Have you considered hiring a property manager?
Purchasing a property and renting it out to tenants can provide a healthy income stream to willing investors for a very long time. Plus, purchasing investment properties has become easier than ever because of marketplaces. But no matter what kind of property you purchase – commercial or residential, single-family or multi-unit – hassles and headaches are inevitable. Lots of patience and hard work go into finding the right tenants, maintaining the property, and acting responsibly as a landlord.
Unless owning and managing rental properties is a full-time job for you, or you want it to be, consider a property management firm to streamline your landlord duties. But before you sign with one, be sure to fully consider the pros and cons of managing your property versus delegating tasks to a dedicated management firm.
When you purchase an investment property to rent out to tenants, you have a choice to make — hire a property manager or manage the property yourself. Property managers aren’t cheap, so at first, this might seem like an easy choice, especially to inexperienced real estate investors. However, it’s important to know just how much value a property manager can bring to the table before deciding which way to go.
What a Property Management Firm Does
The responsibilities that come along with property management include screening the credit histories and backgrounds of applicants, drawing up leases and processing rent payments, maintaining tax and legal records, and dealing with maintenance issues and complaints that crop up. Depending on the size of your property, these tasks alone can constitute more than a full-time job.
Every landlord has to decide whether the tasks required of property management are better suited to a dedicated firm or handled first-hand. The first thing to consider is whether you have the time and expertise to manage your property. Are you comfortable doing basic handyman tasks (or do you know someone dependable who is)? Do you know a reliable electrician and plumber who offers same-day service? Do you mind being on call 24/7 to handle issues that inevitably arise? Are you comfortable confronting tenants over complaints or late payments? Or would you rather spend the money to free up your time by delegating these and other responsibilities?
While hiring a property management firm can eliminate after-hours phone calls and mitigate day-to-day hassles, nothing ever fully relieves you of management responsibilities as long as you own the property. Some maintenance issues (such as determining whether to repair an old dishwasher or replace it with a new one) are sure to require you to assess the situation and determine how to proceed. Additionally, certain tenant problems (such as eviction) will need your attention.
Suppose you’re looking for a firm to take every single worry off your shoulders. In that case, you’re going to be disappointed – but if you want assistance lightening the load, a good property management firm provides a range of valuable services.
Dealing With Tenants
A big part of what any property management firm (or hands-on landlord) does is deal with tenants on a day-to-day basis. Responsibilities include advertising open units, interviewing and screening prospective tenants, drawing up leases, handling move-ins and move-outs, dealing with complaints, collecting rent, handling late payments and, in the worst scenarios, managing evictions. Property management firms should have a familiarity with the legal aspects of the landlord/tenant relationship – and that includes understanding the rights of each party and how to proceed legally in the event of a problem.
For some, one of the best aspects of hiring a property management firm is that it handles a good deal of the necessary paperwork. A firm can relieve you of finding and screening tenants, checking credit reports, conducting background checks, drawing up lease agreements, and billing and accounting for monthly rent. Also, if you offer subsidized housing, you know that a fair amount of additional paperwork is required to be maintained.
If you only have one or two rental properties with long-term tenants, dealing with paperwork shouldn’t take more than a few hours each month, nor should it occupy more than one drawer of a filing cabinet. However, if you own an entire building with a high turnover rate, that volume and time commitment can add up quickly.
Of course, even with the help of a management firm, you’re still responsible for maintaining a record of documents relating to taxes, insurance, and mortgage bills – not to mention receipts from the property management firm itself. However, the reduction of paperwork can be worth the fees charged.
Repairs and Maintenance
If your building has a new roof and a new water heater, it’s a reasonable assumption that you won’t be called upon for repairs as frequently as you would for an older property with older features. If the roof and plumbing are old, the baseboards are peeling, and the physical structure of the unit has seen better days, you could face frequent calls and expensive repair bills.
As a landlord, you don’t just own a house or building – you also likely own the land it’s sitting on. In addition to the repair and maintenance of buildings and individual units, you need to devote some resources to make sure the land is attractive and well-maintained. That can mean planting and keeping flowerbeds, repairing pathways, mowing lawns, and installing grass sprinkler systems, among other duties.
