Pros and Cons of Hiring a Property Management Company
Knowing which property management company to hire is one of the most important decisions an investor owner can make. The owner must consider what company their property will be managed by and who the people managing it are.
Choosing the wrong property management company might mean more work for the owner than if they had not hired a property manager in the first place. Handing over the management of the rental to a company is a huge step, and before making the decision, it is essential to understand the following:
The implications of self-owned management
The pros and cons of outsourcing property management
The options if you do not want to outsource
The Implications of Self-Owned Management
There is a clear difference between owning a rental property and managing it. All too often, property owners make the mistake of buying a property without knowing how to manage it.
Before purchasing a rental unit, it is important to understand the following:
Landlord-tenant law: If you are an investor owner, you must be familiar with the state law that governs the relationship between landlords and tenants. Little or no knowledge about this could expose the landlord to lawsuits and fines.
Be familiar with the state law and be on the safe side.
Time and expense spent visiting properties: It is important to always check in on the rental property regularly for proper maintenance, emergency maintenance, and awareness of the status of the rental. If you own more than one rental and are far away from each other, you will spend a lot of time going from one property to another. As an investor owner, spending all your time performing this task at the detriment of your primary job is not advisable.
Time is money, save time and channel it towards earning more money by outsourcing.
Repair and maintenance responsibilities: A landlord must have a diverse range of skills if the landlord wants to pick up the maintenance tasks. The landlord must have carpentry, plumbing, landscaping, and electrical skills for proper maintenance. If the landlord is not versed in these skills, there will be the need to spend more money on repair services.
You need to have a diverse range of skills if you want to maintain the property.
How to screen tenants: Weeding out problem tenants during the screening process is a skill that every landlord needs to have.
Problem tenants can cause damage to your property and reputation.
Good Landlord-tenant relationships (especially with difficult tenants): No matter how perfect the tenant screening is, there are chances that you might still end up with unruly and unhappy tenants. As an owner/landlord, you need to stand firm in the face of adversity and ensure the tenants strictly adhere to the rules guiding the lease.
Professionalism and diplomacy are very important.
Good software for property management: If you are managing a large number of units, having property management software yields more efficient results by:
Decreasing costs to be spent on ads by posting units automatically on popular listing sites
Accepting rent online
Carrying out credit and criminal background checks with ease
Auto reminders to the tenant on when they need to pay their rent
Using preexisting data to create letters and tax forms automatically
Getting rid of poor records by automating certain processes
A good property management system can be useful, especially for novice property owners.
The Pros and Cons of Hiring a Property Management Company
Pros of Hiring a Property Manager
A property owner that has hired a property management company should expect the following:
Increase revenue generation: A property management company is more experienced and has access to larger potential renters, which makes advertising easier. Additionally, property management companies understand the local rental rates, which helps them maximize the amount they charge per rental unit.
You are in control of your time: When you hand over your rental to a property management company, you have extra time to handle other businesses. Being in control of your time is the most obvious and enjoyable benefit of hiring a property management company. YOU ARE BUYING TIME AND PURCHASING YOUR FREEDOM!
Reduction in direct cost: Preventative maintenance can be performed by the property management company, which helps reduce the direct cost to the owner. It is also essential to add that property management companies have an in-depth understanding of local landlord/tenant laws that help protect the landlord from lawsuits and fines. Avoiding one lawsuit may help pay for property management services for years. The property management company will also help with tenant screening to help reduce poor tenants.
Cons of Hiring a Property Manager
Some risks must be considered when outsourcing. A property management company that does not understand the gritty details of the job could cause more harm than good. Here are the most common downsides:
The cost: A property management company charges between 6%-12% of the property's gross monthly rent. For properties with large units, this will come to a significant sum.
Management fees are not the only fees to consider: Property management companies also charge for maintenance, advertising, and creating or renewing leases.
There is a chance of developing a bad reputation: The unhappy tenants are always the most vocal. Unfortunately, more and more tenants leave bad feedback online about their experience.
Inadequate record-keeping: Most of the time, when a property management company is hired, they take charge of the record-keeping (accounts payable and receivable, tenant complaint records, service records, etc.). Any mistake or poor job keeping a record on the part of the company means the property owner may be completely lost once they part ways. Inadequate record keeping can put the property owner in a bad position if a tenant files a legal complaint.
Vulnerability to lawsuits: As stated earlier, good property management companies can help the owner avoid a lawsuit; however, a poor property management company could cause a lawsuit. A poorly managed company that does not keep track of changes in landlord/tenant law or does not have an understanding of the law can cause harm to the owner because a single lawsuit can be very costly.
A property owner must weigh the benefits of hiring a property management company. Hiring a property management company is a good step if the benefits justify the expense. Owners should also ensure they are outsourcing to companies that are effective and ready to help them grow their businesses. If an owner considers these two factors and the pros of hiring the company outweigh the cons, then property owners should consider hiring a property management company.
What if You Do Not Want to Outsource Your Property Management Responsibilities?
If, when reading through the pros and cons, you wished there was some kind of middle ground, there is! Hire a residential property manager. This means you must be ready to become a boss, handle payroll, train, supervise, etc.
A residential property manager is a person that occupies one of the units of the rental and is assigned the role of carrying out the basic tasks of property management.
The basic tasks that can be performed by the residential manager include:
Carrying out light maintenance and clean up.
Taking prospective tenants through the vacant units at the property.
Working with repair persons to solve and fix maintenance issues.
Hiring a Property Manager Is Your Decision
Whatever choice you make, a firm understanding of what property management truly is crucial to the success of your rental.
For owners who choose to manage the properties themselves, they will need to hone their property management skills.
Property owners that outsource but have little or no understanding of the industry might send the trouble down the road to be dealt with later.
The bottom line is that every property owner should know the ins and outs of the business, no matter who oversees management.
