Know Your Real Estate Investment Options and Goals

For decades, rental property investors and property managers have had different goals and incentives. 

Real estate investors who spend time flipping houses rarely worry about hiring a property management company. They focus on short-term real estate investments to purchase for low prices, repair quickly, and sell for higher prices to make a profit.

The other real estate investment options are to get involved in real estate investment trusts like REITs. REITs are an asset class publicly traded and commonly found in mutual funds throughout the stock market. REITs have their property manager partners and often focus on commercial real estate.

Rental property investors who buy and hold multiple properties should hire a property management company if they want more rental income, less vacancy, fewer maintenance costs, and less resident turnover. Unless these rental property owners enjoy collecting rent and are experienced property management professionals, they can significantly benefit from hiring a good property management company.

Property management companies have built their management fee structure to earn more money when your resident leaves. They get to replace a new one, which leads to lower rental income, more vacancy, maintenance costs, and more resident turnover for the rental property investor.

The most significant consideration when hiring a rental property manager all starts with the alignment of goals. Do the rental property investor and the property manager agree on making the greatest ROI for the property owner? 

For example, can the rental property manager explain the following about their processes?

• How do they sign 2-3 year leases with rent escalations with your residents?
• How do they get an average of 70% of your residents to renew their lease for 1-3 additional years?
• Why does everyone benefit from an average resident stay of over four years?

JWB Property Management currently manages over 3,800 rental properties in Northeast Florida. Over their property management journey, JWB has emerged as a leading voice in the rental property investing space. They are a property manager who genuinely wants to help you out as you explore your real estate investment options.

How Did JWB Get into Rental Property Management?

When JWB first began in 2006, Gregg, Alex, and Adam were fascinated with buying assets that would provide cash flow and building their retirement income. They were NOT infatuated with doing the property management part. Their first instinct was to outsource the property management with their first 40 properties.

Gregg and his partners assumed it would be an easy experience to go with someone who had a good property management reputation. But they found this assumption to be wrong. When using their first property management company, their rent collection was under 80%, and they lost money. 

The JWB founders knew they needed to find a better way to handle their properties. Over the past 15 years, they built a property management department that looks out for the real estate investors’ best interest. Today, JWB’s property management company collects approximately 96% of monthly rent, which is way better for their investors.

What Happened with This Bad Rental Property Management Experience? 

It was a misalignment of goals. The goals of a rental property investor and a property manager are different. Risk adjustment comes from positive cash flow, and that is what the investor focuses on. 

The longer someone stays in a property, the better your returns are. The resident stays longer, feels more ownership of the property, and has fewer turn costs of remodeling after a resident leaves. The rent can go higher, yes, but your returns on investment can go down. 

Ask a Property Manager If They Own Rental Properties. 

When JWB first began, they started with 40 rental properties. Currently, JWB owns approximately 300 rental properties. 

They quickly learned that maintenance and vacancy costs skyrocket when there is a high turnover of tenants in those rental properties. The secret to success is to keep the tenants in their homes longer. The longer the resident stays, the more money the rental property investor makes. Long-term resident stays mean lower turnover and lower maintenance fees. 

Why Are Almost All Property Management Companies Signing One-year Leases? 

They make money based on the fees they charge for turning over property and the percentage of the rents they collect. Most property management companies earn 25% – 50% more when they turn tenants over every year.

JWB acquired 3-4 property management companies over the past two years. In doing this, the JWB team has seen the good and the bad of how property management companies operate. By studying each property management company, it was clear that their goals were not always in the best interest of the real estate investor.

For example, when you see what percentage of their revenue comes from their activity, you’ll see where property managers place their focus. When they get a new renter, they earn money when the property management company collects fees. To add, they need to hire a team of people to answer phone calls and handle maintenance, which is part of their overhead. 

But most property managers tend to make more money by kicking clients out of the properties and flipping tenants to collect more fees. JWB’s property management team operates differently. We have a business plan to sign long-term leases of 2-3 years, which lowers the property management costs. Our goal is to save the investors money by keeping turnover low.

What’s Different about JWB Real Estate Investment Options?

JWB makes more money when its clients earn more money. JWB is a property management company, yes. But we do not make the majority of our revenue from tenant placement fees. We give this up in fees because it makes more sense for us to sell turnkey rental properties. 

Other rental property management companies don’t have homes to sell as JWB does. We have a different revenue stream to make less money on the rental property management side.

Why Do People Complain about Higher Maintenance Costs When Owning Rental Properties?

Here is why the misaligned goals create this problem. Most rental property management companies only sign one-year leases because they make more money when there is turnover. Over five years, there are more tenant placement fees, which reduces the cash flow for the property owners. Gregg showed slides from a 5-year case study that shows the investor loses $24,100 over five years because of these misaligned goals.

For the average rental property management company, they make a lot of money on maintenance. Here is a typical amount:

Maintenance costs = $1200 per month x 12 months x 5 years = $72,000

When you track the data, you’ll see an average of 13.9% maintenance cost expectations. This hurts the Return On Investment for the property owner. Lost rent prices, vacancies, and high maintenance costs eat away at your property’s cash flow.

At its core, people get frustrated with rental property management companies because the management of the properties can make or break your investment. 

Let’s look at it in more detail:

5 Year Case Study: Other Property Management Companies Vs. JWB Property Management

Other Property Management Companies ($1200 monthly rent, avg resident stays 1 year)

Lifetime tenant placement fees paid (5 at $900 each) = $4500

Lifetime vacancy costs (4 periods of 2 months each – $2400 x 4) = $9600

Lifetime cost of repairs during property turnovers (4 at $2500 each) = $10,000

Grand total costs to the Property Owner over 5 years = $24,100

How Does JWB’s Rental Property Management Differ?

JWB Wins over the Other Property Management Companies!

If you subtract the total from the Other Property Management company of $24,100 and subtract the total from JWB’s Property Management of $7300, what do you get? In 5 years working JWB Property Management, you save $16,800. For each of those five years, the property owner that hires JWB is ahead by $3360. That’s a powerful addition to your return on investment!

Questions to Ask When Hiring Your Rental Property Manager:  

When a Resident Leaves, What Does JWB Do to Prepare the Property for a New Resident?  

We try to make that turnaround time as short as possible. A JWB teammate goes out to the property on the day the tenant leaves to get it cleaned up, getting owner approval for repairs, and getting it occupied as quickly as possible. It’s usually about $3500 to get it ready for the next tenant.

How Long Does It Take to Get a Tenant into a Vacant Rental Property?  

If a Person Owns Rental Properties in Jax and Wants JWB to Be the Property Management Company, Can They Do That? 

Yes! We can accommodate other properties, including small apartment complexes. Please contact JWB if you own rental properties in JAX and talk to JWB about managing your properties.

Does JWB Try to Get Top Dollar and Raise Rents Aggressively, or Does JWB Prefer a Value Play to Get Properties Rented Quickly?

Our approach is to accomplish both. JWB’s Property Management division wants to get top dollar market value for rents, and we want to keep the tenants there longer. We can do both, and everyone wins. Rents in JAX are going up right now, and it’s a great time to own rental properties in JAX.

How Do You Get Started with JWB?

To Your Success,

Gregg Cohen