With construction prices skyrocketing and interest rates on the rise, the cost of doing business in the property management sector is increasing rapidly. Global tensions and economic policy uncertainty are also increasing risk for property management firms. In response, many firms are increasing their cash reserves.
As seasoned property managers know, cash reserves are instrumental in covering day-to-day maintenance, financing renovations, and funding property acquisitions. But with fintech, cash reserves can also add to profits by generating a competitive return without sacrificing safety or liquidity.
Why Property Managers Need Cash Reserves Now
Cash reserves can help property management firms cover higher costs and mitigate the effects of rising interest rates. In addition, with risk and competition increasing, keeping cash on hand can help property managers adapt quickly to changing market conditions.
Renovation and Maintenance Costs Are Rising
In 2021, spending on home renovations jumped 28% with higher prices noted across the board for lumber, appliances, and finishes. With these added costs, property managers are paying more to renovate existing properties and perform ongoing maintenance.
Often, smaller projects and day-to-day maintenance costs are funded with cash. As these activities become more expensive, property managers will need more cash on hand to pay for them.
Interest Rates Are Increasing
Larger renovations and overhauls of properties often require financing. This financing is becoming increasingly expensive as interest rates rise.
In the current escalating interest rate environment, property managers should consider reducing their financing costs for large projects by using cash instead of borrowing. However, this strategy often requires significant cash reserves and additional time spent saving to accumulate them.
Property Acquisitions are Becoming More Competitive
In addition to higher prices, lower inventory has made acquisitions more competitive. Both increased competition and higher prices mean that property managers need additional cash on hand to expand their property holdings.
Geopolitical Risk Is High
The current geopolitical turmoil threatens to exacerbate inflation and supply chain constraints. If the tensions persist, it could lead to longer wait times and higher prices for materials and finishes.
Property managers can deal with rising costs, increased competition, and higher interest rates by increasing their cash reserves. But with more cash on hand, the needs for safety, liquidity, and a competitive rate of return are becoming increasingly important.
Cash Reserves Must Be Safe
Protecting cash reserves is paramount, so it’s important to ensure they are properly secured. FDIC insurance provides the highest level of safety for cash because it is backed by the full faith and credit of the United States government, and according to their website, “Since the start of FDIC insurance on January 1, 1934, no depositor has lost a penny of insured funds as a result of a failure.” However, FDIC insurance is typically limited to $250k per account ownership category at each insured bank.
For larger property management firms, the $250k limit is often not enough. In the past, obtaining full coverage required opening accounts with several banks, but this process is time consuming and difficult to manage. Now, our fintech allows property managers to secure FDIC protection — or equivalent NCUA insurance from credit unions — for all of their cash without the hassle.
Cash Reserves Should Be Liquid
It can be difficult to forecast exactly when maintenance projects or opportunities for new investments will arise. That’s why cash reserves need to be easily accessible.
Historically, firms have sacrificed returns in order to achieve the safety and liquidity that they need. However, with our American Money Market Account™ [AMMA™], those days are over. Property managers can now receive next-day liquidity, the highest level of safety, and the most competitive returns available with a single account and a single monthly statement.
Cash Reserves Should Earn a Competitive Return
With higher maintenance and financing costs squeezing profit margins, earning a competitive return on cash reserves is becoming more important. That’s because idle cash can lead to lost profits – especially when interest rates are on the rise.
As interest rates increase, property managers should expect to earn more on their cash reserves. However, deposit rates depend on many factors and often lag behind increases in the Fed funds rate. One of the most common factors that determine deposit rates is individual bank needs. These individual needs can lead deposit rates to vary widely between banks and geographical areas.
With AMMA™, property managers have access to the most competitive rates available, from banks across the country — all within a single account. Cash secured in an AMMA™ also receives full FDIC / NCUA protection, and the most competitive returns available.
Property Managers Can Reduce Risk with Business Escrow
Investing in large projects has become more difficult after the pandemic since suppliers are still having trouble meeting demand. This often leaves one party holding the bag. Fortunately, business escrow can help property managers mitigate these risks.
Escrow services reduce risk by having a neutral third party hold funds until contract terms are met. This ensures that both parties in a transaction uphold their contractual obligations before receiving payment.
Taking this a step further, business escrow from ADM helps property managers earn a competitive return on their escrowed cash. As projects take more time to come to fruition, business escrow from ADM ensures that escrowed funds are not idle while waiting for a transaction to take place.
As costs and risk rise, it is imperative that property managers reduce risk, and do everything they can to grow profits. ADM can help with both of these tasks.
With ADM, Property Managers Earn More, Risk Less®
Property managers are increasing their cash reserves in order to adapt to the current environment of increased risk, more competition, and higher interest rates. With an American Money Market Account™ [AMMA™] from ADM, property managers can access the most safety and the most return for their cash reserves without sacrificing their liquidity needs.
Additionally, property managers can mitigate risk in their renovation and purchase transactions with business escrow services. With business escrow by ADM, property managers can earn a competitive return on their escrowed cash while ensuring that contract terms are upheld.
To learn more about how ADM helps property managers, contact us today.