Hey, I had the opportunity to give away another one of my Schat’s Bakery gift cards with this column, since it was in response to a question from a reader. The reader asked, “What are the costs and benefits of hiring a property management company to deal with my rental property, and what’s typically required of the owner?”
In the spirit of full disclosure, I own a property management business, so while the information below is absolutely true and accurate, it may also be a wee bit biased. Without further ado, let’s get right to the question at hand, starting with the pros.
Hiring a property manager means you, as a property owner, save the time, hassle, and headaches associated with addressing your tenants’ needs. If you’ve been a landlord for a while, you know that emergencies rarely come at convenient times. Things seem to break at 2:00 a.m. the night before your important meeting, during the afternoon when you’re trying to cook a Thanksgiving turkey, on Christmas morning when your grandkids are opening their presents, or when you’re at church on Easter Sunday. And the obvious reason is, your tenants are having family at their house for the holidays as well. And that puts a strain on everything from the garbage disposal to restroom facilities.
Because property managers do this for a living, their livelihood depends on them keeping up-to-date on all the legal issues around tenants’ rights and property owner responsibilities, and there are plenty. So, by hiring a property manager, you’re more likely to stay in compliance.
When you use a property manager, the rent you charge is likely to be at market value. People who manage their own properties sometimes undervalue their property, either because they are unaware of the market value or because they feel guilty increasing the rent on a tenant with whom they have a relationship.
Time Savings That Equal Money Savings
When the property needs to be rented, several time-consuming activities need to take place. The property needs to be prepared to rent: this usually means repairs, maintenance, and cleaning. Then someone needs to be available to schedule and show the property to potential tenants. Finally, once a suitable tenant appears to be found, someone must run a credit report, verify employment (and income) and contact previous landlords to confirm the suitability of the prospective tenant. All of this takes time, and again, it seems like tenants give notice on the Murphy’s Law calendar, like right before your summer vacation, at the same time your child’s first college tuition payment is due,or other equally convenient times.
Better Pricing on Maintenance
While property managers charge for management and maintenance services, they may accomplish both tasks in fewer hours and perhaps for a lower hourly cost than your own time. Many times, arranging services by an outside professional can take hours if you aren’t sure whom to call. And, as far as costs go, while every property management company has a unique fee schedule, many have agreements with local vendors for discounted rates. Vendors know that property management companies can likely bring a significant volume of business, and so are happy to provide a discount, one they wouldn’t necessarily extend to the owner of a single duplex, for example.
What are the cons to hiring a property manager? Well, as I mentioned, property managers do charge fees for management and maintenance. However, they typically help pay for themselves by charging market value rent, preventing compliance problems, and coordinating high quality, low cost maintenance and repairs. However, if you have plenty of time and just love being a handyman, or are energized by your interactions with your tenants, then maybe hiring a property manager isn’t such a good idea.
As a property owner, you will need to prove that you have homeowner’s insurance (yes, homeowners insurance for a rental), and you’ll likely be asked to name the property management company on your policy. You will also be required to adhere to all landlord/tenant laws (I know this sounds obvious, but we’ve had to endure heated conversations with property owners when we tell them that they cannot discriminate against people based on their race or because they have children.)
Property management contracts include the length of time you’d like the property manager to oversee your property, how much management and maintenance services will cost, when you will be paid, and who holds the security deposit. At Realty World Selzer Realty Property Management, we hold onto the security deposit. With the past several years being full of foreclosures, some property owners would spend a tenant’s deposit and then lose the house to foreclosure, so the tenant never got his deposit back. And guess who the tenant comes to, looking for their money? Yes, the property manager. The contract may also include an agreed upon threshold for maintenance and repairs. For example, you may tell the property manager they do not need approval from you unless a repair will cost more than $1,000. That way, you don’t have to be bothered for each issue as it arises.
If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at firstname.lastname@example.org or visit our website at www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.