Key Takeaways
- Property management companies enable aspiring and seasoned investors to build larger portfolios.
- A good property management company is one of the best assets today’s investors have at their disposal.
- Real estate management companies aren’t necessary, but they help facilitate a better experience.
Choosing whether or not to use property management companies is a hard decision for many landlord property investors. Some wouldn’t dream of investing in real estate without a property management company in place before closing on a respective deal. Others, however, struggle to break free of the “do-it-yourself” mindset that prevents them from accomplishing more. As it turns out, only one thing is certain: using a property management company isn’t as obvious as I, an owner of Grow Property Management, would have liked to assume. If for nothing else, I am convinced the benefits of using a property management company far outweigh the negatives.
It is fair to say the argument stems from the cost a landlord feels they must absorb in order to work with one of the property management companies, but I digress. From the perspective of a property manager, the cost isn’t so much a negative, but rather an investment. While it does, in fact, cost money to hire a property management company, I can assure you, a quality property management company will make you far more money than they cost you. Meaning, a property management company could very easily increase the chances of growing your bottomline. If that’s not enough, here are some of the important tasks a good property management company will contribute to your rental portfolio.
What Is Does a Property Management Company Do?
Property management is the practice by which a third party is given the responsibility of maintaining a rental property’s status quo and appeasing its occupants (your tenants). Property management companies are, therefore, traditionally hired by landlord rental property owners to oversee the daily operations of their real estate assets, and deal with any questions or concerns the tenants may have. In the event the property is vacant, it’s the property managers job to see to it the house is rented in far less time than it would be otherwise. As its name suggests, property management takes care of every aspect of a rental home, from marketing vacant space, showings, tenant screenings and signing leases to collecting rent and calling for repairs. Few strategies, for that matter, are more beneficial for a rental portfolio than hiring the best property management company, which begs a simple question: How do property management companies work?
Do I Need A Property Management Company?
Most rental property investor gurus seem to fully support the use of a property management company. Read a go to book on real estate investing and that author likely strongly advocates that you use one. However, there is no rule stating that anyone needs a property manager. Therefore, plan on hiring a property manager if:
- You plan on acquiring multiple rental properties. The more rental properties one has in a portfolio, the more necessary property management companies become.
- You are not within close proximity of your asset. If the rental property is far from where you live, it’s a good idea to hire a local manager who can keep better tabs on it. Cities like Philadelphia, actually require you to have an agent that is within the city limits.
- You don’t want to actively manage the rental property. If you view the property as a source of passive income, you’ll need a property manager to take care of routine maintenance and daily operations. Are you going to take 2am repair calls or fix a problem on Christmas morning?
- You can afford the added cost. Property managers will charge a percentage of the rental fee, which is well worth it. The same fee can rid landlords of a lot of headaches and free up a lot of their time to invest in other places. But again, this is limited thinking - yes, most property owners come to us initially to pay us to take over the huge hassles involved with managing their properties; but they should be thinking how much money we will be making them. If we cost them 8% of their monthly rents; but we make them 12%; then they are not only getting our services for free (no more hassles); but they are making an extra 4%. Again, property management companies are an investment; and as an investment, you should expect a return.
What Do Property Management Companies Do?
The cost of property management is a valid concern, especially when you consider detracting from your bottom-line, but as most real estate investment information resources assure you it’s doing anything but. Yes, it’s true a property management company will cost a percentage to hire, but you need to think of it as an investment, as opposed to an actual cost. You see, a good property manager can very easily return far more than their own initial cost. After all, the average property management company will typically bring investors with the following:
- Property managers will collect rent from tenants
- Property managers will listen to maintenance requests and address the problem
- Property managers can deal with defaulting tenants that are months behind in rent
- Property managers will market a subject property to greatly limit vacancies
- Property managers will keep detailed records of everything happening at the property
Rent Collection
Collecting the rent is one of the most obvious tasks of a property management company. If that’s all property managers did, however, it would certainly be harder to justify hiring one – especially with online payment capabilities. Of course, that doesn’t mean collecting rent is easy by any means. If all of your tenants are paying their leases up font in full and you don’t mind paying a great law firm when things don’t go right, you might wait to evaluate all of the services. Yet, most real estate investors are not in that situation. Some operate in markets where it is a battle to reel in the rent every month.
Regular Property Maintenance
Dealing with tenant maintenance calls is perhaps the biggest driver for real estate investors to enlist the help of a property manager. It isn’t just about the maintenance, however: dealing with the tenants can often be the biggest challenge. Sometimes their needs aren’t big or expensive, but the timing and urgency is. It may be blocked and back flowing pipes on the weekend, or being locked out in the middle of the night. A lot of these calls can be irritating to a landlord, but if they are always treated that way, bigger issues with renters and rental property performance are sure to arise. Rapid and responsive customer service is needed to optimize income properties.
Property management companies will deal with these late night tenant requests, alleviating you from the burden. If it is small, the requests may be handled internally. Larger and more complex issues may be delegated to outside specialists. Sophisticated property investors normally have a property management agreement which authorizes the company to handle up to a certain dollar amount of repairs without needing express permission first. This just streamlines the process, and ensures issues don’t get worse if you can’t be reached.
Property management companies can call for regular inspections and routine maintenance such as:
- Lawn Care
- Pressure Washing
- Preventative Maintenance
- Plumbing Issues
- Fixing Appliances
- Drywall Patching
- Anything Else A Tenant Might Need
Property management companies will essentially act as the “middle-man” and connect tenants with the necessary services.
