Whether you are an investor to-be cozying up to the idea of taking the plunge and buying your first house for the price of a car, or you’re a seasoned investor with many owned and flipped properties under your belt, property management is a key element that can’t be overlooked. In short, property management has the capacity to make or break the value of your investment portfolio as well as your success as a landlord.
Taking time to dig into the ins and outs of effective property management can save you headaches, not to mention money, down the road. Which raises the question: what exactly does a property manager do, and when should you consider hiring one? Let’s dive in to learn more.
WHAT IS A PROPERTY MANAGEMENT COMPANY?
A property management firm is a company, a partnership, or sometimes just a single individual, who shoulders the responsibility, via a contract that you, the owner, signs with them, to ensure proper maintenance of your investment home.
In the initial flush and excitement of buying a property, it’s easy to minimize the time and flat out inconvenience of maintenance. Until, that is, you get your first middle-of-the-night call or have to drop everything to find a plumber (have both of these scenarios happened to me?— yes and yes). A third party maintenance company serves as the chief point of contact and middleman between you and your tenant on such issues, as well as the the first-responder in addressing your maintenance issues.
A second role that the property manager plays is finding tenants, collecting rent, and when required, taking a tenant to court who has not paid rent, for instance, or damaged the unit. Because property managers are often directly or indirectly affiliated with real estate companies, they have significant experience interpreting and applying estate regulations and conducting tenant screening.
PROPERTY MANAGEMENT COST
In exchange for performing the above roles, property managers are normally paid at least two fees:
- The first fee is a one–time placement fee to find a suitable tenant. Finding a tenant requires advertising the property, scheduling showings, meeting with potential tenants at the property, conducting background checks on potential tenants, and entering into a rental agreement, on your behalf, with a tenant. The fee for this work is normally the first month’s rent. Thus, if for example, the tenant signs a 12-month lease, the first month’s payment will be paid to the property management company.
- The second fee is an ongoing monthly fee that is a percentage of the monthly rent. The percentage amount varies by location (more expensive locations have a higher percentage fee, less expensive cities have a lower fee), but is generally 5% to 15% of the rent amount. This fee is meant to cover the middleman function that the property manager plays in communicating with tenants.
- Aside from these two fees, you will face a third cost: the cost of the repairs themselves. Of course, the cost of repairs applies whether you have a property manager or you independently maintain your property. However, if your property management company is also a general contractor or a handyman services company, you will want the manager to obtain several bids for work to ensure that you’re paying the best price rather than the rate charged by property management company for their services.
TASKS PERFORMED BY A PROPERTY MANAGEMENT COMPANY
As illustrated above, two of the biggest values that a property management company provides is 1) peace of mind that your investment is managed professionally, and 2) distance between you and your tenant on day-to-day maintenance matters and court disputes.
Skilled property managers can save you valuable time and increase your returns by providing the following services:
- Collecting rent from tenants
- Handling maintenance and repairs issues
- Marketing and advertising the property
- Implementing and managing the lease agreement
- Solving and responding to tenant concerns
- Filing and representing landlords in court actions
WHEN SHOULD YOU HIRE A PROPERTY MANAGEMENT COMPANY?
Hiring a property manager comes with benefit of someone else standing in the shoes of the landlord and the cost of having to pay them to do so. The following scenarios, in particular, are tailor-made for securing property management services post haste:
- WHEN YOU HAVE A PLENTY OF PROPERTIES TO MANAGE: If you are already the queen of the real estate industry in your town or are busily building your Queendom, cheers to you, your highness! One of your first orders of business is to serve your growing clientele by delegating tasks or employing a full-time manager to assist. A general contractor, handyman, or small group of specialized contractors (e.g. electrician, plumber, furnace tech, roofer, etc.) will prove indispensable in helping you address tenant issues quickly and efficiently. If managing a property maintenance crew is quite a ways down your list of favorite things to do, then hiring a property manager is highly recommended.
- REMOTE REAL ESTATE INVESTOR: When you do not live near your investment property, or your properties or scattered about your state, a property management company should be considered. In such cases, a property manager will have economies of scale that allow them to quickly and cost-effectively manage maintenance issues across a large geography.
- TIME IS NOT YOUR FRIEND: If you are working one or more jobs or have family, school and community obligations that leave you with very little free time, then a property management company can create much needed space. Or contrastingly, if you have loads of free time and prefer to use it on building your real estate portfolio or other investments, then a property management company should be used.
- YOU HAVE ZERO INTEREST IN BEING A LANDLORD: Being a landlord is not everyone’s cup of tea and there’s no shame in wanting to own properties without sweeping and mopping them to boot. When you are interested in neither the responsibilities nor the liabilities of maintenance, hiring a property manager can create the ideal solution.
Recommended Read: - 10 Tips for Buying a Home or Investment Property on a Budget
- How to Score an Affordable Investment Property in 2022
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