When should you hire a property manager?

by Editorial Staff

At some point, every real estate investor will ask themselves if they need to hire a property manager. Many landlords manage their properties on their own–or with the help of an assistant, such as a resident manager. But sometimes hiring a property manager just makes sense. A good property management company can become one of your greatest assets–second only to the properties they manage on your behalf. So should you hire a property manager? It depends, but we’re inclined to say yes for the following reasons.

1. Fewer lawsuits and claims.

Landlords face a lot of legal liability. It only takes one problem, with one tenant to have a significant legal problem on your hands–and legal problems are time consuming and expensive. Legal claims and lawsuits filed against property owners are at an all-time high. Owning and managing real estate–especially income property–is not as simple and straight forward as it used to be. In today’s highly regulated and litigious atmosphere, one misstep can land you in legal hot water, embroiled in a lawsuit you never saw coming.

A professional property management firm will stay up-to-date with the latest federal, state and local landlord-tenant laws and ensure you’re not opening yourself up to a potential lawsuit. A property management firms will make sure you’re legally protected with respect to:

  • Tenant screening
  • Safety and property conditions of the property
  • Property inspections
  • Lease agreements
  • Lease adendums
  • Terminating leases
  • Evictions
  • Handling security deposits
  • Rent collection

Fair housing laws are particularly problematic. They’re extremely complex and easy to violate if you’re not careful. Did you know that denying a prospective tenant housing over a criminal record is now considered discrimination? The federal Housing and Urban Development agency (HUD) has issued new guidelines warning that under the Fair Housing Act landlords could be breaking the law if they refuse to rent to individuals with criminal records. Interpretation and application of Fair Housing laws continues to evolve–as does the definition of discrimination. Trying to understand and comply with all the nuances of the Fair Housing Act can be like trying to hit a moving target–but you need to do so. Discrimination claims top the list of legal actions taken against landlords.

A professional property manager will be aware all new Fair Housing guidelines. Hiring a licensed property management firm provides a level of legal protection that insulates you from exposure to risk and legal liability.

2. Higher quality tenants.

The British real estate tycoon Harold Samuel said there are three things that matter in property: location, location, location. When it comes to making money with rental properties there are three things that matter: tenant, tenant, tenant. The key to long-term profitability in rentals is putting good tenants in your units. Good tenants pay on time, rent longer, put less wear and tear on the unit, and generally cause fewer problems. Good tenants are also much easier to work with when it comes time to fill the unit with new tenants leading to lower vacancy rates and higher profitability.

An experienced property management company knows how to screen housing applicants and eliminate those that are likely going to create problems. It’s always possible to get a bad tenant out of your unit once there in, but it can be very costly and time consuming. Evictions can take anywhere from 1 to 2 months causing loss in rental income. And tenants who are evicted often don’t leave the premise in the best living condition.

Allowing a licensed property management company to handle the applicant screen process will also protect you from rental scams and shield you from discrimination lawsuits resulting from an inconsistent screening process.

3. Shorter vacancy cycles and fewer vacancies

One of the biggest impediments to profitability in rentals is having your units go vacant. Just one vacancy can cost you thousands of dollars in lost profits. A good property management company will perform four critical tasks to help decrease vacancy rates:

Market your property – An experienced property management company know how and where to advertise your units in order to get to a larger pool of candidates in a shorter period time.

Set the right rental rates – If you set your rents too high, you’ll be waiting a while before you find a tenant willing to pay. Too low and you lose money every month the tenant is in your unit. Identifying the optimal rental rate for a unit requires knowledge of the local rental market–something most property management companies will have if they manage a large portfolio.

Prepare the property for rent – A property manager will keep a tab on the appearance and state of your rental unit and let you know when improvements or repairs need to be made to increase rent and occupancy rates.

Recycle tenants quickly – A good property management company will maintain good relationships with current tenants so that it when it comes time to fill the unit with new tenants they’re able to start showing the unit before the current tenants move out.

