Should I Hire a Property Manager?
Let’s say through
savvy investing, you have managed to accumulate a portfolio of properties. It
doesn’t matter if it’s a large or small portfolio. You may have even tried to
self- manage them yourself. Now as you procure more properties you may find you
may not be as organized as you once thought and find that some things may be
falling through the cracks. Possibly you are just getting tired of getting the
midnight or weekend calls (or both), the whining, repairs, trying to collect
rents, keeping up with the books and everything else that goes into being a
property manager. For purposes of this article, we are dwelling more on
single-family rentals or small multi-family units. Larger multi-family units
are normally handled quite differently.
On the plus side,
as a budding landlord, you may find that managing your first few rentals will
be a great education! However, as your portfolio grows you may find that you
are repeating past mistakes such as not screening tenants properly and keeping
up with maintenance and upkeep. In addition, proximity to your rentals from
where you live can alone be a deciding factor.
Only you can
decide what is best for your individual business, but whatever route you
choose, it is imperative that rental properties are well- managed, safe,
tenants communicated with regularly, upkeep maintained and so much more.
Because of space limitations, we will also follow this article up with an
article on “How to Choose a Property Manager” By William Bronchick.
Marketing
Property management companies maintain a list of people that need to find a
rental. They also can market on a larger scale than most of us can afford.
Using a company like this can eliminate your need to run ads, show your
property and other tasks when attempting to acquire a new tenant for your rental.
This can save you a huge amount of time. It’s also Murphy’s Law that tenants
tend to leave when you are the busiest or life is just crazy.
Tenants
One of
the major mistakes that self-managed properties experience is the insufficient
screening of tenants and the on-going communications with them that keep them
continuing to rent from you rather than looking elsewhere. This can result in
less than ideal tenants that don’t pay on time, don’t care for the property and
only stay short- term.
A professional property
management company will show the property, collect applications, check credit,
call employers and past landlords, get references and any documentation needed
to get your property rented- or not. In case a prospective tenant doesn’t
qualify, a property management company knows what guidelines to follow in
legally denying an applicant that doesn’t qualify.
Because of this
intense screening process, a reputable property management company will usually
find you the best and most qualified tenants. Because of their experience, they
will also have a pretty “beefy” lease that holds the people renting your
property accountable for taking care of the property, payment and other issues
that may pop up.
Property Transition
A property management company will also normally handle all of the
details when tenants are moving out and moving into your rentals. They will
normally provide a move in letter letting the new resident know what to expect.
They will also provide an orientation to the property showing the new tenants
how things work, etc.
In moving tenants
out, the property management company will normally send a move-out letter that
outlines what needs to be done before the resident moves and what will be
acceptable for the final walk- through in order for the tenant to receive their
full security deposit back.
Liability
Property management companies that are reputable will be up to date on the
latest Federal, State and Local laws governing landlord/tenant relationships.
They are very familiar with discrimination laws and can keep you out of hot
water with the governing agencies. As mentioned
before property management companies normally have pretty stringent leases that
can hold both sides accountable.
Bookkeeping and Timely Accounting
Property management companies also keep books on your
expenses, rental income, etc. They can also provide a continual financial
report on how well your rentals are doing – by the unit. Finally, this
information can normally be placed into your business accounting system by you,
your bookkeeper or the management company.
Most self-managed
rental landlords don’t keep as timely books as a professional company. Having a
monthly report and accounting that is current can really help you see which of
your rentals are performing or not. This can aid you in making adjustments to
increase profitability. Handling security deposits can be another quagmire too.
There are a variety of federal, state & local laws governing how security
deposits are banked and how they are dispersed. It’s not uncommon for newer
landlords to bank the security deposits in their regular business account and
times of low cash flow they attempt to rob Peter to pay Paul they end up either
commingling the funds or worse yet, spending it. A reputable property
management company will take care of the funds, bank them in an escrow account
and handle them legally and ethically.
Income
Many
landlords who self -manage their rentals, don’t keep track of what market
rental prices are and thus tend to undercharge. They are also reluctant to
increase rents to market value for current or incoming residents. A property
management company will keep current on what rents the market will bear and
will make every effort to get that amount of rent.
In addition, these
companies will also collect the rents and take proper and legal measures when
rents are not paid in a timely manner. In many cases where rentals are managed
by the owner, the tenant is aware who the owner is and this issue and others
can get personal. Using a property management company takes the “personal”
aspect out and makes it a business relationship.
Repairs and Maintenance
A property management company will normally take care of repairs
and maintenance on your rentals. In many cases, they have someone already on
staff or know companies that give discounts to get a better price. Be aware
that they may put a markup of 15-20% on such services. It’s up to you to decide
whether you want this service or not. A good compromise is to allow any repairs
under $150- $200 to be done as needed by the company but anything over that
amount they have to get your OK and you reserve the right to find your own
repair company. Like everything else, this needs to be part of your contract
with the management company. Insurance. Property management companies carry
their own insurance in the event of mishaps, errors, omissions, etc. but don’t
be surprised if the property manager requires you to list them as an additional
insured on your properties. Free Time. Using a property management company can
save you a lot of time, stress and aggravation! It also put the tenants on more
of a business relationship and distances you from the day to day issues
associated with rental units.
Be aware that this
does not absolve you from personally inspecting your rentals periodically. This
will give you peace of mind and keep your management company on their toes. The
Downside. All of the above sounds pretty good doesn’t it? With everything in
life and business, there are upsides and downsides. Let’s talk about some of
the downsides of using a property management company.
You will spend
7-10% of your incoming rents in order to pay the management company. If you
have rentals that aren’t able to cash flow very well, even at current market
rents, you may have to self-manage. For properties that cash flow well this can
be a big time saver for the owner, not to mention the stress it relieves.
Each time you
acquire a new tenant, you will give up to 50% of the first month’s rent as a
fee to the management company to cover their efforts and expenses in procuring
the new renter. If you are self-managing, you normally get a rent check from
your tenant at the first of each month and then deposit it. With a management
company, the rent checks have to go through their system and so you may have to
wait 2-3 weeks or more in order to get paid for the current month’s rent.
Some management
companies can tend to overcharge for repairs and maintenance. This is something
you will have to keep in mind and keep tabs on.
Like people,
management companies can get lazy. I have seen instances where the landlord
thought their rental was in good shape, but upon inspection, the property had a
lot of deferred maintenance because of a hands-off attitude by the management
company.
You will be
signing a contract with the property management company so be sure it
specifically outlines both your duties and responsibilities and that of the
management company. So you have some more decisions to make! Only you, as a
business owner, can decide what is best for your business. Remember- using a
property management company is still not a “get out of jail free” card where
you can be totally hands- off. It still requires some time and attention. That
being said, it can save you time and money when done properly by a top-notch
property management company.
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