You may authorize the management company to handle repairs under a certain dollar amount at its discretion, but you’ll still need to authorize bigger, costlier repairs. Your decision as to whether to hire a management firm hinges on just how involved you want to be, and how immediately available you want to make yourself to your tenants.
Isn’t A Property Manager Expensive?
When a lot of my friends and family hear I’m a landlord and outsource the property manager role to a firm, I’m always asked about the cost. In the grand scheme of things, hiring a property manager is not too expensive when you compare the amount of everyday and monthly tasks they handle for the property owner.
Managing a property is not very hard in most cases, but it is often time-consuming, especially when you are in-between tenants and looking for a new one or when there is a property issue.
A property manager typically charges a flat fee of 10% of the rent you charge. So for example, if you charge your tenant $1,200 per month in rent, then a property manager will typically charge you $120 per month for their services. They collect the rent, take out their fee, and pass along the remainder to you. This is also after paying any maintenance and repair costs.
What Services Does A Property Manager Typically Perform?
There are many things a property manager typically does for a landlord as part of the monthly fee that they collect. While this is not an all-encompassing list, it does provide you with a good idea of what you can expect the typical property manager to do for the fees they charge the homeowners.
- Find and screen new tenants
- Advertise your home vacancy online and in print
- Evict non-paying renters, if needed
- Collect rent payments and deposits
- Handle calls from potential and current tenants
- Schedule routine and emergency maintenance
- Coordinate with contractors and home warranty companies
- Conduct monthly or quarterly inspections
- Show the property to new renters
Property Managers Understand State And Local Law
Additionally, property managers know and understand the specific local, state, and federal laws that govern being a landlord such as accepting renters, removing non-paying tenants, application denials, which references to check, and other aspects of renting.
The law covers a host of specific details that you may not know (or even want to know). It is hard to keep up with all of the rules and law changes. Hiring a property manager absolves you of responsibility and puts it on the property manager’s shoulders.
Understand Your Property Management Needs
Many new real estate investors aren’t prepared for the work involved with being a landlord.
While some may find properties requiring little time and energy to rent and maintain, others vastly underestimate what it takes to manage a rental property.
Be Realistic About Your Experience
If you own your own home, are a strong communicator, can DIY some projects, or have friends or relatives with rentals, you probably have a good idea what landlords do.
You’re probably also aware of the skills necessary to deal with typical issues you’d encounter with an investment property.
If you’ve only researched and read of others’ success with real estate and you’re anxious to give it a try, you may have a much bigger learning curve. It’s not that you can’t be successful.
There’s just more to being a landlord than most people realize.
You should also consider your ability to handle conflict, and whether you can detach emotionally and stay focused on the property as a business.
Know the Property Condition and Type of Tenants You’ll Attract
If you purchase an investment property needing a lot of work, make sure you carefully consider the money and time necessary to prepare it for tenants.
Even if you have a property inspection, you may find more things needing repair or replacement before you can collect your first rent check.
Whether you do the work or not, doubling the time you think it will take to make repairs is a smart idea.
Setting aside at least 1.5 times what you estimate repairs will cost will help you if you uncover more problems or underestimate prices. If you finish early and under budget, it’s all a bonus to you!
You may score a great deal by purchasing a home in a rough neighbourhood, but you may end up with extra expenses due to more vacancies, frequent turnovers and evictions, and higher maintenance costs.
There’s potential to make a lot of money with these types of properties, but they usually require a lot more work too.
What’s Your Workload and Where Do You Live
If you’re purchasing a rental property and already work a full-time job (and possibly a side job) or if you’re busy with children and their activities, carefully consider the amount of work a rental property could be.
- How will you be a landlord to impact your life or your family? Again, you may not need much time to work on the property depending on what you buy, but being a landlord can certainly become a job too.
- Is the rental property close by or is it a considerable distance away
- How will travel time to show the property or complete repairs affect you?
The property condition, location, and types of tenants you have may play a significant role in how involved you’ll be with the property.
Landlords who’ve gotten out of the business will tell you, getting calls from your tenant due to an overflowing toilet as you’re heading to bed can chill your enthusiasm fast.
