Why property management companies fail

Kw: how to start a property management company

Why property management companies fail

If you’ve been wondering how to start a property management company, and you’ve looked up some tips on how to get into the field, or how to go from a property manager to a property management company owner, then there are plenty of articles that you can find on the subject online.

However, while you can find many articles on the topics of starting out in the property management field, or the necessary items for getting your company off the ground, there are very few on the topic of the most likely pitfalls that you might encounter.

The potential issues that a property management company might encounter are plentiful, so we thought that we should outline a few of the more common ones that you should watch out for the most.


1 They don’t do enough market research

As a property manager, you’re always going to want to stay on top of any and all relevant news from the real estate field. Keeping your ear to the ground can really help you stay on top of any noteworthy information, like the increase or decrease in rent prices in certain areas, or a good deal that any investors you work with might like to hear about.

Constantly doing market research is also a good way to find out what sort of people the majority of your clientele is composed of so that you can focus your marketing strategies on reaching them more effectively.

Additionally, since real estate data sources are plentiful online, as long as you check the reliability of the information in question, you should be able to draw out a lot of useful information on house flipping reports, foreclosure reports, gross yields, and all sorts of property sales data.

At the end of the day, while not every market data provider is going to be reliable, the information that you’ll get from the more legitimate sources will undoubtedly be useful in keeping your company afloat, and maybe even in good financial standing.

2 They undercharge for their services

Every client wants to get a good deal. If you manage to keep the property rent high and your management fees low, then you’ll likely have a loyal client for life. Unfortunately, if that business tactic was financially feasible, every other company would have already implemented it.

While the clients themselves might not believe it, most property management companies already set their prices as low as they possibly can. There are of course going to be exceptions, and there are companies that have ridiculously high rates, but usually, all of the property management companies in a certain area will charge similar prices for their services.

It’s true that low prices are a great way to attract a lot of potential customers and get them interested in your services. However, at the end of the day, if the charged fees aren’t able to cover the operating costs of the company and the staff salaries, then the company isn’t making any profit.

Ultimately, your prices shouldn’t be set based on the wishes of your clients, but rather based on the calculated amount that you need in order to cover all of your costs and keep the company going and expanding in the future, taking into account the average in the area.

3 They try to grow too quickly

Speaking of expanding. Every property management company has the potential for growth, and every company owner would like to stimulate that growth as quickly as possible. Being ambitious and working hard can produce some great results, but being overly ambitious can lead to certain problems if you don’t know your own limits.

Property management companies grow by taking on and managing more units. The rent roll will increase with the number of properties that they have, and the influx of funds will facilitate the company’s further expansion. Simple enough. But the issues start when you bite off more than you can chew.

Taking on too many properties at once, if you don’t have the resources to accommodate them, is a good way to lose clients, overwork staff, and even potentially get sued if you aren’t doing your job properly and honoring the terms of a lease agreement.

Many companies try to fix this problem by hiring new property managers that can take on some of the responsibility and manage the new properties. However, there could still be problems. For example, there might not be enough time to properly train the new hires before throwing them into the thick of it, or if say, the office isn’t large enough for the increased personnel.

The best strategy is to not rush and try to force the expansion of the company, but rather to let it happen naturally. Always be on the lookout for new clients, but be aware of your limitations and the workload that you can reliably take on.

4 They neglect the accounting

Bookkeeping is one of the most important parts of any business, and property management is no different. Keeping all of your accounts in order is vital when it comes to ensuring that all of the funds are exactly where they should be and that all of the necessary transfers and reconciliations are properly completed on a regular basis.

A lot of property managers are very well aware of things such as all of the necessary steps that they need to take to complete an EOFY close and the mistakes that they need to avoid in trust accounting. However, there are also a lot of property managers that haven’t been properly trained in these procedures and will make mistakes that will likely come up during an audit, and may potentially land the company in hot water.

Since relying on the in-house staff to handle both the company’s and the clients’ accounts isn’t always the safest option, a great alternative would be to outsource the accounting responsibilities to professionals in the field.

Having actual accountants go over all of your records will really help in identifying any bookkeeping issues early on, making sure that everyone is paid on time and the right amount, and that you don’t have anything to fear when audit season comes around.

5 High maintenance costs

Conducting regular inspections in order to find anything on the property that needs repairing or replacing and scheduling the maintenance is the most important part of a property manager’s job, apart from collecting the rent.

Since scheduled maintenance is such a prominent part of the job, most property management companies add their own maintenance organization fee to the contractor’s price. Additionally, a lot of companies also exclusively hire contractors that they’ve worked out a reduced rates system with.

