Enlisting the help of a property management company makes sense for many investors who may not have the time to devote the proper attention to their investment. A property management company can maintain and improve the day-to-day operations of your multi-family building. But who's to say they're doing a good job?
Factors to Measure to Evaluate Property Management Services
How do you find out if the property management company you have is doing a good job of managing and maintaining your building? Results can sometimes be hard to see, especially when the company first starts. To evaluate their services thoroughly, you'll have to wait a while (sometimes a few months) because collecting relevant data takes time. What's important to note is that you shouldn't have to collect any data yourself. A quality property management company will provide you with reports, statistics, and data to evaluate on a predetermined basis.
1) Turnover rate: As an investor, you want quality tenants to live in your multi-family building forever, but that never happens. Instead, you have tenants—good and bad—moving when their leases come up. A good key performance indicator (KPI) to measure for your property management company is the average duration of a tenant's stay. This KPI is of significant importance since your financial forecast is predicated on turnover. When you have more resident turnover, you have a higher cost to turn, which is an expense you don't want frequently. A high turnover rate can indicate some form of mismanagement.
2) Marketing effectiveness: Getting the marketing for your building right is crucial to drawing in prospective tenants when you have available units. Property management companies usually have a ton of marketing avenues at their disposal, which is a huge benefit to investors. However, the marketing plan needs to focus on your target market. Each marketing channel needs to be evaluated to determine the amount of leads they generate and their ROI. If some methods aren't doing the job, the budget should be reallocated to a different marketing avenue.
3) Vacancy length: Vacancy length is how long it takes your property manager to find a new tenant after an old one has moved out. As an investor, you want vacancy lengths to be short as vacant units cost you money. It's estimated one vacant unit could cost an owner anywhere from $1,500 - $5,000 a month once make-ready expenses, incentives, and advertising costs are factored in. Focusing on getting units rented quickly will decrease costs and generate more revenue for you.
4) Tenant satisfaction: This KPI is something you can measure as an investor. Creating a tenant survey will give you valuable data to see firsthand how great the service is that your property manager provides. Collect data about your property manager's attitude and demeanor, communication frequency and quality, timeliness, availability, helpfulness, and more. Then analyze the feedback to determine areas where your property manager is excelling and areas where he or she need to work harder on. You can sit down and talk with your property manager about the results you find, so they are aware. Service quality is a big consideration for current and future tenants, so it's key to ensure service in your building is top notch.
5) Repair and maintenance costs: When you have a large multi-family building, repair and maintenance costs can be a huge expense to you. One of the perks to hiring a property management company is the connections they bring with them. They have established vendor relationships that can lead to great pre-negotiated deals. Regularly reviewing repair and maintenance expenses will allow you to determine if you are getting the best price for the services you require.
It's crucial to have the right team working with you to ensure your investment succeeds. Before you hire a property management company, you should thoroughly research their history and their results. These will be a good indicator of what they can do for your multi-family investment and the effectiveness of your property management company.