Updated: Mar 23
For many real estate investors, deciding whether to use property management companies can take time and effort. You might be one of those who would only consider investing in real estate with a property management firm in place before finalizing a deal.
You may find that you struggle to break free from the "do-it-yourself" mindset that is preventing you from accomplishing more. Using a property management company may not be as obvious as you assumed.
You might ask yourself questions such as "What does a property management company do?" or "Are property management companies worth it?" If you still need to figure it out, let me assure you that the advantages of using a property management company are worth considering.
You can consider the argument stemming from the cost of working with a property manager, but let's stray from that. The cost should not be viewed as a negative aspect but rather as an investment.
If you're considering hiring a third-party manager, it's important to remember that it may cost you money. However, know that it is worth the price.
A good property management company will also contribute to your rental portfolio by taking care of important tasks. Their involvement could increase your chances of growing your bottom line.
What is property management?
Property management means hiring a property manager responsible for maintaining your residence's status quo and ensuring its occupants are satisfied.
If you own rental property, you would typically hire a property manager to handle the day-to-day operations of your real estate assets and address any issues or inquiries that your tenants may have.
You can hire property management companies to handle various property types, from single-family homes to vacation rentals. You can also consider their services for managing condos, apartments, mobile home communities, and office or retail spaces.
If you have a vacant property, it's your responsibility as the property manager to ensure the house is rented. Property management entails taking care of all aspects of a rental home, which includes advertising vacant space, signing leases, collecting rent, and scheduling repairs when needed.
Do I need a property management firm?
You'll find that there are plenty of investors who fully support the use of a property management company.
However, it's important to note that no rule states you need a property manager. While property management companies have several advantages, they can be quite costly.
Therefore, you should only plan on hiring a property manager if:
As you build your rental property portfolio, property management firms become more necessary to help you manage them effectively.
If your rental property is located far away from where you live, it's a good idea to hire a manager who can keep better tabs on it.
If you prefer to view the rental property as a source of passive income and don't want to actively manage it, a property manager can take care of routine maintenance and daily operations for you.
You may not want to be an employer and take on the responsibilities that come with hiring employees like a resident manager. These responsibilities include payroll and legal requirements.
A property management company can be a good option for you, as they are independent contractors and not your employees. This will save you from the burden of becoming an employer.
You can afford the added cost of hiring a property management company, which typically charges a percentage of the rental fee. This fee is well worth it and can help alleviate many headaches for landlords, freeing up time to invest in other areas.
You have limited time.
If you plan on focusing more on running your business, hiring a property management company may be your best course of action.
You can afford it, so consider choosing a property management company.
Expect quotes ranging from 5% to 10% of your rental revenue.
In a down market, it's wise to continue managing the property yourself or with the help of a resident manager.
You own a property in the affordable housing program.
What does a property manager do?
When considering the cost of property management, it's understandable to worry about detracting from your bottom line.
Hiring a property management company may cost you extra money, but consider it an investment rather than a cost. A good property manager can quickly provide more returns than their initial cost. As an investor, you can expect the following benefits from an average property management company:
They will collect rent from tenants
They will listen to maintenance requests and address the problem
They can deal with defaulting tenants that are months behind in rent
They will market a subject property to limit vacancies
They will keep detailed records of everything happening at the property
They will help simplify your taxes
They will draft and execute new leases
They will conduct rental rate studies to select ideal rent rates
As a property owner, collecting rent is one of the most obvious tasks you must handle. However, if that's all you do, it might be hard to justify hiring a property manager, especially with the availability of online payment options.
But, of course, that doesn't mean collecting rent is a challenging task. If all of your tenants pay their leases upfront in full and you are okay dealing with legal issues, you may not need additional services.
However, most real estate investors are in a different situation. You may operate in markets where collecting rent every month is challenging.
Regular Property Maintenance
As a real estate investor, you may find that tenant maintenance calls are one of the biggest reasons to consider hiring a property manager. While it's not just about maintenance, dealing with tenants can be challenging.
These calls may sometimes annoy you, but handling them with care is crucial. Sometimes, their needs may be insignificant or costly, but their timing and urgency can be critical. For instance, they may experience blocked pipes or be locked out of the property in the middle of the night.
If not addressed appropriately, they could lead to more significant issues with renters and your rental property's performance. You must provide quick and responsive customer service to optimize your income properties.
As the property owner, you can rely on property managers to handle these requests, taking the burden off you. If the issue is small, they can handle it internally. However, for larger and more complex problems, they may delegate it to outside specialists.
If you are a sophisticated property investor, you may have a property management agreement allowing the company to handle repairs up to a certain dollar amount without your express permission. This will streamline the process and ensure that issues are addressed promptly, even if you are unavailable.
Property management companies can call for regular inspections and maintenance, such as:
Other maintenance needs
The property management company will act as the “middle-man” and connect tenants with the necessary services.
Dealing with Defaulters
If you have tenants who are seriously breaching their leases, such as being more than a month past due on rent or putting your asset at risk, or if the police are involved in a criminal issue, you may need to take action.
While it's possible to work things out directly with the renters, in some cases, you may need to involve lawyers or go to court. To save time and stress, consider hiring a property management firm to handle these situations.
