The biggest reason people opt out of having a property manager is the cost of utilizing their services cuts into your monthly cash flow.
But let’s be honest – having a property manager, while it reduces your cash flow, can save you a lot of time, energy, and (probably most importantly) stress when it comes to your rental properties. So, what does a property manager do? And what should yours be doing?
Property managers have various responsibilities, like marketing properties, finding tenants, maintaining properties, collecting rents, handling evictions, and ensuring tenant needs are taken care of.
Finding good tenants is not always easy. It takes time, advertising, and a serious level of vetting to ensure tenants are placed, won’t cause damage to the property, and will stay for years and years. Further, the best way to kill your cash-flowing property is to have tenant turnover every year – you’ll end up not receiving rent for 1-2 months (at best), plus having to put forth all the money needed to make the property “rent ready”.
A good property manager can find tenants and keep them for a long period of time, which ultimately improves your cash flow.
Property managers understand the market, the neighborhoods, and the tenants likely to call your property “home.” Using their vast knowledge and resources, they can market rental properties to maximize the rental income, which further improves your ability to cash flow and puts you on the road towards additional properties!
Don’t like dealing with calls at 2 am? Don’t like having to deal with tenants not paying? Then don’t! Property managers are the interface between you, the landlord, and the tenant. Let them deal with all of the other stuff and just present you with the rental income.
So, now that we have a basic idea of what a property manager should be doing, let’s dive into how to perform due diligence in selecting a property manager.
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Not just experience, but experience dealing with your type of property. If you have a single-family property and they only deal with large apartment complexes, then it might not be the best fit. Additionally, if you are a “small” property, then they may dismiss you and not give you the same attention and dedication they would for a large 30–40-unit complex.
We mentioned that if you lived out of state, it would be difficult (extremely) to serve as a property manager for your rental properties. So, if you shouldn’t do it, why would you hire someone not local to your property to serve as the property manager?
Being local allows the property manager to know the best vendors when things come up. They know the areas and know what the property should optimally rent for. Additionally, they are likely to have more personal interactions with the tenants, which can go a long way when/if issues ever arise.
Besides collecting their fees (which we will discuss in a moment), property management goals are to keep the tenants happy and to keep you, the landlord, happy. We recommend that you discuss the property manager's ability to perform semi-regular property inspections to ensure anything major gets caught before it becomes a major problem. For both you and your wallet! Sometimes, these inspections will cost a small fee, but it certainly beats the large amounts of money you may pay if your HVAC goes out!
Being an out-of-state landlord can be one of the easiest things you do - you simply wake up to see a rental deposit in your bank account. OR it can be the most excruciating experience if you can’t ever get in touch with the PM Company when needed.
Make sure you understand the methods of communication and their typical response time to ensure there are no delays in correspondence!
This one, in our opinion, isn’t a deal breaker. By having in-house maintenance, you can avoid some of the costs that it would cost to subcontract out. Especially if the fix is relatively minor. Ever seen a $150 diagnostic fee for something a 2-year-old could fix?
It’s important to know what you are getting yourself into when utilizing a PM and which option they use so you can better understand potential maintenance and repair costs.
While most property management companies charge a flat 8-10 % fee based on the gross monthly interest, it can become easy to try and compare property management companies – but that’s like comparing apples to oranges on this single number. However, it’s important to look at additional fees inflicted by the property management company – tenant placement fees, tenant renewal fees, vacancy fees, late payment service charges, and potential eviction fees, to name a few.
Having the right property management company is a vital component of any rental property. They can cost you or save you hundreds or even thousands of dollars.
So, do your due diligence in vetting a property management Company. Don’t be scared to pay a higher fee for management if they will end up saving you thousands of dollars in the long run.