Golden Key’s Four Rules of Management
Rule #1: Aggressively find Market Rate. If a house does not rent you have a PRICE or a PRODUCT problem. Either the price is too much for the product or the product needs to be brought up to the price. Denying this will only cause wasted time marketing the property. The three most common outcomes of a property that is offered for MORE than the market rate are:
- The property is shown, but does not lease. This leads to both direct and indirect costs.
- A good tenant that leaves after the one year lease has expired.
- A bad tenant (because typically higher credit risk tenants are willing to pay more to find a place to live) who you end up paying to leave (or evicting).
Note: Rule #1 is perhaps the most important rule, because it has so much of an affect on the other rules.
Rule #2: Once you’ve found a great tenant, do not let them leave. The BIGGEST expense in this business is tenant turnover. We believe that the direct and indirect cost of someone moving is about $250 – 300 per week (at $700 per month market rental amount). This does not include work needed to turn the property (painting, flooring, cleaning) or vandalism. It is almost ALWAYS cheaper to save a tenant than it is to allow them to move.
Rule #3: Expect to spend $50 – 200 per month on repair and maintenance per house. This range depends on a number of factors. The most common are age of the house, age of the systems (HVAC, plumbing, electrical, roof) and the tenant. There will be months that your cash flow may be negative because a repair costs more money than was collected that month – you must be prepared to pay this shortfall.
Rule #4: Management is best accomplished through consistent moderate pressure, rather than short bursts of intense pressure. Falling behind in this business is a fatal flaw. We see this most often when we take over properties from owners who have lost the passion for management they once had. Consistent moderate pressure is achieved through an environment of systems and processes where people are not only accountable to each other, but they are accountable to the system. This is best exhibited in a high percentage of lease renewals and collections.