If You Own Rental Property, You Own a Business
The first basic element of property management is the property owner. There is no need of property management until someone builds, buys, or inherits a piece of real estate that will be leased to someone else. This acquisition of property may be intentional, as when a developer builds an apartment complex or an individual buys a house with the aim of renting it out. Or it may be unplanned as when someone inherits a property from a deceased relative.
However acquired, once you become the owner of a property you won’t live in and will rent to others, you are not simply a property owner. You have become an investor, business owner, and landlord.
A piece of real estate is an asset with a monetary value that can increase or decrease, and the owner of any such asset is, by definition, an investor. This is even more so when that property will be used to generate income for the owner. If you own rental property you need to view yourself as the manager of an investment portfolio, whether it is a single house or dozens of duplexes.
You also need to recognize that you own a business that requires much of the same planning and work as any other business: financial projection and budgeting, market analysis and sales, products and services, management and staffing, strategies for profitability and growth. Your business title is Landlord (or Landlady), your product is your rental unit, your customers are your tenants. Your goal is the same as that of any business owner: to make a profit, and hopefully enjoy yourself in the process.
A small percentage of rental property owners actually fail to make a profit, but a more sizeable number don’t enjoy the work involved, profit or not. They lack the time or inclination, or both, to be effective in the landlord business.
That’s where the property manager comes in. The owner of the property, without giving up final authority and control, employs the property manager to handle the day-to-day operations of the landlord business. For this to work, the manager must be competent and trustworthy since she will be the steward of the owner’s assets. And the owner must trust the manager and be willing to delegate operational control to her.
A good manager will aim to achieve the owner’s goals for his property and will honor the owner as the source of her livelihood. A good property owner will rely on his manager’s experience and knowledge and will honor her as a valued partner in the landlord business. It is a mutually beneficial relationship.
In the next post we’ll look at the product being offered in the landlord business: the rental property.