The Advantages of Hiring a Professional Property Manager - Part Three: Economies of Scale

I am a New Landlord. Should I Hire a Property Manager?

Question: I just decided to rent out my property. Should I hire a property manager, or handle it myself?

Answer: In most cases, you should hire the right professional, at least until you have the skills and experience necessary to consider yourself a professional landlord. In this series of articles, I will discuss some of the many benefits of hiring a pro to handle your rental property.

I have been a professional landlord since 2008. This question is the one I am asked more than any other and getting the answer wrong can cost a new landlord time, money and a boatload of stress. 

There are numerous obvious advantages to turning over your investment property to a professional. In short, the advantages are expertise, time commitment, economy of scale, limitation of liability and increased financial performance.

In my last article, I discussed the advantage of having your business handled by a well qualified Agent, removing the enormous time commitment from your plate so that you can do what you do best. Today, I present

Why You Absolutely Should Hire a Professional to Manage Your Rental Property

Part Three: Economies of Scale

“Economies of scale? What the heck is that?”

I have a diet coke problem. The ice cold cans filled with artificial colors, sweetener and aspartame call my name like the sirens of lore. I keep track of which gas stations and convenience stores are likely to have cans as opposed to bottles and money is no object when I am craving the sweet artificial elixir.

A 16 oz can of cold diet coke costs between $1.50 and $2.20. That adds up when you are knocking them back like Joey Chestnut on a weenie binge, so it makes sense that I try to get a better price when I can. Yesterday, I bought five 12-packs of 12-ounce cans at the grocery store. They were on sale for $5.99 per 12-pack.

Individually, I am paying as much as 14 cents per ounce to feed my unexplainable craving. By buying at the sale price, I cut my cost to just over 4 cents per ounce, a savings of 69%. This is an example of the economy of scale. It is usually cheaper to buy something in bulk.

How does this apply to Property Management?

When you are dealing with one rental property, everything you do is a small quantity. 

Advertising your property requires you to go to each individual listing website, enter the property information, upload photographs and possibly pay a fee. A property management company lists multiple properties every month. They have a system and they pay for the advertising in bulk, greatly reducing the per unit price. At OMYRA INC, we have an engine that allows us to list a property across a broad spectrum of the most popular listing sites with the click of a button for a fraction of the cost of placing individual ads.

Maintenance is cheaper in bulk. A great example is cleaning roofs and gutters. Early each year, when the bulk of the leaves in Georgia have fallen, we arrange to have the gutters cleaned at all of our properties. We are able to group the properties by geographic location, making it easy for the vendor to send a crew out to handle all of the homes in an area in a single day. In return for the guaranteed volume of business and the convenient routing, the vendor gives us a preferred rate, which we pass on to our clients.

Our buying power often rewards us with faster response time. Because we route most of our HVAC service calls to the same vendor, we get head of the line privileges. When the AC goes out in mid-July in Atlanta, getting same day service is difficult. Everybody in Atlanta is calling for service. Having a fairly high volume account earns us loyalty and response that can often save our tenants days of misery. They remember at renewal time, and renewing leases is a huge part of running a successful rental property. Anything you can do to improve the landlord-tenant relationship is worth doing.

Another aspect of the economies of scale is the educational value of doing the same thing over and over again. When you manage one property, you process an application (or a few applications,) then you place a tenant and you don’t think about applications again until they move out. This is usually at least a year. At OMYRA INC, our tenants average about three years per tenancy. How proficient are you getting at processing applications if you look at one or two every three years? At OMYRA, we get fraudulent applications regularly. We often spot them immediately because we have seen so many that they stand out like a flashing neon sign. How long will it take you to attain that skill? More importantly, how much time, money and emotional energy will it cost you if you place an unqualified tenant or if you fail to approve a tenant that would have been a great one? These skills are invaluable to the landlord and repetition is the only way to build them.

Small landlords with one or a handful of properties can expect to pay more across the board than property management companies for goods and services. They won’t get the same response from their vendors. In many cases they will pay their vendors more. Developing proficiency in each of the hundreds of skills that come into play will take longer. Most tasks will take longer to accomplish.

All of these little advantages compound, resulting in slightly less desirable tenants, longer vacancy times, shorter tenancies, more avoidable mistakes, more problems, more time required to manage the property, and less bottom line income for do-it-yourself landlords than for owners who choose to hire a well qualified Agent, like OMYRA INC.

Anyone can be a landlord, but being an extraordinary landlord takes a lot of devotion and repetition.

In my next article, I will discuss “Limitation of Liability” and explain how a professional manager can help insulate you from some of the many legal pitfalls surrounding rental property.

Have fun today!