Realtors as Matchmakers … Property Managers as Partners
As a residential rental investor, or someone interested in becoming one, you will have periodic needs to buy or sell properties. Additionally, investment units need management and maintenance. These functions are not mutually exclusive. Both need to be performed effectively and at a reasonable cost. Enter the two players that make that happen … realtors and property managers. It is valuable to understand the complementary roles of each, as well as the differences that each brings to the equation for investors. The focus of realtors is to close the sale of a property. In that sense, their job is transaction oriented. The motivation is a short-term focus to seek a property appropriate to your needs as an investor and close the deal. In contrast, property managers fulfill longer term, relationship based services. That said, let’s compare and contrast the benefits each brings to the party and the value-added for investors.
Realtors
In most instances, real-estate agents work for real-estate brokerage companies. They are licensed by the State and often must fulfill continuing education credits throughout their career. Their job is to list properties for sale and seek buyers. Specialization Some agents specialize in residential rental properties, both single family and multi-unit. They work with investors that are in the market for those properties and work through the purchase or sale transaction including negotiations, agreement and closing. Compensation Real-estate agents are compensated via commissions. Commissions are based on the selling price of the property and usually paid by the seller at closing. Typically, gross commissions are split 50-50 by the listing agent and the selling agent … often the same individual in residential rental transactions. Today, commissions are negotiable albeit the historical 6% is prevalent. Value In an article authored by Elizabeth Weintraub and published in The Balance, ten reasons are offered to illustrate the benefits of working with an agent. Here is a sampling of three:
- Education & Experience. An experienced, capable agent will save both buyers and sellers time and money.
- Agents are Buffers. Their job is to screen potential buyers or sellers to eliminate the tire-kickers.
- Neighborhood Knowledge. Agents tend to work specific geographies, called farms. That means knowledge of sales, pricing and other neighborhood characteristics.
Property Managers
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. Regulatory Requirements As reported by All Property Management, most states 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. Full Service Property Management Let’s view the profile of a full-service property management company. Full service will include the following:
- Leasing & Marketing
- Maintenance
- Operations
- Accounting
Compensation 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.
When Should a Landlord Hire a Property Management Company?
Before making a snap judgment regarding property managers, a bit of soul-searching is in order. Consider answers to the following five questions as each applies to you.
- What experience do you have in managing residential rental property?
- Do you prefer to be a passive investor or a hands-on landlord?
- How far away are your investment properties from your residence?
- Assuming you are considering DIY, can you effectively service all of your properties?
- Are your rental payments sufficient to pay a property manager?
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. What experience do you have in managing residential rental property? 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. Do you prefer to be a passive investor or a hands-on landlord? There are several issues to consider in this regard.
- Do you have a great need to remain in control of all aspects of your investment?
- A hands-on landlord also becomes heir to the stress factors of tenant-management. How willing or emotionally able are you to deal with complaints, maintenance and non-compliance with lease obligations? These are often face-to-face and confrontational.
- Hands-on management means dealing with internal or contract resources for maintenance and repairs. Do you want to take on the people-supervision?
How far away are your investment properties from your residence? Do it yourself (DIY) and distance are deadly housemates. Responding to emergencies, maintenance, rent collection and vacancies is severely impacted and often impaired. Assuming you are considering DIY, can you effectively service all of your properties? 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. Are your rental payments sufficient to pay a property manager? 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? Next Steps Let’s say you add up your scores and your decision is to seek assistance by a professional property manager … or at least evaluate that route as a possibility.
Give us a call or drop an email.
We’ll respond promptly and relieve your stress to evaluate your property management options.