profit over the three year span (not including the repairs)

(10% company) $1,246.50 – (4% company) $1,152 = $94.50 (profit differential each month if you go with the 10% company)

$94.50 (profit differential each month if you go with the 10% company) x 36 month (3 years) =

$3,402.00 total profit differential between the 4% & 10% over 3 year span.

This is one of the many examples of how the upfront cost should never cloud your vision of your end results/goals you as an owner want to achieve.

In closing, don’t trip over a dollar to pick up a penny. Stay focused on the end goal. Stay focused on your bottom line and making money because after all, isn’t that why you began investing?

Happy Investing,

Jesse Barnes

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