Dealing with Defaulters
This goes beyond slow payers to those seriously in breach of their leases. They could be more than a month past due, or be risking the condition of your asset, or the police could be involved in a criminal issue. Sometimes these things can be worked out directly with renters. In other cases, it may require lawyers, or even going to court. A property management company can handle this for you, and save you a ton of time and stress in these situations. Having a professional third party in between can often speed up better solutions compared to a DIY landlord that may appear an easier target for malicious tenants. If nothing else, property management companies have special relationships with attorneys and can shave months off an eviction.
Sourcing Tenants
Finding great tenants is a lot more work than some landlords understand at first. A good management company is taking on the cost of marketing for tenants, showing units to multiple tenants, and screening prospective renters to weed out any potential problems (aka - avoid eviction altogether). There is a lot of expertise and experience, that is brought to the table here. It may be the most valuable thing property management companies offer. Then there is supervising move-in and move-out activity.
Bookkeeping
Bookkeeping is probably the least fun part of rental property management for most investors. At the same time, great bookkeeping and invoice handling is critical for minimizing taxes, staying legal, keeping the best vendors, and generally keeping the cash flowing. Some property management companies throw this service in for free, so you had better take advantage of it. If not, get a property management company that will manage your books. Rental properties are best left as a passive investment, after all. Conduct the appropriate research to uncover a good property management company that also acts as bookkeeper in your area, and determine whether or not their services will bring a value to your own business.
5 Benefits Of Using Property Management Companies
The single greatest benefit investors are made privy to by working with property management companies is time. By enlisting the services of a good property management company, investors won’t be forced to manage the property themselves; they’ll be free to take on other responsibilities. For most investors, the added time will help them find and acquire more rental properties to add to their portfolio. For others, not having to manage a property simply rids their lives of unnecessary stress. It is worth noting, however, that time isn’t the only reason someone may want to hire a property management company. There are actually several benefits to hiring a manager, not the least of which include:
- Mitigate Liability: One of the little understood perks of having a third party property management company is the buffer from liability a good property manager adds to an inexperienced investor’s portfolio. If for nothing else, it can be easy for opportunistic tenants to make false accusations about rent collection tactics, illegal eviction practices, and negligent maintenance. A third party manager can deflect many of the false claims levied in an investor’s direction.
- Quality Tenants: Property management companies manage properties for a living; it’s what they are good at. As a result, the best of them have grown to know what to look for in a good tenant. It is, therefore, safe to assume hiring a property manager will result in far better tenants for your property, which is great news for you as a landlord. The better the tenant, the better the experience will be for owners.
- Shorter Vacancies: Not only will a property management company advertise to fill vacancies, but it will also do so with a sense of urgency and efficiency. Again, since this is their job, property management companies are most likely better at filling vacancies than traditional landlords, which dramatically shortens the length of vacancies. Not only will their individual ads be better at finding tenants ; but property management companies likely advertise in 10-40 more places than a landlord will, or even can. Is it better to choose the best out of two tenants, or the best out of ten? Meanwhile, landlords are able to increase profits throughout the year by keeping the rental asset fully rented.
- Lower Maintenance Costs: Working with good property management firms will give investors access to their network of professional contractors. They simply have huge buying power. When a property management company calls, contractors answer quickly. The contacts the property manager already has in place will work to your favor and save on maintenance costs. Not only that, but the contractors will also come with a recommendation, which is invaluable.
- Better Reviews: Tenants tend to prefer working with property management companies, as the process is almost always objectively smoother. As a result the experience is typically better than dealing directly with landlords. Subsequently, renters are more likely to leave a good review when they vacate the premises. Those same reviews will serve to drive even more traffic to the home when the time comes to find another tenant.
Other Things To Consider
I maintain that hiring a property management company is a great investment, but like everything else, be sure to mind due diligence and know everything you stand to gain by enlisting the services of a third party property management company. As I already alluded to, property managers have a tendency to bring more to the table than people realize. Having said that, here are a few more things you need to pay special considerations to before you make the commitment:
The Cost Of Using A Property Management Company
The cost of property management remains the primary concern for those sitting on the fence. If for nothing else, average property management fees can run investors somewhere in the neighborhood of eight to twelve percent of the monthly rent value. Some property managers will also charge a flat fee, in addition to the monthly percent. As it stands, eight percent represents a pretty good value, whereas 12 percent may seem a little on the high end to some. It is worth noting however, that not all property managers are created equal. It is entirely reasonable for a great manager to ask for 12 percent if their services justify their own cost.
Hiring A Property Manager
Hiring a property management company is a task that mustn’t be taken lightly. At the very least, you get what you pay for. As I already mentioned, property managers will request anywhere from eight to 12 percent of the rental cost, but their fee may not be representative of how good they are. It’s entirely possible for an inadequate property manager to overcharge and for a great one to undercharge. My company is streamlined. Its efficient and many things are automated. It’s far easy being a good property manager; then it is being a bad one. My company is built on ever upgrading systems and we are able to profit far better than other local property management companies as result. And that allows our fees to be extremely low, which also is profitable as we get the best clients. That said, the only way to know if you are hiring the right one for your business is to mind due diligence. Don’t simply base your decision on the average property management fees; dig a little deeper and find one that meets your specific criteria.
First and foremost, identify what it is you want the most out of a property management company. 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, vet them accordingly. Can they do what they promise? Get testimonials and talk to current clients of theirs to get a better idea with their satisfaction.
Summary
Property management companies—specifically good ones—are worth their weight in gold. It is entirely possible for a truly great management company to save/make investors far more money than their initial fees. That said, the cost of property management is more of an investment than an expense.
Have you ever thought about working with a property management company? Please let us know your thoughts on the idea in the comments below:
