Are you considering hiring a property manager or management company for your rental property?
Property managers can be invaluable members of your real estate investing team. They provide services to manage most of the day-to-day operations for your rental property. Property managers also handle the relationships with your tenants and maintenance requests.
If real estate investing is a side hustle, a property manager will be available at all times of day for your renters so you can focus on your day job. Or a property manager can free up your time to grow your real estate portfolio if it’s your full-time gig.
If you are new to real estate investing, a property manager provides you with expertise in many areas that you may just be learning. From tenant screening to maintenance to evictions, property managers possess a gambit of skills that you can rely on.
No matter what your level of real estate investing, property managers can be extremely helpful.
Let’s explore the benefits and costs of hiring a property manager.
What Is A Property Manager?
Before we look at the roles and responsibilities of a property manager, let’s quickly define what a property manager is.
A property manager is an individual or company that handles the day-to-day operation of a rental property. This includes many tasks including collecting rent, screening tenants, filling vacant units, and coordinating maintenance. In exchange for this service, a property manager is compensated with a portion of the rent collected.
You can choose from several different types of property management. Each arrangement has its unique advantages and disadvantages. You should carefully consider which type of property manager meets your needs and expectations.
Individual Property Manager
The first type of property manager we’ll look at is the individual property manager.
An individual property manager is a single person who manages one or more rental properties. They may employ a small staff of non-managers to support their business including an assistant or handyman. While this may be incorporated as a business, it is different than a larger property management company that employs multiple property managers.
Individual property managers can offer more personalized service and experience for the rental property owner. Since there is only one property manager in this arrangement, you will build a better relationship with the property manager.
With an individual property manager, you will talk to the same person and so will your tenants. Having this consistency will allow you, your property manager, and your tenants to build a repertoire and. In turn, everyone will work together better when issues arise.
Because individual property managers handle fewer clients, they can spend more attention on each rental property. You will get more focused attention on your rentals and the property manager will get to know all of its nuances.
One of the biggest downsides to an individual property manager is their availability. Since they are only a single person, you won’t get the full 24/7 availability of a property management company. This is particularly an issue when there is an emergency on your rental property.
What if a pipe bursts when your property manager is on vacation? The property manager can mitigate this risk by working with a 24-hour emergency maintenance company. Of course, this arrangement isn’t consistent across individual property managers so you will need to understand the services they offer.
Property Management Company
In contrast to an individual property manager, a property management company offers more services and availability to the rental property owner and tenants.
Property management companies are medium to large businesses that employ multiple property managers in addition to supporting staff or contracts with maintenance crews, groundskeepers, and general contractors. Property management companies manage hundreds to a few thousand rental properties. They can control costs due to established systems and processes, and the volume of work through their contractors.
Property management companies tend to operate like well-oiled machines. They have well-defined processes and provide consistent training for all of their employees. This provides you with much more consistency than an individual property manager. However, it also limits their flexibility in handling any out-of-the-ordinary requests.
A large property management company provides access 24/7 for emergencies. The property management company will provide your renters with a contact for any maintenance emergencies. You will sleep better knowing a burst pipe isn’t going to leak for hours (or days) before being fixed.
You will also enjoy better pricing from a large property management company due to the volume of services they provide. Think about it — a property management company does a lot of business with contractors, cleaning services, and grounds crews. These businesses want to keep the property management company as a customer so they offer competitive pricing.
One of the drawbacks of a large property management company is a lack of personalization. You are just one of the hundreds (or potentially thousands) of clients in their portfolio. A large property management company simply isn’t going to give you the personal attention an individual property manager offers. You may not even speak to the same person every time you contact the company.
Employee Property Manager
Large apartment complexes hire one or more property managers as employees. The amount of work required to manage a large property creates an opportunity to save costs by bringing the property management in-house. Large apartment complexes often employ multiple property managers.
An employee property manager is hired by and works for the property owner. As an employee, the property manager focuses solely on a single property or set of properties owned by the property owner. They are compensated with salary, bonuses, and benefits as opposed to contractual fees paid to property management companies.
The largest advantage of hiring employee property managers is the control you have over the processes and systems in place to manage your properties. You get full control over every aspect of managing the property including tenant relations, advertising, rental agreements, and maintenance. This, however, comes with more responsibility because you need to define these processes.
Large apartment complexes also benefit from cost savings by bringing property management in-house. Property management companies can have a complex fee structure. Hiring an employee property manager makes these costs fixed because the expense is directly tied to the employee compensation. There is no variability in the expenses based on turnover or vacancies.
What Does A Property Manager Do?
Put simply, a property manager manages the day-to-day operations of a rental property. This is an obvious (and somewhat unhelpful) definition, so let’s get into the details.
A property manager performs various tasks related to the day-to-day operation of a rental property. These include finding and screening tenants, signing lease agreements, collecting rents, and coordinating repairs and maintenance among other duties. A property manager acts as the primary interface with the tenants.
