Property management has seen more and more outsourcing in recent years. But is this really the way to go?
While there are certainly a number of advantages to outsourcing, there are just as many disadvantages. Property owners need to evaluate their situation carefully and look at the pros and cons of each solution before making a commitment. There are good arguments on both sides, but no one solution fits all. Ultimately, we must analyse each specific company, estate or development and decide what course of action will best fit the company’s needs.
Mike Morey, MD of Pam Golding Property Management Services (PGPMS), advises that a balance between outsourced expertise and on-site staff needs to be sought to create a synergy that works best for the individual estates. “We are cognisant of the fact that each estate is different and has specific requirements; and with our diverse skills and service offerings we can accommodate the individual estate’s requirements effectively.” adds Morey.
Defining the task, and weighing up the variables
Sound property management helps to ensure that property owners are shielded from significant future expenses, preserving the property’s value, while also ensuring that the property remains attractive to future investors. Property managers play a key role in optimising the operational performance of a property portfolio.
They take care of the daily operations of a development, making sure the property is well maintained and remains attractive to tenants. This directly feeds to long-term profitability, low vacancy and good returns. Sourcing and securing tenants, managing leases, managing relationships, contractors, handling evictions, overseeing repairs and maintenance, managing staff and budgets all keep the property in prime condition, relevant and occupied; this leads to sustainability.
Here are a few things to consider when looking for a property manager – whether in-house or outsourced.
You need to ask if property management is a core competency of your business, and decide whether or not you want that extra responsibility.
Having an in-house staff often means a greater expense and more time spent managing your staff. This is time and money that could be spent on other projects that could potentially produce more revenue for your business.
Are expert tasks consistently keeping your employees from contributing to your core business? Then it might be time to consider outsourcing some – or all – functions.
On the other hand, some developments find that having an in-house staff provides quicker response times and better service at a lower cost. Others find that outsourcing leads to a decrease in service quality that can be harmful to the credibility of their facility. In these cases, you might decide that property management should be a core competency and keep it in-house.
However, some property owners will argue that the obstacles presented by outsourcing (cost, quality, response time) can be overcome by partnering with the right property management company.
‘A professional property management team should include suitably qualified personnel and offer value added services such as financial, legal expertise, effective credit control, payroll administration and HR support. Regular staff training is paramount to ensure that the team is up to date with current legislation and statutory requirements.’ Comments Morey.
It really boils down to how much time, money and energy you want to spend on property management.
Improved service is the number one way to increase retention in your development. This makes service quality a primary factor to consider when deciding whether or not to outsource.
An outsourced contractor can provide flexibility in staffing levels that would be difficult to manage with an in-house staff. They can also provide you with expert specialist knowledge that might be difficult to cultivate in-house. Developing in-house competencies is not efficient if these skills are not needed on a permanent basis.
‘Long standing relationships with service providers and access to the latest technology assist with a fast delivery, good quality services’ notes Morey.
However, keeping an in-house staff does come with its own benefits. In-house employees are generally more loyal to a facility and will accumulate much more knowledge of your business model over several years of service. Outsourced property management, on the other hand, often sees a higher employee turnover rate, which means that any specific knowledge the employee has about your property will be lost when they leave.
A major consideration when debating in-house vs outsourced property management is the cost. Consider the Pareto Principle, which states that 80% of the work is done by 20% of the staff. This is a significant amount of employee downtime to consider. As stated above, outsourcing allows for greater flexibility in staffing levels, which could translate into lower labour costs and a lower investment risk.
On the other hand, keeping your property management in-house gives you the ability to account for fixed assets, and maintain tighter control of your budget. Fixed assets mean you don’t have to use your judgement when it comes to volume or inflation costs. They also come with limited variable costs, so it is easier to stick to a budget.
If you can, run the numbers. Take all expenses into account: vehicle acquisition, maintenance, payroll, training, cost of compliance, etc. If your costs seem inordinately high, you may benefit from professional management or consultancy.
Weighing the options
Outsourced and in-house property management both have a multitude of variables that can impact their level of effectiveness in different situations, so you need to consider both options carefully to find the solution that works best for you. Remember that the lowest price option may not actually be the lowest cost solution long term.
The advantages of outsourcing include:
- increased core business efficiency, which allows you to focus more completely on your core business, which can result in significantly increased productivity and profitability
- economies of scale, or efficiencies of scale, are better with outsourced managers because management is their core business, so they can negotiate good rates with suppliers or service providers
- best practice and benchmarking, because management companies are more aware of best practices in the industry, and are better able to benchmark your performance against others in the industry, allowing them to identify and address potential problems and inefficiencies sooner, or avoid them altogether
- risk reduction, because, by outsourcing to a management company, you wash your hands of some responsibilities.
On the other hand, managing your development in-house also has its advantages. You can:
- stay in control, because no outside interests will influence your management, and you can maintain complete control over every aspect of your development
- take advantage of familiarity, because in-house managers know your organisation, including your company culture, policy and overall philosophy
- maintain a harmonious working relationship, because in-house managers can more accurately judge the validity of employee requests, such as asking for additional resources or delegation of authority
- more easily enforce company policy, because an in-house manager is part of the established chain of command, and has access to in-house communication systems and policies
- protect your relationship with your shareholders, because your internal manager is in the best position to observe how your management practices affect your relationship with your customers, and to intervene if necessary. For example, a cost-saving measure that looks good on paper may result in inconveniences to your shareholders – and potentially lose you business, loyalty or support. Your own employee on the front line looking out for your bottom line is better able than an outsider to understand and protect that critical relationship.
Sometimes, the best solution is to choose not one option, but both. Maintaining an internal manager as a liaison between your company and your shareholders can allow you to benefit from outsourcing, while ensuring seamless communication with employees and customers. It’s simply called consultancy.
Whichever option you choose, don’t just ‘set and forget’. Your performance directly impacts your business, so don’t neglect to review it often, and re-evaluate your options as the need arises.
If you can’t imagine releasing some control over to an outside company or professional, think twice about outsourcing. You should not hire professionals and then tell them how to do their jobs.
Author: Francois Schoeman