Residential rental investors 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. 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.
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.
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.
Real-estate agents are compensated by 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.
In an article authored by Elizabeth Weintraub and published in About.Com, ten reasons are offered to illustrate the benefits of working with an agent.
Here is a sampling of three:
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.
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.
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.
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.
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.
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.
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.
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.
In an article authored by Ron Leshnower and published at the NOLO website, this question is dealt with in considerable detail. Considerations include:
Read the article for significant insight to aid decision making.
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.