Many commercial property owners outsource property management, especially in the beginning. It’s the smart thing to do…particularly if you are new to commercial real estate, or new to a particular market where you don’t have the resources. There may come a time, however, when you realize that third party management may not be the best choice for your organization. What if the management company isn’t a culture fit? What if you feel the management company’s on-site staff is not of the caliber that you would hire? You, as the property owner, have little control over the details, and let’s face it, details matter!
And let’s not forget your bottom line! Property management companies typically charge 3-10% of gross revenue, NOT net operating income. So while they are incentivized to maximize rents and minimize vacancy, they are not necessarily financially motivated to operate in the most cost-efficient manner.
Let’s take the example of locators. Locators are third party rental agents who refer tenants to your property for a fee, and are legal in many states. That might be a great option for a property manager or owner with a limited marketing campaign or limited onsite staff, but it is not necessarily the most cost effective way to acquire tenants. Third party property managers may use locators to generate business, keeping vacancies low and rents robust, but the hit to your bottom line may be more than you can stomach. Hiring experienced and enthusiastic leasing agents, optimizing your advertising dollars and establishing programs aimed at retaining the tenants you have is generally a more cost effective use of your operating dollars.
The other major reason most owners outsource property management is because the management company has one thing that they don’t…a Broker’s license.
Do you need a broker’s license to manage property? Even if your company owns the property, you might be surprised that most state laws require that the property management company be licensed. If you want to acquire properties in other states, you’ll need to be licensed there as well.
I know what you’re thinking… “I’ll just have one of my employees get her license.” Could you have one of your employees become your broker? Sure, that’s an option...but Broker license requirements can be pretty daunting. Most states require that a broker applicant have 2-3 years experience as a licensed salesperson in that state, take between 60-250 hours of education, AND pass a pretty tough exam, not to mention the ongoing continuing education requirements.
Can you really afford to have an employee take that much time away from her day-to-day responsibilities, and put off your management goals for months or longer? And then what happens when that employee leaves the company? Which they very well may now that you have provided them with a valuable asset. If you operate in multiple states, your dilemma just got exponentially more complex!
Don’t panic! There is a solution…Designated Broker Solutions has brokers licensed in 27 states, with more states being added all the time. Your property management firm can become licensed with one of our brokers so you can get your operations off the ground in a matter of weeks. We take care of all of the paperwork, and we will make sure your on-site team has the tools and resources to operate legally and in compliance with the real estate rules and regulations in their state. We continue to work with the property staff to ensure compliance as long as you are operating the property.
Contact us for a customized quote…you’ll be surprised how affordable it is, allowing you to keep growing your bottom line.