Having a professional third party involved can often lead to faster and better solutions than if you try to handle things independently as a DIY landlord, who may be an easier target for malicious tenants.
You may not have realized how much work is involved, but managing a property requires much effort.
A reliable management company will handle expenses related to marketing, showing units, and screening potential renters. Additionally, they will oversee the move-in and move-out processes.
This involves a great deal of specialized knowledge and experience that they bring to the table, which can be the most valuable service they offer.
For most real estate investors, bookkeeping is likely the least enjoyable aspect of their business.
However, it's crucial to have excellent bookkeeping and invoice handling to reduce taxes, maintain good vendor relationships, and keep cash flowing.
You should use this service if your property manager offers it for free. If not, don't worry. You can always hire someone to manage your books.
After all, rental properties are meant to be a passive investment. Research a reliable bookkeeper in your area and assess if their services will benefit your business.
5 Benefits Of Having A Property Management Company
You can greatly benefit from working with property management companies as an investor. By hiring the services of a good property management company, you can avoid the hassle of managing the property yourself and have more time to focus on other important responsibilities.
With the extra time, you can easily find and acquire more rental properties to expand your portfolio. Furthermore, by not having to handle property management, you can relieve yourself of unnecessary stress.
It's important to note that time isn't the only benefit you can gain from hiring a property management company. There are several other advantages, including:
Mitigate Liability: If you're an inexperienced investor, a third-party property management firm can provide you with a valuable benefit: a buffer from liability. You may not realize it, but tenants can sometimes make false accusations about your rent collection tactics, eviction practices, and maintenance efforts. A good property manager can help deflect many of these claims and protect your portfolio. If you want to mitigate your liability as an investor, consider hiring a third-party manager.
Quality Tenants: As someone who owns a property, you may benefit from hiring a property management company to manage it. They specialize in managing properties and know how to find good tenants. By hiring them, you can expect to attract better tenants, improving your overall experience as a landlord. So, consider hiring a property manager to help you find and manage high-quality tenants for your property.
Shorter Vacancies: If you hire a property management company, they will advertise to fill your vacancies and do it with a sense of urgency and efficiency. Since this is their job, they are likely better at filling vacancies than traditional landlords, which means vacancies will be shortened drastically. You can increase your profits by keeping your asset in service throughout the year.
Lower Maintenance Costs: When you work with a good property management firm, you gain access to their network of professional contractors. The property manager's existing contacts can benefit you and help you save on maintenance costs. Furthermore, the contractors come with a valuable recommendation.
Better Reviews: As a tenant, you may prefer working with property managers since the process is usually smoother and more objective. Dealing directly with landlords may sometimes be less pleasant. Therefore, you are more likely to have a positive experience and leave a good review when you vacate the premises. These reviews will then attract more traffic to the home when it's time to find another tenant.
Other Things To Consider
It would help if you considered hiring a property management company as a great investment. However, like with everything else, you need to make sure that you do your due diligence and know what you stand to gain by using the services of a third-party property manager. It's important to note that property managers often offer more than people realize. That being said, there are a few things you need to pay special attention to before committing:
The Cost Of Property Management
If you are sitting on the fence, your primary concern is likely the cost of property management.
On average, property management fees can run you somewhere in the neighborhood of eight to 12 percent of the monthly rent value. Some property managers may charge a flat price in addition to the monthly percentage.
Remember that not all property managers are created equal, and while eight percent represents a pretty good value, 12 percent may seem a little on the high end to you. However, it is worth noting that a great manager may ask for 12 percent to justify their own cost.
Hiring A Property Manager
When hiring a property manager, you shouldn't take the task lightly. As mentioned, property managers will request anywhere from eight to 12 percent of the rental cost, but their fees may differ on how good they are. It would help if you got what you paid for.
It's possible for an inadequate property manager to overcharge and a great one to undercharge. That said, mind due diligence is the only way to know if you are hiring the right one for your business. Don't simply base your decision on the average property management fees; dig deeper and find one that meets your specific criteria.
First and foremost, you need to identify what you want the most out of a property manager. What is it you need your manager to do? Compile a list of needs and wants and use them to pick the right company to represent your property.
Next, you should vet them accordingly. Can they do what they promise? Get testimonials and talk to their current clients to better understand their satisfaction.
Finding A Good Property Management Company
If you need to know what to look for, finding a good property management company can be challenging but highly beneficial.
Consider the aspects you want help with and ask potential companies some questions. What is the tenant screening process like? Do they stop by their properties? How do they handle evictions when necessary?
Before making your final decision on a property management company, exercise caution. You can start your search by reviewing the following tips to help you.
Consult colleagues and your local apartment association for recommendations.
Search for certified property managers on the Institute of Real Estate Management’s Membership Directory.
Find a NARPM property manager on the National Association of Residential Property Managers’ site.
Thoroughly interview companies before making your decision.
When searching, remember that finding the right fit may take you a few weeks. You should always ask curious questions, and don't hesitate to trust your instincts. You would want to avoid signing a contract only to discover that their operations don't meet your standards.
Hopefully, now you better understand what a property management company does. If you find a good one, it can be worth its weight in gold. A great management company can save or make you more money than their initial fees. Remember that the cost of property management should be seen as an investment rather than an expense.