Investors in residential rental properties must seriously consider the matter of management of the investment property. That is true for existing investors as well as those who contemplate becoming landlords. While the decision is more complex than the solution-description, your options boil down to two: 1) hire a professional property management firm, or 2) DIY (do it yourself).
Before making a snap judgment of your choice, a bit of soul-searching is in order. Consider answers to the following five questions as each applies to you.
Let’s briefly examine each and offer you a scoring system to determine your needs on a scale of 1 to 5 … with 5 being best rating.
DIY and “learn as you go” is a perfect formula for disaster in protecting and enhancing your investment. If your know-how is limited to paying your own rent or mortgage each month, score yourself as a 1 on this issue.
There are several issues to consider in this regard.
DIY and distance are deadly housemates. Responding to emergencies, maintenance, rent collection and vacancies is severely impacted and often impaired.
Do you have time to effectively manage your properties? Lack of time to devote to the needs of your tenants and property maintenance will have a severe adverse effect on the success of your investment.
Property managers do not work for free. Are your rent receipts sufficient to pay a property manager, cover other overheads and yield a profit … or at least render your venture break-even?
Property managers’ primary responsibilities are to keep residential rental investors and their tenants happy. That means satisfaction by both parties in the condition of the rental unit, the grounds and maintenance services. While the manager works for the owner, the needs of the tenant are paramount to retain quality, long-term, profitable renters.
Additional services often provided by property management firms include advertising, leases, tenant disputes, collection of rents and evictions.
Owners/investors that decide to hire a property management company are advised to consider the following avenues.
Bottom-line: Do your homework and be prepared
to interview candidate property managers in depth.
Most states http://www.allpropertymanagement.com/propertylaw/ require property management companies to be licensed real estate brokers. A few states either have no such requirement or qualify under a property management license.
Virginia requires both a real estate broker license as well as a Common Interest Community Management license. That offers an extra measure of security to Virginia residential rental investors that choose to contract with a property management firm.
Ask to see currently valid licenses.
Let’s view the profile of a full-service property management company. Full service will include the following:
While a full-service property manager stands ready to fulfill all of the above, residential rental investors may choose to “mix-and-match” based on their specific needs. Here’s a rundown.
Ask what elements of full service are provided and
both “price-fixe” and a-la-carte pricing.
Important: The two major thieves of rental property profits are vacancy and turnover. Vacancy steals by depriving you of rent payments. Turnover rip-offs include higher costs in readying the property to be rented again and again.
As mentioned earlier, one of the property manager’s primary responsibilities is to keep tenants happy. That means renter satisfaction in the condition of the rental unit, the grounds and maintenance services. A competent property manager will address the needs of tenants and retain quality, long-term, profitable renters. Thwarting the vacancy and turnover thieves yield savings that significantly overshadow the fees for professional property management.
Properly conducted, leasing and marketing generates cash flow, raises property values and increases profits for owners. That means that the dreaded word “vacancy” is significantly eliminated.
Vacancy can be more expensive than repairs, maintenance, and upgrades combined, so minimizing that exposure is particularly valuable. Maintaining occupancy rates at a high level protects investors’ revenue streams.
Ask for details of times to fill vacancies; seven day availability
to show rental units; media used to attract tenants.
Most properties require at least some sort of maintenance over the course of a year. Full-service property managers typically have an in-house maintenance team specializing in smaller repairs. That keeps costs low for owners. Large-scale repairs are generally turned over to licensed subcontractors with whom the manager has established trusted relationships, as well as preferred pricing.
Ask what preventative maintenance is performed and frequency.
The main objective of the operations team at a full-service property management company is to safeguard the owner’s investment by ensuring full contractual compliance by tenants.
A well managed operations department is respectful and considerate of tenants when financial difficulties, illness and other factors impair their ability to meet all of their commitments. However, if all else fails, the property manager will pursue any and all legal avenues to obtain fair compensation for a breach of contract and further safeguard the owner’s investment.
Ask to meet operations personnel.
Here “chemistry” is important to effective tenant relations.
The accounting function at a full-service property management firm is to properly manage the owners’ rental investments. That means employing critical checks and balances to protect the owner’s assets, ensure accurate entry of financial data and provide needed documentation at tax time.
A competent management firm will process transactions, identify accounting events plus prepare and update documents and reports. To carry out these critical responsibilities, the accounting team will perform in three distinct roles:
Ideally owner/investors will have access to their own operating bank account, allowing for complete transparency of their transactions. Additionally, a monthly profit and loss statement will be provided documenting and reconciling income and expenses for the previous month. This combination generates the data needed for management decision making to maximize profits and avoid any financial malfeasance.
Ask where will rent receipts be held and how soon after being received. When will you be paid? Where are tenant security deposits kept and what are practices to return to tenants at time of vacancy?
The most common compensation model for property management firms serving the single family and multi-home units market is a percent of rent. The property management company will collect rents, retain 10-15% and remit the balance to the property owner.
Ask what services are included in the management fee. Validate that the fee is based on rents collected, not on rent due. Are there additional fees and if so, for what services?
The above does not exhaust the homework you must do prior to hiring a property manager. Some additional areas to investigate include:
DIY or professional management. Your call … based on your needs.