Property management is the process of overseeing the operation and maintenance
　　of real property to achieve the objectives of the property owner. Sometimes
　　owners manage their own property, particularly small properties and particularly
　　when they themselves occupy part of the space. But for larger properties
　　or those whose owners live at a distance, management is usually performed
　　by a paid property manager, either an individual buildings on long-term
　　leases, where tenants maintain the building, pay the taxes and insurance,
　　and mail the owner a check each month. But most residential, office, retail,
　　and many industrial properties offer services along with the space over
　　time.
　　Property management has long been an underrated function in the real estate
　　industry. The need for professional management did not become apparent
　　until the depression of the 1930s, when numerous foreclosures revealed
　　a pattern of management deficiencies. This oversight might seem strange,
　　since running a large commercial or residential project in which hundreds
　　or thousands of people reside or work is a highly challenging task, calling
　　for training, good judgment, variety of technical skills. Traditionally,
　　however, emphasis in the real estate industry has been on the so permanent
　　elements of the investment-good location, construction, and reasonable
　　long-term financing-than on the day-to-day operation of the property. It
　　has sometimes seemed as if a property owner, having made a very large investment
　　in the permanent structure, assumed that the property would run itself
　　with a minimum amount of supervision.
　　This concept of property management has changed substantially in the past
　　decade. In an era of rising costs, it has dawned on owners that good property
　　management is the major controllable influence on residual cash flow (i.
　　e., the number of dollars that end up in the owner’s pocket). It is true
　　that both rent rates and operating expenses are largely shaped by market
　　forces beyond the control of any one property owner (witness the very sharp
　　rise in energy costs in the 1970s). But it is also true that comparable
　　properties within the same geographic area often show significant variances
　　in rental income and operating costs. Why? Close inspection often shows
　　that “above-average” operating expenses and lower than average rent levels
　　result from inadequate property management.
　　The classic mistake of the stock and bond investor moving into real estate
　　involves underestimating the importance of management. Some investors have
　　the feeling that real estate manages itself.
　　There is a story about the importance of property management. A San Francisco
　　real estate broker recently noticed a project that was on the market for
　　$1 million. He knew how the property had been managed in the past and that
　　the million dollar valuation was based on a capitalization of historic
　　income figure. He borrowed money to buy the property, renegotiated certain
　　leases, and established more efficient operating procedures. In six months
　　he sold the property for $1.4 million based on the capitalized value of
　　the new, higher net income. His contribution was management expertise.