PROPERTY MANAGEMENT – Economic Contribution to National SFR Rental Industry? (Part 9.)

by Tim Herriage

PROPERTY MANAGEMENT – Economic Contribution to National SFR Rental Industry? (Part 9.)

by Tim Herriage

by Tim Herriage

Beyond fixing, refreshing and keeping the physical property to maintain habitability, there is the equally important management of the rental as a profitable business. This involves finding a tenant, screening and leasing, ongoing rent collection and being on call for problems.
A majority of rental investors decide to manage themselves but about third of rental landlords choose to use third-party property management. This means about 8 million rentals (SFR, up to four-plexes and mobile homes,) are managed by professionals.
How much revenue does third-party property management contribute to national and local economies?
SIZING UP PROPERTY MANAGEMENT?
The data on property management entities is at best estimates from aggregated sources, such as historic data from National Association of Real Property Managers data, company surveys (Visio Finance and others) and public records.
By taking entity counts, properties under management (NARPM®) and other survey data, we estimate that about 67% of SFR rentals are self-managed, leaving 33% under third-party management. We assume this is by professional property managers.
Some 7.6 million rentals are managed by a formally established property manager whose average profile suggests is a small company of around 12 employees, generating about a $1,000,000 in annual revenues. The majority of this is derived from leasing and managing 319 long-term SFR rental “doors.” These managers also claim some apartment, condo and HOA management fees. This data is from NARPM® Annual Customer Experience Survey 2015.
Property managers not only derive fees from month-to-month management services, but they also earn commissions from successfully leasing a property to a tenant for about one month’s rental fee. There are other ancillary services outside of core management such as maintenance fees, eviction and other services they can collect and administer. The sum of these fees is consistent with typical operating costs for a single-family rental.
ANNUAL ECONOMIC CONTRIBUTION
To get to the annual contribution we begin with typical SFR rent (2014 U. S. Census Bureau,) to be $11,208 per year for the 23 million occupied rental houses. This gross rental income equals $258 billion a year.
If one third of these rentals are professionally managed at an average monthly management fee of $115, the estimated revenues generated by managing 7.6 million SFRs is a minimum of $874 million a year, plus lease-up commissions of another 8 to 12% on current turn rates.
Not all rentals turn every year, and given the 32% per year turnover rate we used for our rent-ready refreshment calculation, this 32% turnover adds another $272.5 million in leasing commissions making a total on $1,146 billion in property management revenues for managing just one third of SFR rentals.
MASSIVE MARKET OPPORTUNITY
Clearly these unmanaged rentals are a massive opportunity for our industry as there are compelling reasons for professional management. (Look for Part 10.) Moving the adoption of professional property management by just one point adds $114.5 million in annual revenues nationally and  work for around 100 property management companies. Next issue will discuss justification for hiring a property manager and discuss why investors need more than simple property management. Investable Realty specializes in sourcing, management, and disposing of assets for real estate investors.  Click here to see how they can help.
Links to the rest of this series:
Part 1: How big is the Single Family Rental Industry?
Part 2: How big is the Single Family Rental Industry (continued)
Part 3: Investment Industry Size & Real Estate Investment Clubs(continued)?
Part 4: How big is the Rental Home SFR Industry (continued)?
Part 5: Is Fix & Flip a $7.5 Billion Dollar Business (continued)?
Part 6: Is Renovating Rental Houses a 21 Billion Dollar Business (continued)?
Part 7: What do Rent-Ready Costs Contribute to the Rental Industry (continued)?
Part 8: Rental Maintenance adds another $5 Billion in Annual Industry Revenues (continued)?
Part 9: Professional Property Management Contribution to Rental Industry (continued)?
Part 10: Do-it-Yourself Property Management Contribution to Rental Industry (continued)?

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