Friday, February 12, 2016

Property Management Q&A - Necessary? Benefits? Costs? Who Pays?

As you get ready to close on a commercial property, the question of property management needs to be addressed. Assuming you are not looking to manage the property on your own (NOT hands-on), it's time to assess the issue of hiring a property management company.

NECESSARY? - any tenanted property requires some level of active management. Obviously a single tenant would be less involved, than a multi-unit property involving multiple tenants. On a regular basis, matters arise requiring a landlord's response and you must (or someone on your behalf} attend to those issues. Management services can be tailored to suit your and the property's specific needs -- but appropriate oversight is a must.

Benefits? - the major items would include 1) financial management (collection of rent, follow-up on receivables/bill payment. ,monthly statements, operating cost budgets to name a few). Established management companies can provide better rates on insurance and property services, based on bulk purchasing power. They can also be 'on call' after midnight, based on an unforeseen emergency.

Cost? - Will vary market to market and based on property category. It will also most certainly depend on the actual services being provided, and ensure you are making 'apples to apples comparisons' when considering management firms. Typically on commercial properties, it may fall in the range of 3-5% of the property's gross income. But as with everything - 'you get what you pay for' and the cheapest management costs may not be the most appropriate for your needs.

Who Pays? - That all depends on how your lease agreements read. If you are assuming "NET LEASES", ultimately the tenant pays the cost of property management, through the additional rent provided for in the lease. In most cases, this should make the argument for professional management academic. In cases where the leases are "GROSS", any management costs will ultimately be added to the expense side of the property. As a final caveat, make sure you review the lease agreements to understand what the implications are for hiring on a property manager.

As a final note, good management companies can always provide a list of satisfied clients - get in touch with those references and confirm the quality of services being offered. Good property managers generally make for good (happy) tenants, and that generally makes for a GOOD INVESTMENT!

Tell us about your past management experiences. Just a call/click away if you are interested in discussing investment opportunities in Windsor - Essex!

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

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