What a Property Manager Offers
It’s important to note that everything discussed below property managers assumes you find and hire a competent management team.
There are plenty of property managers not worth their fees. Be sure to exercise caution, interviewing multiple managers, and checking references before you go through with hiring one.
Keep in mind, and most property managers allow owners to choose their level of involvement with the property too. Some owners are actively involved while others may field a few calls or emails and give approvals for work to be done.
Tenant Placement and Management
A manager will market and show the unit, take applications and screens potential tenants. They’ll also run background, credit, and reference checks before selecting a tenant.
Depending on the property manager and contract, this is done for a flat fee, or it’s based on some portion of the monthly rent. Many managers charge a full month’s rent to place a tenant.
Property managers respond to tenant complaints and repair requests.
They also manage a tenant’s move-in and move-out, deal with keys and the need for lock changes, and determine fees that may be deducted from security deposits.
This is one benefit most owners are looking for when they seek property management—passing on the responsibility to find good tenants or manage them, even though it comes at a price.
Reasons to Hire Professional Property Management
Airbnb Investment Ownership
Airbnb rentals can be quite exhausting for many hosts. Owners that have a high turnover of tenants have a hard time managing and cleaning the property themselves, sometimes multiple times in a month. An Airbnb property requires a lot of attention and services to be laid out for every new guest coming to your property, and ideally, you will have a lot of guests. When high demand and guests are coming in every couple of days, it becomes exhausting. Cleaning, taking care of amenities, and providing fresh sheets & towels are the minimum standard of a successful Airbnb property.
Having a successful Airbnb investment means high turnover and eventually extra profit. Hiring a professional property management company would be the right step in this case as its employees will handle the pressure of tenant turnover and the services needed. For real estate investors with multiple Airbnb properties, then this is an absolute necessity. Nowadays, in the face of the growing Airbnb business in the Australian market, there are property management companies that deal exclusively with Airbnb rental properties. They provide luxury services that will make your property unique compared to competitors.
Owning Property in a Different City
Owners who have purchased properties in a different city or even more so out of state have no other option but to hire a professional property management company. Buying and owning a property remotely is easy, but managing and maintaining the property is almost impossible because of the commute, especially in case of longer distances. Property management services will get paid to do the job for the owner without making them feel worried about their property. So, that’s one case when it’s definitely worth the money to hire professional services.
Working a Full-Time Job
Property owners that invest in real estate while having another full-time job to worry about usually might require the services of a professional property management company. The management of properties is demanding for owners, and it usually takes up a good amount of their time and effort. If you are working a full-time job for 8 hours per day (which you totally should be doing, at least at the beginning of your real estate investing career), you will find it hard to manage viewings, listings, tenants, and maintenance at the same time. A property management company will take care of all these things for an owner and keep them his/her up to date on everything without having to lose unnecessary effort or time.
Owning multiple properties
Another case in which it is worth hiring professional management is the owner of multiple investment properties. From a real estate investor’s point of view, it is crucially important to be able to buy and own several income properties, which requires lots of time and energy. Thus, if you’ve already reached that point in your real estate investing business, you will need to use a property manager. The cost will be covered from the opportunity (in terms of time) to buy yet another property.
Not Cut Out for Management
Some real estate investors purchase properties, but they are not fond of the frameworks of managing that investment. Management of properties is a day-to-day operation that could have you deal with tenants, real estate agents, buyers, and more. An owner who wants to avoid all this hassle for an extra cost should hire a property manager that will take care of all these tasks to the highest level.
Hiring professional property management is worth the money for Airbnb owners who can afford it. A property owner might be more enthusiastic about making their investment profitable; however, a property manager’s experience in the business is invaluable. The managerial tasks that they will face come naturally to them and they can perform them on multiple properties with ease. For traditional property owners, property management is worth the money and is solely dependent on their ability to do a similar or a better job than the experts.
Is A Property Manager Worth The Fee?
Like most things in personal finance, the answer is that it depends. What do you want to do with your property? How involved do you want to be–or can you be? For many landlords, it makes sense to hire someone who can manage your property for you. But often it is simply a profit calculation you have to make and live with.