The purpose of a property manager is to manage the day-to-day activities of a rental property. Their job is to ensure the smooth operation of the property and interactions with the tenants. A good property manager keeps the tenants satisfied with the property and amenities while also maximizing your rent revenue.
Property managers perform a wide variety of tasks including:
- Finding and screening prospective tenants
- Advertising available rental units
- Negotiating and signing lease agreements
- Collecting rent payments
- Performing move-in/move-out inspections
- Addressing tenant questions and concerns
- Assessing fees to the tenants (late fees, etc)
- Coordinating maintenance and repairs
- Responding to emergencies
How Much Does a Property Manager Cost?
Property managers provide a large array of services, but how much do these cost?
Property managers typically charge a fee based on gross rent collected. On average, this is 10% of the gross rent collected but can vary depending on geographic location. Property managers may charge additional fixed fees for advertising, tenant placement, and vacancies among other fees. Some property managers opt for a flat monthly fee, but these are the minority.
The most common form of compensation for a property manager or property management company is a management fee that is a portion of the gross rent collected. On average, this fee is 10% but can range between 8% and 12%.
In addition to the management fee, a property manager may also include the following fees:
- Advertising Fee
- Tenant Placement Fee
- Vacancy Fee
- Setup/Termination Fees
- Eviction Fee
- Lease Renewal Fee
As you can see, the list of fees can be extensive. It is a good idea to understand all the prospective fees a property management company will charge you — especially considering you will likely pay an early termination fee if you want to switch management companies before your contract expires.
The exception to this fee-based compensation is employee property managers. As an employee, of your business, they are compensated through salary, bonuses, and benefits. The compensation varies depending on geographic location and experience, but in general falls between $30,000 and $60,000 per year.
Benefits Of Hiring A Property Manager
Now that we understand what a property manager does, and what costs are associated with property management, let’s take a look at the benefits to you and your rental business.
- Expertise in Tenant Management and Communication — A professional property manager works daily with tenants. They know how to address tenant concerns and questions efficiently. A property manager is the primary contact your tenants will work with. A good property manager knows that keeping a good relationship with tenants makes it easier to address issues when they arise.
- Delegation of Day-to-Day Operations — You don’t need to get buried in the details of everything that happens with your rental property. If your rental property is a side-hustle, you won’t have to worry about scheduling showings, maintenance, or inspections around your work schedule. Your property manager can find times that work for your tenants without many restrictions. If your rental property business is your full-time gig, then you can focus more on growing your business rather than managing the operations.
- Expert Understanding of Local Markets and Rents — Property managers spend a lot of time in the local market. They know the best methods to advertise your property and know the intracacies of the local rental market. This helps you find the best tenants for your rental property and maximise rental income by pricing your property comperably and comptetatively.
- Discounted Costs of Maintenance and Repairs — Most property management companies, and some individual property managers, work with a select set of contractors. With any large quantity of work, contractors will offer discounts to the property managers in order to keep their business. This savings is passed on to you.
- 24 Hour Availablility for Emergencies — Most property managers offer a 24 hour phone line for emergencies on the property. You don’t have to get any middle of the night calls that require you to drive down to the property and deal with a bad situation.
Disadvantages Of Hiring A Property Manager
Property managers offer a lot of benefits, but there are some drawbacks. Let’s take a look at some of them.
- Costs and Fees — Property management costs money. We have covered the various fees, but each property manager will have a different fee structure so it is important for you to ascertain what the real cost is before signing a contract with a property manager. Some of the extra fees can add up to a substantial amount of money.
- Less Control — Property managers, especially the large property management companies, will have their own set of procedures for handling the rental and tenants. You can influence this to a degree, but in general, you’re subject to the processes the property manager sets.
- Differing Incentives — Your goal is to produce income with your rental property. Your property manager’s goal is to produce income through the management of your property. While most property managers operate honestly and with integrity, you will find some that try to maximize their income from a plethora of fees and add-ons. It’s up to you to throughly vet your property manager.
- Contract Lock-in — Most property managers require a 1 or 2 year contract and charge a fee to break it. If you find yourself in an unresolvable dispute with your property manager, you will need to pay them to switch to a different property manager. Again, it is up to you to vet your property manager. You should be confident that they will best serve your needs for the duration of the contract.
Summary
Property managers can be invaluable to your rental business. They bring expertise that you may not have, and they handle the mundane day-to-day operations so you can focus your time and energy growing your business.
In the end, deciding to hire a property manager is a personal decision. You may decide to self-manage your properties or you may decide a property manager is best for you. It comes down to a cost/benefit analysis given your circumstances and experience.
I hope this has been a valuable resource in understanding how a property manager can benefit your rental.
We are interested to hear about your experience. What are your best/worst features of having a property manager?