When most people think of professional property management, they tend to think that, well, that it is only for the bigger companies or people with hundreds of units. While this may hold some truth, there are plenty of examples where everyday people utilize the professional services of property management companies for just a few units. Let’s break down the basics so we can get a clearer picture of the pros and cons of both sides.
The Full Cost of Managing Rental Property Yourself
Investors have the choice to manage their own properties as a way of cutting down on expenses. However, some investors will choose to hire a property management company. This decision also has other variables, like if the property is out of state making the distance is too far for self-management. But, for this article let’s assume that the properties are close by.
Most beginner or novice investors make the mistake of looking at a rental property as a simple equation of rental Income – (expenses + mortgage) = profit. While this is the basic idea for an investor, there are other factors to consider.
Start by looking at the responsibilities that a landlord will take on if they decide to self-manage the property. Keep in mind not only the monetary expense that is required but the time required as well.
Let’s face it, many tenants will not take care of your property the way they would if it were their own. Considering this, it’s safe to say that in many cases renters put more wear and tear on the property increasing the need for regular maintenance. Personally, I have quarterly inspections written into my leases so that I can keep an eye on the overall condition of my properties. Are there minor leaks? Are the tenants maintaining the rules of the lease agreements, etc. Taking care of minor issues quickly will help avoid costlier issues in the future. It, in my experience, makes the tenant feel that they have a landlord that cares about their needs as well.
Another issue that will inevitably come up will be vacancy. Just putting an ad in the local newspaper, a sign on the front lawn or an ad on craigslist is not enough. You will need to do proper screening by collecting rental applications, completing tenant screening (rental applicants’ credit history, eviction and/or criminal history, if applicable, income verification and references), showing the property as well as approving your future tenant(s). Investing the time now will help avoid costly time loss in the future.
Tenants are people, and we all have needs as people. A good manager/landlord will check in quarterly with the tenants, whether it is referring to the quarterly inspection, just checking in or at the tenant’s request. Sometimes tenants will have a legitimate issue, while other times it may be something completely out of your control. Either way, if you are self-managing the property remember you are the point of contact regardless of the importance of the issue.
Delinquent Rental Payments
In a perfect scenario we would receive our rent checks by the 1st of each month, but let’s face it, we don’t live in a perfect world. If you are self-managing the property, you will be calling and asking why the rent is late and when will it be paid as well as making sure the late fees are included. What if the tenant left for vacation or some other scenario came up? These are all very real possibilities. What if you need to serve them with a notice to quit for non-payment or other lease violations?
These are just a few of the responsibilities you face when managing your own rental property. Other items that will require your attention might include: rent increases, insurance, taxes and rental law enforcement.
Hiring a Property Management Company
Now that we have gone over some of the aspects of owning and managing rental properties personally, let’s look at some of the benefits of having a professional management company.
Typically, a property management company charges anywhere from 7-15% of your monthly rent to manage your properties. There are few different variables that go into this of course, and everything is negotiable.
Choosing the Right Company
Doing your proper homework on a property management company is equally important. A good property management company will understand rental law, be up to date on the federal Fair Housing laws and keep your, the owner’s, best interests on top of their list. They will be taking care of all the rental issues that arise, whether it be late rent, vacancies, tenant screening or other issues.
Freeing Up Your Time
The question of time is a major consideration. How much do you value your time, or do you even have the time to manage a property yourself? If you have a tenant that is low maintenance, then spending the money on a manager might seem like an added expense. But what if you have a tenant that calls you multiples times a month? Again, what’s your time worth?
Owning rental properties is a great way to diversify and build equity in your portfolio. Be informed and understanding all the responsibilities and obligations that go along with maintaining a successful rental business before you decide whether to self-manage, or pass the duties on to a property manager.