Running a property management company is no small feat, especially for small-size firms trying to balance profitability with high-quality service. Many small property management companies face challenges that ultimately lead to their downfall. But these obstacles can be avoided with the right strategies and practices.

In this guide, we’ll highlight six common pitfalls small property management companies encounter and offer actionable insights to help them thrive in a competitive market.

Not Charging Enough Money

For property managers, setting competitive management fees is crucial. Many fall into the trap of offering rock-bottom rates to attract clients, but this often backfires.

Here’s why:

1. Low fees lead to low profits: This makes it impossible to hire the staff needed to manage properties effectively.
2. Few staff handling too much work: Overburdened managers can’t maintain service quality, leading to tenant dissatisfaction and client losses.

Let’s crunch some numbers:
A property manager overseeing 20 units, each with an average rent of $1,000 per month, generates $20,000 in rent. Charging a 6% management fee results in $1,200 per month—barely enough to cover business overhead, let alone hire staff. Even managing 40 units at 6% ($2,400 per month) isn’t sustainable for long-term success.

Pro Tip: Don’t compete solely on price. Charge fair, sustainable rates that allow you to provide excellent service, hire staff, and grow your business.

Insufficient Staffing

Imagine a husband-and-wife team managing 50 units with great success. Suddenly, they land a new client with 50 more units. Their revenue doubles overnight, but so does their workload—and stress levels.

While they may hire one full-time staff member, the workload often outpaces staffing capacity. Overwhelmed, they fail to address tenant requests promptly, causing service quality to drop and complaints to rise.

Pro Tip: Calculate staffing needs based on your portfolio size and ensure you’re adequately resourced to maintain service quality. Remember, scaling your business without enough staff is a recipe for burnout and dissatisfied clients.

Managing Too Many Distributed Units

Managing properties spread across a wide area can drain resources. Compare these scenarios:

• Managing 100 single-family homes scattered across a city.
• Managing one 100-unit building in one location.

For property managers, the workload of handling single-family homes—driving to different locations for rent collection, maintenance, and inspections—is far greater than managing a single building.

Pro Tip: Focus on portfolio consolidation. Managing fewer, larger properties minimizes time spent traveling and increases efficiency.

Lack of Repeatable Systems

A common mistake among small property management firms is operating without documented, repeatable processes. This oversight becomes a major problem when experienced staff leave, taking institutional knowledge with them.

Consider a scenario where your best staff member, who knows how to handle advertising, tenant relations, and contractor hiring, suddenly resigns. If nothing is documented, you’re left scrambling.

Pro Tip: Build systems and processes for key tasks such as marketing, operations, accounting, and tenant management. Use technology to automate and streamline wherever possible. Document everything to ensure continuity.

No Dedicated Leasing Agent

Leasing is a critical function and a potential profit center. Many small property management companies rely on the owner to handle leasing tasks. But if the owner is unavailable, leasing grinds to a halt, leading to vacant units and lost revenue.

Even with a full-time leasing agent, relying on just one person can create a bottleneck, especially when most showings occur during evenings and weekends.

Pro Tip: Invest in a dedicated leasing team or partner with external agents. Ensure coverage for evenings and weekends to maximize occupancy rates.

No Dedicated Bookkeeper

Financial mismanagement is a leading cause of small business failure. Many property managers attempt to handle bookkeeping themselves, despite lacking accounting expertise. This results in:

• Missing income.
• Mismanaged expenses.
• Cash flow problems.

Without accurate financial reports, it’s impossible to foresee cash flow issues or manage the business effectively.

Pro Tip: Hire a dedicated bookkeeper or outsource to an accounting professional. Accurate financial management is non-negotiable for sustainable growth.