Blog & Advice

Property Management Cost is Rising

The cost of property management is rising.

The U.S. Department of Labor is changing the regulations for so-called "white collar” exemptions under the Fair Labor Standards Act, and significantly increasing the minimum salary level necessary for employees to be properly classified as exempt from overtime pay effective December 1, 2016. The new rule doubles the minimum salary for “white collar” workers to be exempt from overtime pay from $23,660 to $47,476 per year. No exception is made for small businesses.

Business managers (such as property managers) earning less than $47,476 will no longer qualify for a salary, must be paid on an hourly rate, and receive overtime pay for working past 40 hours per week. This will be a painful increase in cost for the property management business, where property managers often work long hours filling vacancies, handling unexpected property repairs and maintenance issues, and serving the needs of tenants and property owners.

Meanwhile, cities such as Los Angeles and Seattle, and states including New York and California have passed legislation to raise the minimum wage to $15 per hour from the current national rate of $7.25. Increases in other cities and states have been proposed. At least one presidential candidate is pressing for a national increase to $15 per hour.

Clerical and administrative costs for the property management industry will rise significantly as these increases become law. The Real Property Management franchise system hopes to mitigate these cost increases by increasing the use of productivity software, adopting innovative ways for showing vacancies to prospective tenants, and sharing best practices among our 280+ offices to contain other costs.  These improvements will improve efficiency, yet maintain quality service to our customers.

An unfortunate side effect to wage increases and cost mitigation might be a reduction in employment levels – not just in the property management industry, but across all industries. For example, McDonald’s has already started testing kiosks for ordering food. Similar to an ATM machine, these devices eliminate the need for cashiers by automating the process. Other companies are hiring more part-time workers to replace full-timers, outsourcing activities or jobs, decreasing bonus targets, or increasing prices.

Real Property Management offices are committed to controlling costs so we can continue to serve our customers well at a reasonable price. For now, and the immediate future, we have been successful. However, as government regulations continue to push wages up, every company in our country will be forced to respond.