How Property Managers Can Reduce Risk and Increase Profitability in 2023

A property manager leverages fintech to get a handle on high construction cost and rising rates.

With construction prices and interest rates skyrocketing, the cost of doing business for property managers is increasing rapidly. Global tensions and economic policy uncertainty are also increasing risk for businesses in this sector. In response, many property management firms are holding more cash.

As seasoned property managers know, cash reserves are instrumental in covering day-to-day maintenance, financing renovations, and funding property acquisitions. Now, with advanced financial technology – a.k.a. fintech – cash reserves can also add to profits by generating a competitive return.

Property Managers Are Holding More Cash Reserves for a Variety of Reasons

Ample cash reserves help property management firms adapt quickly to changing market conditions. In the current environment of rising costs, higher rates, and increased competition, reserve cash has become even more important.

Renovation and Maintenance Costs Are Rising

Construction costs are expected to rise an additional 2.7% in 2023. In addition, supply chain constraints for some key components like stainless steel, aluminum, nickel, and semiconductors are expected to persist, raising costs for construction projects. With these higher costs, property managers are paying more to renovate existing properties and perform ongoing maintenance.

Often, minor renovations 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. Property managers can reduce 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

Real estate prices for both new construction and resale properties continue to rise. So, it is likely that property managers will pay more to acquire new properties in 2023. In addition to higher prices, tight 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 has increased costs and exacerbated supply chain constraints. If the tensions persist, wait times and prices for construction materials could continue to increase.

Property managers can react to rising costs, increased competition, and higher interest rates by increasing their cash reserves. 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

Cash reserves are vital to the success of a business, so protecting them is paramount. 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. However, FDIC insurance is limited to $250k per account ownership category at each insured bank.

For larger property management firms, the $250k limit is far from enough. To further complicate matters, obtaining full coverage requires opening accounts with several banks, but this process has been time-consuming and difficult to manage. Fortunately, our company, the American Deposit Management Co. [ADM] offers a simple solution that allows firms to achieve full government insurance for all their cash. Our American Money Market Account™ [AMMA™] provides access to FDIC / NCUA insurance for all business cash without the hassle of managing several bank relationships.

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 to achieve the safety and liquidity that they need. However, with AMMA™, those days are over. Property managers can now receive next-day liquidity, the highest level of safety, and nationally competitive returns with a single account and consolidated 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 which can cause deposit rates to vary widely between banks and geographical areas. With AMMA™, property managers have access to competitive rates from banks and credit unions across the country — all within a single account.

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 risk.

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.

In addition to reducing risk, fintech powered business escrow services from ADM help 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 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 to adapt to increased risk, greater competition, and higher interest rates. With ADM, firms can optimize this cash while reducing transactional risk.

Our American Money Market Account™ [AMMA™] provides access to extended safety for cash reserves – without sacrificing liquidity or returns. In addition, our business escrow services allow property managers to earn a competitive return on escrow cash while ensuring contract terms are upheld.

To learn more about how ADM helps property managers, contact us today.