Home - Why you should invest in property management business?
For investors looking for a viable business in the United States, property management is an in-demand business with long-term profitability and a low barrier to entry.
The property management market in the United States demonstrated significant growth and potential in recent years. In 2020, the market value reached $3.40 billion, which increased to $3.62 billion in 2021. It is projected to further grow and reach $6.16 billion by 2028, reflecting a robust compound annual growth rate (CAGR) of 7.9%. This growth is driven by the increasing demand for property management services, highlighting the favorable prospects for businesses operating in this industry.
The income of property managers or management companies varies based on several factors, including the location, range of services provided, and the type of properties managed, such as commercial, single-family, multifamily, or industrial properties. Across most states, management fees typically range between 5% and 12% of the total monthly rental income generated by the property. As an illustration, for a single-family home in Philadelphia, property managers typically charge between 8% and 12% of the rent. For instance, if the monthly rent for a property is $1,500, the property management fee would amount to $150, assuming an average fee of 10%.
While the percentage-based management fee is the commonly adopted approach, some property managers or companies choose to implement a flat fee structure. This fee is determined based on factors such as the scope of services provided, the size or square footage of the property, and the property’s location.
In addition to the percentage-based and flat fee structures, property managers have the option to charge additional fees for specific services:
1. Property maintenance fee: Property owners may incur a maintenance fee, which covers the costs associated with monthly repairs, maintenance, and cleaning services for the rental property.
2. Leasing fee: Also known as the new tenant placement fee, the leasing fee encompasses the expenses property managers incur while marketing the rental unit to potential tenants. It typically includes costs related to advertising and move-in procedures.
3. Lease-renewal fee: Although not a common practice, some property managers may charge a lease-renewal fee. This fee is intended to cover the time and effort invested in convincing tenants to renew their lease agreement.
Apart from these additional fees, property managers and management companies can receive compensation through alternative means. This may include monthly bonuses or commissions based on achieving specific performance goals. In certain areas, property managers may also enjoy perks such as discounted or rent-free accommodation, enabling them to reside on-site and oversee daily maintenance and management responsibilities.
The following propel the demand for property management in the United States:
Real estate industry growth
The real estate industry is experiencing rapid growth in both commercial and residential property sectors. According to America’s Housing Vacancy Survey, the U.S. rental market continues to witness a rise in the number of renters due to the availability of accessible and affordable properties in major city locations. Further, more and more Americans find it difficult to purchase single-family homes due to increasing mortgage rates and rising construction costs, making rentals a preferred option for many.
Other factors that account for the surge in demand for rental properties include growing employment opportunities in cities, immigration and domestic migration, increasing international students, and a shift towards urbanization. Thus, the increasing demand from renters is anticipated to boost the property management market growth in the United States.
The rise of short-term rentals
The shift in travel preferences from hotels to more rural and remote locations, such as mountains and beaches, has increased the demand for short-term rental properties, which witnessed a spike in growth during the COVID-19 pandemic. According to Expedia Group, 95% of Vrbo bookings between May and October 2020 were in non-urban areas, with most vacationers opting for properties within a three-hour drive. Airbnb Inc. also shares the same insights, reporting that 103.7 million nights were booked on their vacation rental platform, with most of the bookings made for short-term rentals in rural areas.
The growing preference for remote work
The evolving trend of workplace mobility and the increasing preference for work-from-home arrangements fuel the demand for property units, particularly short-term rentals, among professionals who would rather stay at home or rent a co-working space. Furthermore, corporations have realized the benefit of using virtual workplaces to reduce operating expenses and keep their physical infrastructure needs bare minimum.
The massive growth in the short-term rental market prompted many to invest in vacation homes and co-living spaces to accommodate digital nomads who prefer to stay in rental units for weeks to months. Thus, workplace mobility and the demand for work-from-home setup among employees drive the growth for short-term rentals, positively impacting the demand for property management services nationwide.
For real estate investors and property owners, successful property investing does not only rely on choosing the right property at the right location. Rather, it also involves effective management of investment properties to achieve a healthy and consistent return. This is why many property owners hire property managers and management companies, as the benefits far outweigh the financial costs.
Real estate properties encompass various types:
1. Commercial property:Commercial properties consist of retail businesses like shopping malls and centers, as well as public accommodations such as hotels. Additionally, office properties and co-working spaces rented by professionals fall under this category.
2. Residential property:Residential properties encompass different types, including multifamily and single-family units. Multifamily units include apartment buildings, condominium complexes, and housing projects. Single-family units refer to individual homes or estates, family-owned vacation rentals, townhouses, and real-estate-owned (REO) properties.
3. Industrial property:Property managers specializing in industrial properties handle facilities such as heavy manufacturing plants (e.g., automotive plants, shipbuilding factories, and steel mills), as well as light manufacturing factories (e.g., food packaging and printing facilities). This category also includes warehouses and distribution facilities.
4. Special purpose property:In addition to the aforementioned property types, there are special-purpose properties. These properties serve specific purposes and may include resorts, sports arenas, senior care facilities, religious institutions, schools, and universities. Managing such properties requires specialized knowledge and expertise.
By understanding the various types of real estate properties, property managers can tailor their services to meet the specific needs and requirements of each property category.
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