Property Management

What Is Property Management?

Property management is the day-to-day operation of a rental or investment property on behalf of its owner. A property manager, which can be an individual or a company, takes on tasks the owner would otherwise handle, such as marketing vacant units, screening applicants, collecting rent, arranging repairs, and handling move-ins and move-outs. Managers also keep financial records and report income and expenses to the owner.

The work spans both residential housing, such as apartment buildings and single-family rentals, and commercial real estate, such as offices, shopping centers, and warehouses. Large institutional owners, including many real estate investment trust (REIT) companies, often hire professional firms to run their portfolios.

How It Works

Management is usually governed by a written agreement that describes the manager's duties, authority, and compensation. Fees are commonly a percentage of the rent collected, sometimes with separate charges for finding new tenants or overseeing large renovations. Typical responsibilities include:

• Advertising vacancies and screening prospective tenants
• Preparing lease agreements and enforcing their terms
• Collecting rent and following up on late payments
• Holding and accounting for the security deposit under local rules
• Arranging routine maintenance and emergency repairs
• Preparing budgets and periodic financial statements

Why It Matters to Investors

For an owner, property management affects the property's net operating income, which is the rent and other income left after operating expenses but before financing costs. Good management can help keep the vacancy rate low and reduce tenant turnover, both of which support steady cash flow. Poor management can lead to lost rent, deferred maintenance, and legal problems.

Owners face a trade-off. Self-managing saves fees and keeps control, but it takes time and expertise. Hiring a manager reduces the workload and can help with distant or large properties, at the cost of a share of the income. Neither approach suits every owner; the right choice depends on the property, the owner's skills, and local regulations.

Investors who hold shares in publicly traded property companies are affected indirectly, since a REIT's results depend on how well its properties are run.