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THE IMPORTANCE OF PROPERTY MANAGERS IN REAL ESTATE INVESTMENTS
If you are considering investing in real estate, one of the most essential partners in your team will be your property manager. A property manager is a third-party service provider who is in the business of taking care of properties in exchange for a monthly fee. As one would expect, they have a wide range of services they typically provide to property owners.
Marketing services can include activities such as:
- providing analysis of rents, etc. of comparative properties and suggesting appropriate rent levels,
- advertising for tenants in various media (newspaper, online, etc.)
- meeting with potential tenants and showing the property, and
- carrying out credit checks and managing the tenant selection process.
Oftentimes property owners are new to the specific market (e.g., small office properties in a certain neighborhood in Nagoya) and thus may not have knowledge of the typical rental rates charged for similar properties. In addition, because property managers work with many different clients, they usually have a better grasp of current market conditions in the specific market than the typical investor.
Depending on how the transaction is structured, property management services concerning cash flow may include:
- collection of rents,
- payment of recurring expenses (e.g., for electricity, water, etc.),
- payment of special one-time expenses (e.g., for repairs, etc.),
- payment of certain taxes on behalf of the owner,
- payment of installments to lenders, and
- payment of profits to the owners. This is another function that can save significant time and money while benefitting both lenders and owners. Moreover, third-party cash flow services can be an important part of the foreign investor retaining its status as a “passive” investor under relevant tax laws.
Operation of the Property
Operation of the property concerns the day-to-day management of the property as a business. For instance, services here can include
- selecting and managing building management or maintenance companies to repair and maintain HVAC, furnaces, elevators, and other on-site machinery,
- contracting with garbage collection companies,
- selecting and managing cleaning companies for common areas,
- dealing with tenant complaints,
- dealing with contractors and checking restoration of the property after a tenant moves out, and
- dealing with tenant evictions and miscellaneous lawsuits, etc. This can be an important service for owners wishing to have a level of insulation from potential liability issues with tenants. It is also an advantage to have a knowledgeable property manager to make sure the property is kept up to legal code when rented out to third parties.
In sum, a property manager is an important resource, since they play a key role in keeping the property tenanted up (keeping tenants happy and the building competitive with other properties in the market), while also maintaining and enhancing profitability for the owner (keeping expenditures low and income high).
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