Archive for December 2011
As any landlord with more than one or two rental properties can tell you, managing them is a trying and frustrating process. Some landlords simply throw their hands up and sell their rental units, others lose hair over them, and others hire property management companies to manage them. We’ll try to answer a few questions about what these management companies do, don’t do, and why many landlords turn to them.
Property management companies exist to do exactly that: manage the day-to-day headaches that arise from owning a rental investment property. They screen tenants to fill vacant rental units, sign rental agreements & disclosures, receive rent, keep accounting records, oversee legal obligations like lead paint tests, act as a contact for maintenance and repairs, and for any questions from tenants.
That all being said, there are some tasks that management companies can’t or don’t perform in most circumstances. Typically, they don’t pay property taxes, or maintain rental property insurance (although your mortgage lender may be able to handle that for you in the form of escrows). Management companies usually don’t make payments on your behalf, except to contractors or handymen. Lastly, they don’t usually handle rental property registrations with local municipalities or government entities.
At about this time, you might be wondering what property management companies typically charge for their services. As a landlord, I’ve usually paid 7-10% of gross rental income; so, if a property’s rent is $1,000/month, a management company may charge $80/month for that property. Therein lies the disadvantage of hiring such a company, as many landlords have only slim cash flow margins each month on their rental income.
The primary advantage of using a property management company, aside from the obvious time and expertise that they bring to the table, is simply this: they will take on the recurring headaches and sleepless nights brought on by the stress of managing real estate. Keeping all of the accounting, laws, tenants, repairs, contractors, and vacancies straight is a full time job for anyone managing more than a few properties, and the fact is most landlords just don’t have the time or inclination to be responsive and available. The answer? Let someone answer the 2:38 AM phone calls.
With record-low home prices, many homeowners are deciding to rent out their property instead of putting it up for sale. This change in strategy for the future of their home may have created an unforeseen issue…property management.
You could now face new questions. Are there laws governing rental properties? Who is responsible for any repairs? How does one go about finding responsible tenants? These are all good questions, and one that can be answered by quality property managers. Here are a few things you should consider when thinking of hiring a property management company that I’ll refer to as the ABC’s of property management.
Ask – When seeking a property management company, ask questions to clear up any confusion you may have about the process.
How will they market your investment to achieve the best rental income and select qualified tenants? Are they current on all the landlord-tenant codes and laws? What procedures are in place for the collection and disbursement of monies owed?
Benefits – Consider the benefits to determine if hiring one is the right choice for you in your situation.
Reputable companies offer “peace of mind” to the owners while protecting their investment. These managers serve as intermediaries to resolve any issues between owner and tenant before they become major headaches. They can provide credible resources for maintenance of the home to guarantee professional work of any repairs needed.
Cost – Review your finances to see if the cost of hiring a manager fits into your budget.
Most companies charge between 8-10% of the monthly rent to cover their services depending on the extent of their involvement with your property. Marketing of your rental (Newspaper ads, internet, posted signs) is usually covered by this fee. The property manager will discuss any repairs that need to be made to the home and determine if the owner or tenant is responsible for covering those costs.
While these are just the basics when considering a property management company, this is vital information you need to familiarize yourself with to better understand the process. Before you hire someone, check to see if their services are in line with your expectations. If not, ask yourself if your expectations are too outrageous or if you need to seek a different company. Hiring a qualified property manager does not have to be a daunting task as long as you do your research ahead of time.
What do property management companies do, anyway? What don’t they do? How much do they charge? Are they worth it?
Whoa there, tiger. We’ll answer your questions about property management, and succinctly, at that.
Landlords and rental building owners hire property management companies to assume all of the headaches involved with managing properties and tenants, allowing the landlord to spend their time in other ways. Typical responsibilities of a property management company include screening tenants, fielding phone calls from them, taking care of all repairs and maintenance, complying with rental laws (such as lead paint tests and disclosures), signing rental agreements and rental disclosures, etc. As an added bonus, they keep track of all the money that’s spent on each property, making your accounting a LOT easier. In a word, they do the everyday management.
What they usually DON’T do is pay your bills, such as your mortgage payment or property taxes (word to the wise: have your mortgage lender escrow for property taxes & insurance, ground rents, and any other recurring bills to save time). Property management firms typically don’t register your rental properties with local municipalities, either.
What do they charge? Property management companies generally charge in the 7-10% range, as a commission of all rental income collected (e.g. if the rent is $1,000, the management fee may be $70-100). This is no small fee every month, and constitutes a major disadvantage to using a management firm, especially when so many landlords only break even or have a small cash flow from their rental properties.
So now the hard part: are property management companies worth the expense?
The answer, of course, is that it depends. You may not be able to afford to pay a management company, if your rental only breaks even each month. But there is something to be said for being able to sleep at night without being woken up by obnoxious tenants calling to complain that the smoke detector needs a new battery, or having to spend your lunch break running out to show a rental property. The fact is that most landlords can handle the management of a few rental properties, but there is a critical mass at which point it no longer becomes feasible to perform property management duties for your rental properties AND do all of your other business tasks.
So my recommendation is to handle management yourself for your first few rental units, and get a crash course on managing rental properties. But when you can’t take it anymore, it’s time to pass the buck along to someone else, and get back to your primary business: making money.