Third-party property management isn’t as easy as it sounds

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One of the first questions CRE entrepreneurs face when entering the industry is how to manage their properties. Some owners choose to work exclusively with third-party property management teams, while others prefer a self-management approach.

For years, many people in the industry believed that the choices related to property management were simple. It used to be more profitable to work with a property management company rather than going the self-management route, as it frees up your time to work on other investments.

However, times are changing and while third party property management is often the most cost effective option, the decision of which property management organization to choose is more complex than ever.

Advances in proptech complicate choices around property management

Twenty years ago, the decision to work with a property management company to manage your real estate investment was less complex than it is today. The reason is that the proptech sector is growing every day. Between 2013 and 2020, proptech deals exceeded $7 billion. Advances in proptech are complicating decisions about property management in several ways.

The first complication brought by proptech is that it makes it more possible to self-manage your investment. If you are a CRE entrepreneur who was torn between self-management and using a third-party property management company, proptech could make the difference in pushing you towards self-management. While self-management will always take more time, some of the time constraints are removed by property management technology tools, making it easier for someone with just a little extra free time to manage their own investments.

Smart technology allows building owners to monitor building condition without a property manager and schedule maintenance as needed. Other proptech tools allow building owners to find and vet potential tenants faster, which is typically the responsibility of a property management team.

Many CRE entrepreneurs will still want to work with a property management team, despite the technology tools that make it easier to manage your assets without it. When reviewing property management companies, you will need to assess the proptech tools they use to run their business. Finding the company that uses the best tools can increase ROI because you’ll attract better tenants.

Related: This Proptech is on the move

Being close to your investment builds expertise

When you’re new to commercial real estate, it can take time to learn the ins and outs of what makes a good investment. Often this can best be learned by staying closely involved in your investment.

For this reason, some entrepreneurs choose to manage their properties on their own while learning the game. When you are aware of what it takes to manage a property, you will be more informed when choosing future investments.

In addition, your choices regarding property management will have a huge impact on your relationship with your tenants. Many real estate investors choose not to have any relationship with tenants. Third-party property management teams that manage all aspects of tenant relations make this possible.

However, some contractors prefer to be more closely involved in tenant relations to better understand what consumers are looking for in a commercial building. This leads to smarter and more informed investments.

Strong tenant relationships can lead to a higher ROI in your investments, so if you’re working with a property management company, you’ll want to know how they handle tenant relationships. Check your property management team before making a choice. Find out how they handle disputes and how proactive they are in providing tenants with a good experience.

You shouldn’t just pick the first property management team you come across, nor should you always go for the cheapest option. Finding the right third-party property management organization can make or break your investment.

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Property management generates a significant share of overhead costs

A poorly managed commercial real estate investment can cause overhead to skyrocket. A recent case study by property management firm EZR Management found that commercial property owners were able to reduce their annual expenses by $32,000 by changing management. This shows that the right team or the right management system can be a huge predictor of profitability.

Although contractors saw the statistics on a property management team’s ability to cut costs, they didn’t compare the difference in expense between the options. An expensive property management solution that isn’t as efficient as possible could actually drive up costs.

CRE contractors should always perform a cost-benefit analysis before choosing their property management company or system. Look for low-cost solutions that drive significant cost reductions to produce the greatest return on investment.

Related: What is Prop Tech?