Owning a rental property presents a choice: to personally handle the day-to-day responsibilities or entrust them to a professional firm. This decision influences your financial returns, personal time, and stress levels, defining your experience as a landlord. Making the right choice requires understanding what each path entails.
What a Property Management Company Does
A property management company acts as a third party to oversee the operational demands of a rental property on behalf of the owner. Their role is comprehensive, handling nearly every aspect of the landlord-tenant relationship and the physical upkeep of the property. This begins with preparing a property for the market, including cleaning, making necessary repairs, and enhancing its appeal.
Once the property is ready, the company takes charge of marketing. This involves creating advertisements, listing the property on various rental websites, and coordinating showings. A primary function is tenant screening; managers perform background checks to verify identity, income, credit history, and past rental experiences to find reliable occupants. They also handle all associated paperwork, from applications to executing lease agreements.
After a tenant moves in, the company’s responsibilities shift to ongoing management. This includes the consistent collection of rent, managing financial records, and addressing any late payments. They serve as the primary point of contact for tenants, fielding all calls, emails, and maintenance requests, from minor repairs to 24/7 emergencies.
The Benefits of Hiring a Property Manager
Hiring a property management company offers several advantages, primarily centered on saving time and reducing stress for the property owner. By handling all tenant interactions, from routine questions to late-night emergency calls, a manager insulates the owner from the constant demands of being a landlord. This is particularly beneficial for owners with other significant commitments.
Professional managers bring expertise in the rental market that can lead to better financial outcomes. Their knowledge helps in setting an optimal rental rate that maximizes income while minimizing vacancy. An effective marketing and tenant screening process often results in shorter vacancy periods and higher-quality tenants who are more likely to pay rent on time and care for the property. This reduces the likelihood of costly evictions.
Property managers ensure legal and regulatory compliance, protecting the owner from potential fines or lawsuits. They are knowledgeable about landlord-tenant laws, fair housing regulations, and required safety standards. Their established networks of vetted contractors for maintenance and repairs can also result in quicker, more reliable service, often at a better price point than an individual owner could secure.
The Drawbacks of Using a Property Manager
The most significant drawback for most property owners is the cost associated with hiring a management company. These fees directly impact the property’s net income. The most common fee structure is a percentage of the collected monthly rent, typically ranging from 6% to 12%. For a property renting at $2,000 per month, an 8% fee would amount to $160 per month.
Beyond the monthly management fee, there are often other charges. These can include:
- A tenant placement or leasing fee, equivalent to 50% to 100% of the first month’s rent.
- Lease renewal fees.
- Maintenance markups where the manager adds a percentage to a contractor’s invoice.
- Fees for overseeing an eviction process.
Another consideration is the loss of direct control. When you hire a manager, you delegate decisions about tenant selection, maintenance, and even certain property rules. While you set the general policies, the manager handles the day-to-day implementation. This can be challenging for owners who prefer a hands-on approach to their investment.
When to Hire a Property Management Company
Deciding to hire a property management company often comes down to specific circumstances that make self-management impractical. One of the most common reasons is distance. If you live far from your rental property, handling emergencies, showing the unit, or performing inspections becomes a significant logistical challenge. A local manager provides the necessary “boots on the ground” to address issues promptly.
The number of properties you own is another factor. As a portfolio grows, the time required for management tasks multiplies, and operations can become overwhelming. Landlords with multiple units often find that centralizing management through a single company is more efficient than juggling the demands of several properties and tenants.
Many owners hire a manager simply because they lack the time or desire to be a hands-on landlord. If you view your property purely as an investment and want to minimize your involvement in its day-to-day operations, outsourcing management can create a more passive income stream. This is also a sensible choice for those unfamiliar with enforcing lease terms or handling conflicts.
When Self-Management Might Be Better
Self-management can be a rewarding and financially prudent option under the right conditions. If you own a single property and live in close proximity to it, managing it yourself is often feasible. Living nearby allows you to respond quickly to tenant needs and keep a close eye on the property’s condition.
A hands-on approach is another reason to manage your own property. Some landlords enjoy the process of interacting with tenants, overseeing maintenance projects, and being directly involved in their investment. If you have the necessary skills in areas like basic repairs and communication, and you have the time to dedicate, self-management allows you to maintain complete control and save on management fees.
The financial savings can be a strong motivator. By avoiding monthly management fees and other associated costs, you increase your net rental income. If your profit margin is already slim after accounting for mortgage, taxes, and insurance, the cost of a management company might not be justifiable.
How to Choose the Right Company
Selecting the right property management company requires careful research and due diligence. Begin by identifying local companies with a strong reputation in your market. Look for firms that have experience managing your type of property. You can find potential candidates through online searches, referrals from other landlords, or by asking real estate agents.
Once you have a list of candidates, investigate their reputation by reading online reviews from both owners and tenants. Check their standing with the Better Business Bureau and verify that they are properly licensed and insured as required by your state. Pay close attention to patterns in feedback, especially regarding communication and maintenance responsiveness.
The next step is to interview your top choices. Prepare a list of specific questions about their services, such as their tenant screening process, how they handle maintenance emergencies, and their typical vacancy rates. Ask for a detailed breakdown of all their fees. Before making a final decision, ask for references from current clients and, if possible, speak to tenants in properties they manage.