4. Better tenant retention.

In addition to higher vacancy rates, high turn over generates other expenses the chip away at profitability. Every time a tenant moves out a unit has to be thoroughly cleaned, locks have to be re-keyed or replaced, walls have to be touched up, repairs have to be made, and then you have to go through all the expense of finding, screening and settling in a new tenant. The longer a good tenant rents your unit, the more profitable it would be.

Happy and well cared for tenants stay longer than unhappy tenants who are not cared for. A good property management company will have tenant retention policies and practices in place that ensure happy tenants who will stick around for a while. Effective retention programs require a consistent, systematic approach, which is where a good property management company comes in to play.

5. Effective rent collection.

Having a streamlined process for collecting rents and processing late payments is essential to maintaining consistent cashflow and long-term profitability as an income property owner. Having tenants pay rent on time each month has to be a non-negotiable policy. Hiring a property manager to chase down rents, issue late fee notices, send delinquent tenants to collections and process evictions when necessary creates a buffer between yourself and the tenant. The property management company gets to be the bad guy–not you.

If tenants aren’t trained to comply with every part of the lease agreement, they’ll walk all over you. Tenants are much less like to attempt to take advantage of a property management company than they are a property owner because they know the property management company is simply doing their job and is obligated to enforce the terms of the lease.

Evictions are one of the most difficult–and ugly–aspects of property management. There are strict law regulating the eviction process. Evicting a tenant the wrong way or trying to evict a “professional tenant” can create a major legal fiasco. An experienced property management company will know the laws concerning tenant eviction and have a streamlined system for processing evictions in the most efficient and cost-effective way possible. Not having to deal with evictions is a powerful reason to hire a property management company.

6. Bookkeeping and taxes.

Property management involves much more than just managing the day-to-day affairs of the property itself. It’s like running a small business. You have to keep track of expenses, itemize deductions, pay bills, keep track of subcontractors, pay subcontractors, send out tax documents, process payroll, generate P&L statements and prepare tax forms at the end of the year. In addition to the physical maintenance and management of your property, a good property management company will also take care of all bookkeeping responsibilities associated with your property.

7. Lower maintenance and repair costs.

Most medium-size to large property management companies will have an experienced in-house maintenance staff, as well as a network of licensed and bonded contractors who can perform any major repairs or renovations on your rental property. By hiring a property management company, you gain access to these resources. Having a property management company take care of maintenance and repair for your property can translate into big savings in cost and time.

Additionally, property management companies often have volume discounts worked out with their contractors that they’re able to pass on to you.

8. Preventative maintenance

The best way to avoid expensive repairs is to catch them before they happen. A good property management company will have systems in place to catch and deal with maintenance and repair issues long before they turn into major catastrophes. They should have a written maintenance check program and provide regular maintenance visits. An experienced management company will also offer you maintenance suggestions and recommendations, including upgrades and modifications, that will enable you to charge higher rents and minimize turnover.

9. Freedom!

So did you decided to become a real estate investor to become a slave to your real estate investments? Or did you decide to invest in real estate to gain personal and financial freedom? With typical management fees ranging between 8-10% of monthly rents, it’s easy to understand why a landlord might quickly decide to take on property management tasks. But are you really saving that much money by self managing? In most, cases you’re not. A good property management will save you more in time, expenses, and headache than it will cost you to manage your properties yourself.

Some of the other personal benefits of hiring a property management company include:

  • Less stress
  • Ability to travel without being tied to your property
  • Ability live anywhere you want
  • More time to spend on other money making projects
  • Ability to work ON your business not IN it
  • More time to spend with family and friends

So is it always wise to hire a property management company? Not always. A poor choice of a management company can produce as many problems as it solves. The first property management company I ever hired cost me more than is was worth. So I did my research and found a property management company with proven track record–and they’ve been worth every penny I’ve paid them.

If you haven’t worked with a property management company before it’s worth looking into. If your with a property management company that’s doing a lousy job, make a change. There are plenty of seasoned property management companies that have the experience and expertise to turn your real estate investment into a real estate asset.

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