Usually, the way the process goes is that the contractor in question is offered a deal where they will be the company’s first choice when maintenance is needed, but in exchange, they offer their services at a somewhat reduced price.

If you don’t have such an arrangement with your current contractor of choice, then at the very least you need to learn the average rates for certain standard problems that frequently appear on properties, like leaky faucets or backed-up toilets. This way you can avoid getting overcharged for what should be simple every day repairs.

However, while knowing a lot of the more common repair rates by heart is always a good idea, the interdependent relationship with a contractor we mentioned it’s also definitely something worth looking into. Mostly because it would be a beneficial arrangement for all parties involved.

6 They don’t use all of the available proptech at their disposal

When it comes to technology, the real estate field isn’t exactly stuck in the stone age — proptech is on the rise. There are currently plenty of property management software tools that can streamline a lot of the daily property manager tasks through the use of nothing more than their easy to use workflows menus.

However, aside from the features of the software that the company uses, and maybe the accompanying mobile app, most property managers don’t really incorporate any other proptech in their day-to-day work routine. This is quite a shame since there are so many useful tools that could easily be added to their daily work routines in order to make their job easier.

There’s no need to attempt to integrate too many new gadgets and apps into the business, but there are a few, like the different smart locks for example, which can be installed on your rental property and might really prove to be useful tools for the company.

But also keep in mind that not every piece of proptech is going to be a perfect fit for your company, so choose carefully.

7 Their properties are too spread out

There are plenty of good reasons why the properties that your company manages should be in close proximity to your offices. The most basic one is because having multiple properties close to each other will allow you to get through a lot more maintenance inspections, property viewings, and owner meetings in one day. In comparison, having properties in different parts of town may lead you to not being able to set aside enough free time for even two property visits in a single workday.

Another good reason is that having properties in different areas means that you’re going to have to keep a close eye on the fluctuating rent rates in all of these areas. Not to mention you’re going to have to locate and hire a new contractor for maintenance work in each area, and constantly market your properties to new potential tenants in each area.

In ideal circumstances, you should look for multi-unit complexes that are close to you when looking for potential clients. If you need to branch out to other areas, at the very least try and secure 40-50 unit apartment buildings, so that you have all of the properties that you’re responsible for in one place.

8 They don’t complete their tasks on time

While the importance of daily reconciliations and regular disbursements cannot be understated, and it’s recommended that every property manager sets these as obligatory daily tasks, the uncompleted tasks in question that we’re talking about are lease renewals and rent payments.

If a lease is set to end in two months’ time and you haven’t asked the tenants if they are planning on renewing it yet, then you’re already running late. Since leases are set for a certain date, a lot of property managers take their time when it comes to confirming the tenant’s intentions on whether or not they will extend their contract.

This isn’t very smart, since the sooner you know whether or not the unit will be available in the near future, the sooner you can get a marketing strategy in place, and the sooner you can find a new tenant.

As for the rent payments, certain tenants are naturally going to be a bit more obstinate than others, but the key is to never stop reminding them. If the rent payment is set for a certain day of the month and they are late, send them a few reminders at least once a day and then move on to more strict warnings about them being in breach of their lease agreement.

Your company’s salary and finances are directly linked to the rent amount that you receive, and your tenants not paying on time means that you can’t carry out your financial obligations on time either. Use any means you feel are necessary, but make sure that the set rent payment dates are adhered to as closely as possible.


  • Make sure you constantly do marketing research and that you know the clientele you’re targeting and which marketing strategies you need to employ to reach out to them.
  • Don’t overexpand your company too quickly. Building a reputation and increasing the number of properties that you can handle takes time, and trying to force it will likely result in more bad than good when it comes to the sustainability of your company.
  • Everyone that handles the financial reports and the accounting processes in the company needs to have proper training, and if they don’t, the best option is to hire an accounting firm or a professional to take care of the work instead.
  • Make sure that you aren’t being overcharged when it comes to the maintenance costs of the units, and try to develop a mutually beneficial relationship with a contractor that you trust.
  • Be on the lookout for new tools and proptech that you can integrate into your business model, and don’t be afraid to try out new software features that could potentially shorten the time it takes to complete certain tasks.
  • Be careful of the locations of the properties you’re managing. Focusing all of your efforts and marketing strategies on one single area that’s close to your office is usually a much better idea than spreading your business all over the place and not being able to keep up.
  • Always give yourself a lot more time than you think you might need. The sooner you get a handle on late rent payments and the tenants’ intentions about their lease agreement, the easier it is to work around any problems that might come up.

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