Hiring a Property Manager
You can outsource every aspect of landlording from painting and plumbing to showing rentals and screening applicants. Once you have a few properties in your portfolio, you may consider hiring a property management firm to handle a good portion of the work for you. Obviously, you will pay a price for this service, but there may be instances where the money is worth it. Here are some situations where a landlord might hire a management company to handle some or all property management tasks:
- The landlord is renting property in a distant city or state and cannot show the property or respond to tenant complaints.
- The landlord owns multiple properties and cannot manage them all himself or herself.
- The landlord is making so much money on rentals that he or she can afford a management company and still make a profit, thus leaving more time to invest in promising properties.
If you do not fall into one of these categories, consider carefully whether you want to spend the money on a management company. However, if some of the duties of landlording are just too hard for you to handle, you might consider finding a company that will take on just those tasks for you. Typical property management duties include:
- Advertising your property when new tenants are needed
- Showing the property
- Screening the applicants
- Providing all paperwork, including application and lease
- Collecting the rent
- Dealing with late payments, partial payments. and no payments
- Handling all bookkeeping and record keeping
- Maintaining the property
- Handling emergency repairs
- Enforcing policies and house rules
- Any other service you need
We know. it sounds great, right? Well, it may not sound so inviting once you hear how much you’ll have to shell out for the manager’s services. Property management firms make most of their money from maintenance, which they mark up by as much as 100 percent. By law, property managers must disclose to their clients how they make money, including any markups. Ask to see this documentation if it is not in the contract.
Are You Ready to Manage Property? Here are a few key questions to ask yourself:
- Do I have experience managing rental property?
- Do I have a reliable way to determine fair market rent and returns on my investment property?
- Do I know and have the proper notices and legal process to deal with nonpaying tenants?
- Do I have a current lease and related agreements/forms to minimize my liability exposure, should a tenant decide to sue?
- Am I up to speed on fair housing and landlord/tenant laws in the jurisdiction(s) where my property is situated?
- Do I have relationships with service professionals and contractors who can provide around-the-clock service at reasonable prices?
Did you answer “no” to any of the above questions? If so, it might pay to hire a professional property management firm.
IMPORTANT TIP
It pays to keep your property shipshape especially if you’re using a property management firm. The worse shape your building is in the more money a property firm will make from you.
The prices and fee structures used by property management firms vary greatly from company to company, but if you were to hire a management company to handle the complete job (all of the tasks listed on the previous page), you can expect to pay the firm 7 to H) percent of your total rental income, with additional fees for the time-consuming task of showing property.
Understand that the percentages and prices charged by the property management lion will vary depending on the market in the area in which you rent. The bigger your property or the more properties you have, the lower your rate is likely to be. And keep in mind: everything is negotiable in real estate. You can try to talk a company into lowering its price, but be careful—if you are a good negotiator and get the company to come down I or 2 percent, they might spend more time trying to till another client’s vacancy and less time on your vacancies.