Eleven Property Types You SHOULD NOT Manage (Part One)

Tuesday, December 05, 2023

Too many property managers it would seem, would sign up any new property as long as it had a ‘roof and a front door’. Sure, they might say it also needs to be in reasonable condition, but that’s about it!

When 20% of rental properties cause 80% of the stress and grief, we need to adopt criteria to be used when signing up new business.

The facts are staggering and cannot be ignored!

Property managers are not lasting more than 2 years (on average) in the job, and most cite stress and burnout as the reason when they resign. With this knowledge, surely having criteria of what you simply will NOT manage makes good business sense. That said, it’s up to business owners and managers to realise what’s good for business and what damages it, and then create the criteria and train property managers to it. Without leadership intervention, none of this will happen!

Here are eleven property types that should be avoided:

#1- Low-Rent Property

How low do rental values go in your marketplace before you start getting into that ‘low-end’ type property that attracts a low-grade tenant and is likely to give you grief and headaches?

When rent is a third less than a better type of property, your total fee income for that property will be likely to be a third less too and often represents more work than a quality property.

More work and less income!

It doesn’t make good business sense!

#2- Low-Fee Property

When you’ve discounted your management fee by 1-2% and/or the leasing fee, you may have actually thrown away your profit margin for that property too.

If the average profit margin is around 20% it doesn’t take too much discounting to eliminate the main incentive for managing it in the first place!

#3- Low-Grade Property

Taking on property that is not in a reasonable or better condition simply shouldn’t be an option in modern property management.

Tenants are far more aware of their rights than ever before and they know if they pay 100% rent they expect a property to comply 100% and be in a good state or repair – not to mention the risk and liability issues that poor quality housing represents!

Low-grade properties also say something about the type of owner/investor.

If they won’t renovate or repair it, avoid it!

#4- Low-Socio Property

When teaching in the USA I leave this one out due to discrimination laws and concerns, but here in Australia, it’s an issue we can legally discuss.

Low-socio areas give us low rents and low-grade tenants who in turn are less likely to want to pay the low rent!

What results in less income, more work, and more stress per property on average?

This is a big factor that can burn staff out and make the job quite unpleasant. Properties in these areas should just be avoided.

If you have a property and the only tenants who would want to reside there are ‘the best of a bad bunch’ then you shouldn’t manage it!

#5- Long Distance Property

When a property is too far from the office and you manage too many of them, you start to feel pressure as office tasks fall behind and pile up due to your time on the road – mostly sitting in your car.

I remember being involved in an office where the property was spread over the Adelaide metro area. They should have been able to manage those property numbers with no problems but the property manager was burnt out and always short of time even with a full-time assistant.

When a time and motion study was done (with their full cooperation) we found that 26% of their time in a typical week was spent sitting in a car.

It was clearly dead time, restricting them from being able to manage a full portfolio properly!

No more than a 30-minute drive from the office is what I recommend – maximum!

Yes, you do sometimes need to take on a property with a multi-property owner that might be long-distance but keep this type of property to an absolute minimum for good, profitable business reasons.

#6- C-Class Property

This type of property is typically owned by a ‘c-class’ landlord who is difficult and demanding.

As a direct result, the property is in a less than desirable state of repair and usually attracts low rent.

On top of that, the owner client insists on paying lower fees. Low quality and high stress all around. It should be avoided!

The property reflects the mindset of the owner. Not too hard to guess when you look at the factors.

Are you managing properties like the ones mentioned above?

Click here for part two and learn more about the property types that should be avoided.

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