As a real instate investor or rental property owner, you have two options when it comes to managing the day-to-day operations of your property. You can choose to self-manage the property, meaning you oversee maintenance, repairs, tenant contracts, rent collections, and all aspects of the tenant-landlord relationship. You can also choose to hire a third-party professional to look after the property for you.
Although there is no right or wrong answer overall, there could be a right or wrong answer for your lifestyle. Your individual circumstances may make self-management seem impossible, and we are here to help you understand the benefits and risks of using a property management company to oversee the daily operations of your property. From there, the choice is yours!
If you are still considering self-management vs. third-party management, check out our last article – How to Determine if it’s Time to Hire a Property Manager.
Tenant screening can be a complex process. As a rental property owner, you want to ensure high quality tenants to help maintain the value of your property. Without sufficient real estate experience, it can be easy to choose a poor tenant and end up with payment and upkeep issues. In fact, 56% of property managers will not take a tenant with poor credit history (even if they like them as a person). Good property management companies have valuable and verified tenant screening processes to ensure tenants pay rent on time for the long haul and show respect to both you and your property.
Professional property management teams also help quickly and efficiently fill property or unit vacancies. For a property owner, nothing is more expensive than maintaining a property that sits empty. A good property management team will prepare the unit for showing with the right cosmetic touches, determine the optimal rent rate, and market your property effectively. Furthermore, they will field calls and emails from interested prospects.
Property managers also handle the day-to-day operations of your property such as collecting rent payments and fulfilling maintenance requests. They provide a buffer between you and the tenants, allowing them to play bad cop when it comes to discussing late payments, evictions, legalities, or other contract breaches. Property management teams also have access to a full network of licensed and insured contractors. Instead of trying to DIY each maintenance request (let alone keeping up with them all!), a property manager will ensure the work is done in a quality manner at an affordable price.
As a rental property owner, the main benefit of hiring a third-party property management team is the peace of mind it brings you. By hiring the right professional team for your property, you are guaranteed less stress and more freedom. However, it is important to weigh the risks of hiring a third party before deciding to go full steam ahead.
First and foremost, property management teams do not work for free. The biggest disadvantage to hiring a property manager is its effect on your bottom line. As a standard rule, property management companies typically collect 7-10% of each month’s rent. For a $1,000 property, you can expect to pay $100 per month to the property team as payment for managing the property.
The idea is that the first month’s rent covers the property manager’s time and expenses for marketing the property, showing the property, processing tenant applications, and other administrative costs. For many rental property owners, the question is not, “Do I want a property manager?” but instead, “Can I afford a property manager?”.
The only other risk associated with hiring a property management team (if you can afford one!) is ensuring you hire the right property management team. Similar to any other business, not all hires are good hires. When handing the day-to-day operations of your property over to a third party, you are entrusting that third party to make the right decisions every day on your behalf. From marketing the property effectively to collecting and maintaining payment records ethically, it is important to do your homework to avoid the risk of hiring a bad apple to oversee one of your most valuable assets.
Self-managing your rental property is the only surefire way to avoid being taken advantage of. However, there are many techniques and strategies to make sure you find a professional and ethical property management team. In our next article, we will discuss the Top 10 Questions to Ask in a Property Management Interview.