Is It Worth It To Use A Property Management Company?
Purchasing rental properties is a way for investors to build wealth. Some property owners manage their own rental properties, while others hire property managers. Those who choose to manage their own units will save money on management fees. But they're taking on all the responsibility of the landlord. Some investors know they're going to use a property management company before they even purchase their first rental property. Others are looking at hiring the property manager down the road.
With typical management fees of between 8-12% of the monthly rental value of the property, is it worth the money to hire a property manager? Only you can make a decision. But here are some important things to consider about yourself as a real estate investor and about the job that property managers can do for their clients.
Understand the needs of your property management
Many new real estate investors are not prepared to work on being a landlord. While some may find properties requiring little time and energy to rent and maintain, others greatly underestimate what it takes to manage a rental property.
By Stacey Baca - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=12222368
Know the Property Condition and the Type of Tenants you 're going to attract
If you purchase an investment property that needs a lot of work, make sure you carefully consider the money and time needed to prepare it for the tenants. Even if you have a property inspection, you may find more things that need to be repaired or replaced before you can collect your first rent check. Whether you're doing the job or not, doubling the time you think it'll take to make repairs is a smart idea. Setting aside at least 1.5 times what you estimate the cost of repairs will help you if you discover more problems or underestimate prices. If you finish early and in budget, it's all a bonus for you. You may score a lot by buying a home in a rough neighborhood, but you may end up with extra costs due to more vacancies, frequent turnover and evictions, and higher maintenance costs. There's a potential to make a lot of money with these types of properties, but they usually require a lot more work.
Be Realistic About Your Experience
If you own your own home, are a strong communicator, can DIY some projects, or have friends or relatives with rentals, you probably have a good idea of what the landlords are doing. You 're probably also aware of the skills needed to deal with typical investment property issues. If you've only researched and read about the success of others in real estate and you're eager to try it out, you may have a much larger learning curve. It's not that you 're not going to be successful. There's more to being a landlord than most people realize. You should also consider your ability to deal with conflict, and whether you can detach emotionally and stay focused on property as a business.
What's a Property Manager Offer
It is important to note that everything discussed below about property managers assumes that you will find and hire a competent management team. There are a lot of property managers who are not worth their fees. Be sure to exercise caution, interview multiple managers, and check the references before you go through hiring one. Keep in mind that most property managers also allow owners to choose their level of property involvement. Some owners are actively involved, while others may make a few calls or e-mails and approve the work to be done.
Legal matters addressed
One of the most important things the property management team does to the owner is to address legal issues relating to tenants and property. Managers are responsible for securing legal leases with tenants. They also tend to have a much better understanding of the legalities involved in advertising the unit and not to discriminate against potential tenants. Managers handle legal notices, such as 3-day rent claims, and may go to court for evictions. They set up regular inspections of the units described in the lease and respond to calls from the code or fire inspectors.
Management of Finances
Property managers are collecting money – application fees, security deposits, rents, and late fees when tenants do not pay on time. They'll pay property bills, including mortgages, taxes, and utility bills. If the property needs to be maintained or repaired, your management team will get the bill and pay for it. You will receive a statement of income and expense at the end of the month. You may have to send money to the management company at that time, or you will receive a disbursement of funds. Management companies also generate the tax documents needed by owners at the end of the year.
Is Hiring a Property Manager Worth the Money?
Determining whether or not you hire a property manager depends on your goals and property. Property management is not worth money to some investors. They may be owners who are full-time owners of multiple properties. Or they chose to be a landlord as their side job. Other owners, who skip management, found it easy to manage properties requiring very little work. One important note, even if you choose to manage your own properties – it's worth having a backup plan if you're no longer able to manage it. For others investing in real estate, there is no way they would have chosen to manage their own rental properties. They find value in hiring a property management team and have very little involvement in the rental unit. These owners shall write off the management fees for their taxes. They also appreciate being able to spend their time doing anything other than worrying about their investment in real estate.