Not every rental property owner needs to hire a property manager. However, for the right property and the right landlord, they can be very helpful. The nine questions below can help you determine if hiring a property manager could be the right choice for you.
1. Is Your Rental Property Close to Your Home?
The more miles between you and your investment property, the harder it is to manage. If your primary residence is in Illinois and your rental property is in Florida, it will be harder for you to find tenants, to handle tenant complaints, to quickly respond to emergencies, to take care of maintenance issues, and even to make sure rent is collected on time.
The time it takes you to get to the property and the cost of getting there will also add up. In situations such as these, hiring a good property manager can make sense and actually save you money.
2. How Many Units Do You Own?
As the number of units you own increases, so do your responsibilities. The more tenants you have, the more maintenance issues, complaints, and vacancies you will have to deal with. In addition, if your units are spread across multiple properties, you will spend even more time managing the cash flow of each individual property, as well as physically commuting from property to property to handle issues.
3. How Much Experience Do You Have Managing Property?
If you want to invest in real estate, but don’t know the first thing about property management, hiring an experienced property manager can be the right choice for you. Learning as you go can become very expensive.
For a property investor who is just starting out, hiring the wrong repairman or taking too long to fill a vacancy can quickly eat into your potential income. Mistakes such as being accused of discrimination because you did not understand the Fair Housing laws, or of being a slum lord for not getting the heat fixed in time, can lead to the demise of your investment.
It is also important to note that hiring a bad property manager can also destroy your investment. This is why it is so important to do your research and thoroughly screen a property manager if you decide hiring one is right for you.
4. Can You Afford to Hire a Property Manager?
Before you hire a property manager, you need to assess your finances. Property managers are not free. Managers will charge a fee, on average, between 4% and 10% of the monthly gross income for the property. The typical fee for a single-family rental property is closer to 10%. The fee for a property of 10 units or more is typically between 4% and 7%.
For example, a single family home with a gross income of $1,000 a month might have a management fee of 10%, or $100, while a 5% fee would only be $50. In this scenario, paying the property manager $50 a month for managing a property would not be a great enough incentive to attract a quality professional. However, for larger properties, assuming the monthly income is $20,000, a 5% management fee would be $1,000 and should be enough to attract a seasoned professional.
Some property managers will also charge tenant placement fees, which is a bonus for finding a tenant. These fees will vary from a few hundred dollars to as much as one month’s rent.
5. Do You Have the Time to Manage Your Property?
If you have a full-time job while you are investing in property and simply cannot give your property the attention it needs, the success of your investment could depend on hiring a good property manager.
Also, realize that time is money and managing a property takes time. If you feel like the daily obligations of property management are taking away time that could be better spent making more money at your other job, or looking for other investments, hiring an outside manager may be the right move for you.
6. Are You Willing to Give Up Control?
Property managers can be in charge of everything from collecting rent to filing taxes for the property. Are you willing to give someone else that much control? While they may have the experience and a piece of paper that says they are certified, do they have the same passion for your investment?
7. Are You Willing to Take on the Liability of a Property Manager?
Just as property managers have the ability to make decisions on your behalf, they can also make mistakes on your behalf, and the mistakes can cost you dearly. Property management contracts often have something called a “hold harmless” clause which is meant to protect the manager, except in instances of gross negligence, by placing the responsibility on the property owner.
For example, the property manager violates Fair Housing laws when looking for tenants and has a complaint filed against them. As the property owner, even though you did not commit the violation, you hired the person who did, so you could be liable.
8. Do You Have a High Vacancy Rate or Problems With Your Cash Flow?
Good property managers are skilled at finding and screening tenants quickly and will have a network of reliable, cost-effective repairmen to handle emergencies. Most professional property managers will also understand the landlord-tenant law, thereby reducing the risk of a lawsuit.
9. What Is Your Tolerance for Dealing With Tenants?
Is the stress of dealing with evictions, complaints and maintenance issues taking a toll on you? Property managers are skilled in handling landlord-tenant conflict. They have an understanding of the landlord-tenant law and can serve as the middle-man, or buffer, for problems. In addition, if the tenant knows they are dealing with a third party, they may act more professional as well.
You do not have to hire a property manager just because you are new to property investing, have many units or are having trouble filling vacancies. Personal experience is often the best teacher and everyone has to start learning somewhere. If you educate yourself about property investing, ask the advice of others and have a strong desire to manage your property well, chances are, you will succeed.