The decision between managing your own rental properties and contracting that service out is one that many nonprofits have agonized over. Can your organization professionally manage the property for less expense than a professional property management contractor? Staff size and ability; available capital; condition, type, and size of the property (or properties) are many of the factors that come into play when your organization is considering that question.

If you decide that your group can handle the additional work of managing property, be sure you thoroughly evaluate the property management competition before you make the move into this new area of business. If there are plenty of good, quality property management companies already in your area, there may not be any room in the market for your services. If there are only a few property management companies around and their services leave something to be desired, the market may be crying out for a new qualified competitor.

About the Market
Along with normal growth and attrition, massive changes in the subsidized housing world will rearrange many property management players, providing both more competition and more opportunities for new property management companies.

Remember:

Other nonprofit housing organizations may be investigating growth or entry, for the very same reasons you are considering.
Local public housing is being sold to private owners, so that current public housing properties, however they are owned in the future, may be seeking new property management.
Public housing management entities may be eager to add private units to their portfolio.
New financing and ownership of HUD-owned, -financed, or -guaranteed properties is being widely proposed, especially for those properties with Section 8 rental subsidies.
Things to Know About the Competition
Specifically, what you want to know about the competition is their strengths, their weaknesses, and how they are perceived in the marketplace.

The strengths and weaknesses of other property managers in your area will help you determine where your proposed property management firm can fit in, if at all. Existing managers that are doing a good job at a reasonable cost may not leave much room for a new entrant. On the other hand, the current property managers may be doing a good job, but only for certain types of properties and not for others, leaving an opening for you.

How the competition is perceived is also an important factor. Owners, residents, and rental property developers have an image of the management firms they know. These perceptions will influence how you can market your services so they are attractive to potential clients.

Strengths
The strengths of other property management companies—for-profit and nonprofit—can be categorized as follows:

Well managed—Good property management is just a matter of good management. Good property management firms are well organized, with clear missions and objectives. They have strong operating systems, supported by sophisticated computer technology, and they take advantage of important administrative economies of scale. They have knowledgeable and motivated staffs, maintain good communication with residents, and are highly responsive to resident concerns and complaints.

Favorable perception by tenants—Most residents want to live in a clean, quiet, well-managed, well-organized community. Residents know better than anyone who can provide this—and who can't. Good management is highly visible to the residents, helping them keep up the property and constantly making them aware that high property standards are just as important as rent collection.

Strong name in the marketplace—Stakeholders other than your nonprofit—lenders, funders, public officials, partners—are interested in your properties being well-managed. Companies with good reputations will have a competitive advantage when property management decisions are being made. Your new venture may have to overcome the barrier of competitors' reputation as competent.

Captive market—This is when a property management company is connected to, or a subsidiary of, a company or person that owns the properties being managed. In this situation there is rarely any interest in taking on new property management.

Skills in particular market niches—Particular skills in managing different types of low-income housing can be especially important in adding value to property management. Managing scattered-site rental properties, for example, is very different from managing single-site complexes. Managing especially tough properties, such as those that exhibit a high degree of social disorder, requires a specialized set of property management skills, as does managing older elevator complexes, single-room-occupancy buildings, or housing for people with HIV/AIDS. Learn which niches are already occupied—where the management company is doing a good job, and is perceived in the marketplace as doing a good job. Those niches are already taken.

Well capitalized—Enough cash improves everyone's outlook. Capital is needed—by the competition and by your new business—to start-up, expand, and weather storms. Well capitalized competitors can afford the best technology and to take most advantage of economies of scale. They may be able to afford initial losses in order to enter a specific market niche. A well capitalized property management firm in your arena means tough competition.

Weaknesses
The weaknesses of other nonprofit and for-profit property management companies may include:

Lack of nonprofit experience—Many for-profit property management companies have little or no experience managing units owned by nonprofit organizations. These companies may not have a good understanding of the concerns of nonprofits and the differences between for-profit owners and nonprofit owners—the different tax reports and accounting standards, for example. There may be cultural issues as well, that prohibit these companies from being perceived by nonprofits (and possibly public agencies) as being sufficiently sensitive to the requirements of nonprofit-owned housing units.

Poor nonprofit experience—Some property management companies take on nonprofit clients, and the match just doesn't seem to take. The management company doesn't respond adequately to the nonprofit, or it doesn't treat the residents in a manner the owners think appropriate, or it lands the nonprofit owner in a public relations mess. If you are thinking along these lines other nonprofit owners might be too. Be prepared for competition.

Too expensive—Good property management (any property management) can be costly, especially when the property being managed is too small to justify significant economies of scale. Be cautious here. Good property management takes time, and systems, and expenses. It will cost you more than you think. There may be very good reasons why a current manager is charging an arm and a leg for services rendered—it may take that much to get the job done.

Not well organized or skilled—Some people and companies just can't get the job done right and property management firms are no exception. Two common reasons for hiring a property management firm are that it is related to (or the same as) the owner, or because it is the only firm that operates in a particular niche of the marketplace. Good property management requires skilled and motivated personnel, the right systems, adequate working capital, and lots of experience.

Unfavorable perception by tenants—Resident perception is a critical piece of the property management marketplace. Unfavorable perception can hurt in a number of ways: it can make the property tougher to lease-up, it can make it more difficult to control social problems, it can lead to unfavorable publicity. Nonprofits may have a competitive edge when it comes to resident perception, especially nonprofits well-grounded in the community.

Not enough attention given to the special needs of low-income housing projects—Low-income housing projects may require special care and feeding that they not getting. It may be that the property has too few units for management companies to take it seriously. It may be that issues of resident control are important to the residents, but given short shrift by the property managers. Some companies are just too large for some projects, or not appropriately diverse, or just not interested in providing the type and depth of service this market needs.

Very difficult portfolio—Occasionally a property management company will take on a very difficult portfolio without having the resources necessary for managing that portfolio—exactly the situation you will want to avoid. This can happen when the company manages especially tough properties, or when it attempts to manage too many different types of properties. These companies should want to unload some of their business—and maybe you can be there to help them out.

Good property management is a key ingredient in improving the physical, social, and economic conditions of a community. It can help to provide the social cohesion that is essential in any neighborhood building effort. Nonprofits need to enter the property management business, if only to continue their laudatory efforts at providing affordable housing and better life opportunities throughout America's neighborhoods.

At the same time, good property management is a business, a serious business that requires specialized talents, lots of time, and cash. All the good intentions in the world will not take the place of time, talent, and cash.

This article is based on chapter four of The Options of Property Management, the first in a series of quarterly reports on managing assets and properties published by The Consortium for Housing and Asset Management. To subscribe to the series, please call 410/715-2264, the cost is $20 per year, or $10 per issue.

Bill Batko is a Senior Program Director in Housing Services with The Enterprise Foundation. Mickey Diggs, PCAM, is Managing Coordinator for the Consortium for Housing and Asset Management.

Remeber the Bottom Line
Keep in mind four bottom line attributes of the property management business when considering whether your organization should enter the fray: