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Complete Property Management How-To Guide for Successful Landlords
Approximate Reading Time: 8 Minutes
In this article you’ll learn about the pros and cons of hiring a property management company for your rental property. Topics include (1) key responsibilities of property managers, (2) benefits of self-management, (3) questions that will help you determine if self-management is a viable option for you, (4) how to find a good management company, and more.
Closing on an investment property is like getting a new puppy. In the beginning, all you can think about is how amazing, cute, beautiful and perfect your puppy is. Sure, it might pee on your floor, or whine all night long… But look at that face… How can you possibly get mad at that face?
Give it a few weeks, and if you’re like most people, one day you’ll open your eyes and realize that the adorableness of your puppy can’t masque the reality anymore. For the first time, you can clearly see that caring for a puppy is not all fun and games. It takes time, a lot of love, and hard work.
The same is true for owning an investment property. However, the consequences of not taking proper care of your property extend way beyond barking and begging for food at the dinner table…
The reality is that poor rental management can turn even the “best investment” into a bottomless money pit…and if you’re not careful, you just might lose it all.
Many new investors have had to learn this lesson the hard way, but you don’t have to. How can you manage your property successfully so you can generate ongoing monthly cash flow? If you’re like most new investors, the truth is: you probably can’t.
As a new investor, the biggest question you need to answer is: Should I self-manage my property or hire an experienced property manager? As with most things in life, there are pros and cons to both strategies. In this article we’ll explore both options in detail, but first let’s discuss the basics of what property managers do exactly.
What are the Responsibilities of a Property Manager?
Property managers oversee a variety of activities, including (1) emergency repairs and follow-up, (2) routine maintenance and repairs, (3) marketing and leasing, (4) tenant screening and background checks, (5) rent collection, (6) eviction, and (7) team building.
1 – Emergency repairs and follow-up
If your tenant’s dishwasher explodes at 3:00 AM, the manager of the property should be available. They’ll need to speak with the tenant, assess the problem, call someone to repair the issue, and make sure the work is done correctly. Is this the type of thing you want to deal with it? Or would you rather have your property management company do it instead?
2 – Routine maintenance & repairs
The manager of your property, either you or the person/company you hire, will be in charge of scheduling all regular maintenance visits. Regular maintenance includes landscaping, cleaning out the gutters, plumbing inspections, etc.
3 – Marketing & Leasing
One of the most important roles of the property manager is to minimize vacancies. The first objective is to keep your property well-maintained, so that it is attractive and desirable for prospective tenants. Additionally, the manager (or someone on the management team) will be responsible for advertising vacancies, showing units, and ultimately leasing the property to a qualified tenant.
4 – Tenant Screening & Background Checks
The manager of your property should also be in charge of screening tenants, running credit and background checks, and qualifying/disqualifying prospects.
5 – Rent Collection
Your property manager should collect rents owed for each property every month, deposit them into a timely manner, and document all payments.
6 – Eviction
If for some reason your tenant fails to pay, or violates the lease in any way, the manager of your property will initiate and oversee the eviction process. In many states this is a fairly simple process that can be completed in under 45 days for a couple hundred dollars.
7 – Building a Team
In order to effectively manage a property, it’s important to have a team in place that can handle administrative tasks, routine maintenance, and emergency services. A few of the most obvious team members include: Handymen, groundskeepers and landscapers, electricians, plumbers, and masons.
If you choose to hire a professional property manager, they will already have a team established. The benefit here is that there won’t be any delays getting your new property into rent-ready shape. If you choose to manage your own property, keep in mind that building these types of relationships won’t happen overnight. It will take some time, and probably a bit of trial and error. Just be patient, and you’ll thank yourself for it in the long run.
As you’ve probably started to notice, good management requires a significant amount of work. Depending on how many properties being managed, it can even be a full-time job.
The question you need to answer is this: does it make sense for you to manage your own property?
3 Benefits of Managing Your Own Investment Property
There are many benefits of managing your own investment property, including (1) you care more than anyone else will, you can save money self-managing, and (3) it’s easier to avoid scams.
1 – You care more than anyone else will.
One of the biggest reasons people choose to self manage is because nobody cares about your property as much as you do. In most cases, this is true — nobody will try harder to attract and keep great tenants than you will.
2 – You can save money
Another reason you might consider self-managing is that you’ll likely save a good amount of money. Most rental management companies charge monthly fees – usually between 8-10% of the monthly rent. In other words, if you rent a property for $1000 per month, you’ll end up paying $100 per month to your property manager.
3 – You can avoid scams
Unfortunately, not all property managers/management companies have the same ethical standards. For example: it is not uncommon for management companies to take a kickback from vendors. Oftentimes the vendors who offer these kickbacks also have higher prices or produce a lower quality product. Why? To pay for that kickback.
For these reasons, and more, many investors choose to take matters into their own hands. However, before you follow-suit, you should know that self-managing is not as easy as it may seem.
Are You Really the Best Property Manager In Town?
As we’ve discussed, managing your own property has many advantages, but success is not guaranteed. The honest truth is that self-management is not a viable option for most investors. Is it right for you?
Here are some questions to help you decide:
- Are you available, and willing, to manage your property on a full-time basis? (Note: You cannot have a full-time job.)
- Are you regularly updated on local landlord laws?
- Are you able to manage contractors to ensure they are doing high-level work?
- Are you able to run your tenants credit and perform background checks?
- Do you honestly believe that you are the most qualified person to manage your property?
If you answered no to any of these questions, you may want to consider hiring a professional property manager. (We’ll discuss the details of how to do this below).
Advantages of Hiring a Great Property Management Company
Hiring a professional management company is the key to success for many real estate investors. This is true for many reasons, including the ability to (1) invest in the best markets and make more money, and (2) enjoy passive monthly income.
1 – You can invest in the best markets, and make more money.
It’s pretty likely that your hometown is not be the best market to invest in right now. If you want to buy cash flowing properties that have a high chance of appreciation, what can you do?
Option 1: cross your fingers and hope the real estate market improves in your area. Option 2: invest outside of your neighborhood, and hire a experienced property manager or management company in the local market.
2 – Your investment income is passive, so you’re free to live life on your terms.
After you close on your new investment property, your work is done. From this point forward, your property manager will handle day-to-day operations and emergency services. To recap, these services include:
- Emergency repairs and follow-up
- Routine maintenance & repairs
- Marketing & Leasing
- Tenant Screening & Background Checks
- Rent Collection
These are just a few reasons why you should consider hiring a good local property manager for each of your investment properties. If doing so is something you are interested in… the next big question you’ll need to answer is: How can you find a good property manager that you can trust?
Finding a Good Property Management Company
When evaluating a property management company, it’s important to review their reputation. Your best option is to talk with another landlord who has worked with the company, and ask for their honest feedback. If you don’t have anyone to talk to, go to Google and search [“Company Name” + Reviews], and see what comes up. Within a few minutes you should, at least, have a good idea of whether or not tenants are happy with a property manager.
According to Kathy Fettke: “If a company is well known in the area, has a good reputation among both landlords and tenants, and has a stable base of clients, then you can be fairly confident in choosing that company.”
Once you have found several highly recommended property managers, here are some questions to ask, to make sure they are the right fit for you:
- How long have they been in business?
- Can they provide references?
- What type of properties do they generally manage?
- Do they specialize in residential properties?
- Do they work 14 hours a day, 7 days a week?
- Do they work in the same area as your properties?
- What are their fees?
- Is there a leasing fee?
- How do they market properties and rentals?
- How long will it take for them to fill a vacant house?
- What is the turnaround time for sales and rentals?
- How often do they check on properties?
- What vendors and service providers do they work with?
- Have they evicted tenants and, if so, what is their process?
- Do they issue monthly and annual statements?
Managing your own rental properties can save you money, and it’s also the only way you can completely avoid the possibility of getting scammed. However, self-management is difficult, time consuming, and it can also limit your profit potential in a number of ways. Again, these include: (1) The number properties you can purchase will be dependent upon how much time you have to manage them. (2) You will only be able to purchase properties near where you live, which might not be the most profitable market for you to invest in. And (3) In order to make more cash flow, you will eventually need to hire outside help anyways.
The main takeaway: if you only own one or two rental properties, and you’re local, self-managing might be a good option for you. However, this is not true for most investors.
One final thought: would you rather (1) spend your time to save a little money, or (2) spend a little money to save a lot of time? The choice is yours.
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