How to Mitigate Property Management Risks
Anyone who owns property knows that it can be a lucrative investment, but if you’re not careful, it can also be extremely risky. From property liability, tenant turnover, and vandalism, property management companies face a wide range of potential risks every day.
However, many of these risks can be minimized or even eliminated altogether with the proper risk mitigation strategies in place. In this article, we’ll take a look at the most common risks facing property managers and explain how you can mitigate those risks as best as possible.
Why Property Managers Should Care About Risk
When you own a business, there’s always some risk involved. But as a property manager, those risks are magnified since your livelihood depends on your tenants and their happiness. When you are managing an array of properties, risk can manifest itself in all sorts of different ways.
Having the correct plans in place is essential for dealing with these risks quickly and not letting them impact your bottom line. The term "better to have it and not need it than need it and not have it" is the perfect way to describe risk mitigation strategies. Although they may not always need to be used, having these strategies in place will ensure you are ready for any problems your property management company may face, and give you peace of mind that you can leap over any hurdles that are thrown at you.
No company wants to think about all the scenarios where something could go wrong with their business, however the reality is that every business will face problems and have challenges to overcome. All you can do is be as prepared as possible with risk mitigation in place so that when these problems do arise, you will be ready to deal with them quickly.
What Are the Property Management Risks?
Before we can discuss risk mitigation for property management, it’s important to list a few of these risks. After all, not all risks can be mitigated, and if you don’t know what you’re up against, there is no way that you can develop a strategy for mitigating it. There are five primary property management risks that property managers need to be aware of:
In high-risk areas, property managers may take extra security measures such as installing surveillance cameras and hiring security guards to ensure the safety of their property and their tenants.
Poor Tenant Selection
While screening tenants is essential in order to minimize your risk of having bad tenants in your rental properties, mistakes will happen. The best thing you can do in these situations is take prompt action and work with legal counsel to evict troublemakers quickly—the longer they stay on site, the more damage they'll likely cause.
Poor Vendor Selection
Picking the wrong vendor to complete a job on your property can lead to costly problems and more work down the line. Making sure you have the right people for the job means less time and money spent getting someone else to come and do the job properly or having to fix new problems caused by the original vendor.
Market risk is a form of risk that can impact any business and property management is no exception. Certain forms of real estate will rise and fall in popularity, condos may be a hot commodity for a while and then cool off as the market changes. It is important to be diversified in your property portfolio so that any periods of downtime can be offset by other property classes.
Fires can be one of the most feared risks when owning property. However, working alongside qualified contractors can reduce your risk by making sure that everything in your properties meets fire safety standards. For example, smoke detectors save lives! Even having the best safety measures in place will not put your risk of fire or other damages to zero. This is why it is important to be properly insured in the event that your property suffers a fire or damage of any kind.
3 Steps to Mitigate These Risks
There are several ways for you to protect yourself against these and other potential risks that come with running a real estate business. This section will look at three basic techniques that every property manager should be using to reduce their overall risk exposure: conducting thorough tenant screening, diversification and screening vendors correctly.
Conducting thorough tenant screening
Don’t just run a criminal background check, but thoroughly investigate potential tenants and their income and employment history. If possible, do an in-person interview to get a better idea of who they are. Also be sure they have references from prior landlords or employers so that you can verify what they tell you about themselves is true.
It is important that your property portfolio is diversified so that in the event of market changes you can offset your lower producing properties with the ones that are most popular. For example, COVID-19 caused many businesses to move online and the benefits of moving online have convinced many companies to have a large portion of their workforce working from home, which resulted in many office buildings being left empty for months on end.
This has had a huge negative impact on commercial office space as the demand for it is not nearly as high as pre-COVID levels. If you were a property manager who had mainly commercial office properties, you would be in some trouble. However, if you are diversified in your properties you would be able to offset those losses with other properties that have done well during the pandemic like condo buildings and rental properties.
Screening Vendors Correctly
It is extremely important that you properly screen your vendors to ensure the jobs you need done are getting done correctly. Hiring the wrong vendor for the job can be very costly and even lead to more serious problems like legal issues and injury in the event a vendor does improper work that threatens the safety of your tenants.
In order to mitigate this risk it is important that you screen your potential vendors thoroughly and ask for references, check reviews, and see their past work. Doing these things will not work 100% of the time, however they will greatly reduce the risk of hiring the wrong vendor.
How VendorPM Can Help Mitigate Property Management Risk
VendorPM allows property managers to search through tens of thousands of vendors to find the ones that will do the best work for them. With ratings, reviews, and photos of previous work right on VendorPM there is no need to go digging for additional information.
This greatly reduces the risk of hiring a sub-par vendor who may not do the job correctly, costing you more money down the line. If you’d like to learn more about the many ways VendorPM can help you business mitigate your property management risks, visit us at vendorpm.com.