An Income Property Management Strategy That Saves You Money...
And Could Actually Add Value To Your Property
Income property management is typically one of the largest expenses an owner of rental property faces. And even if an owner chooses to manage their own properties, when it comes time to sell the apt complex, a prudent buyer will add in an expense for property management, regardless of whether or not the current owners incur such an expense.
Here is one strategy that I employed that saved me actual cash on a monthly basis, and actually increased the value of one of my apartment complexes when I sold it.
Property management of residential multi unit properties will typically consist of an on-site or resident manager as well as a professional management company. The resident manager lives in one of the suites in the building and manages the day-to-day activities of the building. The professional management company oversees the entire operation of the property including the hiring, firing, training and management of the resident manager. The resident manager receives a salary, while the property management company receives a percentage of the income.
A small apartment property came up for sale across the street from a larger building that I already owned. They were located in city that was quite a distance from where I lived and hence I required full time income property management, as I could not possibly do the job myself. The smaller building was just big enough that had I purchased it on its own I would have had to put in a resident manager at great expense on a per suite basis. (The more units that an apartment complex has, the less the resident manager expense will be on a per suite basis. Resident managers are often paid a base salary plus a certain dollar amount per suite).
Here's what I did.
I approached my current resident manager (who lived across the street) and offered to let him manage the new smaller building in addition to his current duties. As compensation I would pay him an extra $x dollars per suite (I can't remember the actual amount) for managing the new building. As you will find out, on-site income property management in smaller apartment complexes can run in the 10% of gross income range. I was able to cut this expense to around 2%, which added an extra 8% to my net income! That equaled cash in my pocket each month.
Now here is the second part of the equation.
When the time came to sell these two buildings, I chose to sell them as a pair. I new that there was a REIT (real estate investment trust) interested and that there was a good chance that I could 'sell" them on the NOI figures for each of the buildings. In other words, if they were to purchase both properties, they too would benefit from the economies of scale that I had created with respect to the resident manager expense.
REIT's are interested in cash flow, and that is what this negotiation came down to. In the end they accepted the NOI with the shared resident manager, which likely added $100,000 to the sales price.
I realize that this is a somewhat unique income property management strategy, but my goal here was to illustrate that it pays to think "outside the box".
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