The choice of management style is not solely about how a rental property will be managed. The financial aspect of it cannot be underestimated since it has significant implications on your net operating income. When choosing between national firms and local specialists, understanding where those trade-offs will take effect is crucial if you wish to keep your margins protected rather than slowly erode them.
What national property management companies actually excel at
National property management companies developed their business model with scale in mind and there’s a good reason why it works in some circumstances. If you own properties in several states, having reporting centralized in one PropTech system is beneficial. You will be able to rely on standardized accounting, have consolidated dashboards and, above all, a compliance framework designed around Federal laws like the Fair Housing Act.
If you prefer quarterly reports in an easily readable format and don’t wish to be actively involved in management process, working with a national company will serve you well. Their technology stacks are generally very good and onboarding process is smooth. It has its benefits, especially if you are an institutional investor or manage a portfolio that is geographically scattered and you cannot reasonably establish connections in six different markets at once.
The problems start when that same standardized approach is applied in a market with specifics of its own.
Where the deficit of “boots-on-the-ground” becomes apparent
It goes without saying that national firms know the law. What they sometimes miss is what is going on at the local level. For large apartment owners, having a copy of the 50 State Landlord-Tenant Handbook is not a competitive advantage (you are required to follow the law no matter what). Rather, it is a necessity.
You gain competitive advantage by using local knowledge of municipal building codes, special rental registry requirements, different eviction timelines in various counties and, ultimately, rent stabilization ordinances that work only in some zip codes.
Centralized call center that operates in another state is unlikely to catch news about new local ordinance that affects your specific submarket. A local manager with ten years of experience is more likely to hear about it before it has even been officially announced. You won’t find that information in any dashboard – it comes from being present there.
Local rental market expertise also means knowing local market pricing at a more detailed level. A national pricing model will be built on a broad database. It won’t know that due to change in school district boundaries there was recently an increase in demand in your particular area or that a revitalization plan will reduce vacancy rate in a market that was quite inactive several months ago. Such micro-market intelligence affects directly whether your property stays vacant due to overpricing or whether its renting price is below its ceiling.
Maintenance costs and vendor network advantage
According to National Apartment Association survey results, maintenance and payroll costs can comprise up to 20-25% of gross rental revenue. At least that math should be enough to give you pause and think about who you are delegating this important task to.
A local on-site manager has years (or even decades) of experience of building solid vendor network – reliable plumbers, electricians and HVAC techs who respond quickly whenever you call because there is a connection. They are familiar with specific quirks of the building – from room that is always a bit too hot to specific construction challenges of working in the crawl space. This means you don’t need to spend extra hours on service calls or emergency after-hours work that adds extra costs.
Maintenance tasks at national companies are handled almost exclusively via an outsourced vendor portal. Sure, it is efficient but it lacks a personal touch when a tenant needs to track the number of the computer-generated work order. If your tenant has waited 48 hours for a plumber and you have to send another notification… This is a sure way to get a non-renewal.
Take, for instance, coastal Florida. Its residents have particular maintenance priorities – regular hurricane prep with certified contractors, biweekly landscaping during April-October period, maintenance of pool that requires licensed techs, biannual maintenance of HVAC in order to ensure high performance due to constant usage and pests that flourish in humid environment.
Put simply – WPB Property managers that only manage properties within driving distance know about all this and are aware of the optimal time to perform inspections. Centralized call center located in another state and managing properties in Minnesota, Texas and Florida does not.
Tenant experience and its costs to you if something goes wrong
Tenant retention is an underestimated financial indicator. Each time a unit turns over you are paying turnover costs – cleaning, perhaps some repair, vacancy advertising and the loss of rent for the period that unit is vacant. It is always cheaper to retain a good tenant rather than find a new one.
Local managers are usually more responsive. Being physically close to the property makes it easier to drive by and see that the problem has not yet been solved or visit the vacant part of the property to verify if the same tenant’s complaint has persisted. And since a local manager manages a smaller portfolio, it is clear that this person is responsible for making sure that tenant is satisfied, which results in higher scores of tenant satisfaction and, ultimately, renewals.
Making the right strategic decision
Both approaches have their merits and drawbacks. National firms offer centralized reporting and standardized procedures. Performance indicators measured in aggregate tend to satisfy minimum requirements but never exceed performance goals. Local firms cannot benefit from economies of scale, so their reporting will not be as sophisticated and responses will not be as timely. On the other hand, performance indicators measured individually tend to exceed performance goals – an unequivocal gain for your investment. A portfolio at its best is more than the sum of its parts.
