Managing a rental property yourself is like liver. You either love it or hate it, but seldom in-between. A good property manager can be your answer to less stress and more time to invest in other projects or focus on other priorities. Read below for questions to ask before hiring a property manager for your rental property including things such as property management monthly fees, and why hire a property manager in the first place.
Why hire a property manager?
Why hire a property management company for your rental property? Because doing it all by yourself can make your real estate investment experience harder than it needs to be or worse, a headache you’d rather soon forget. Property management goes beyond placing tenants and also includes maintenance, turnover, legal, and other responsibilities. This article is a good resource that has an overview of some of those areas.
What’s the cost to hire a property manager?
Typical property management fees can vary around the country. Fees for property management services can also differ in type, frequency, and calculation. See below for a list of fees. Use this list for questions to ask your property manager before hiring them.
Property Management Fee Breakdown:
Setup fee. This typically runs up to $300, but can be as high as $500. It is charged for the time to set up a new account, may or may not cover an initial inspection of your property, and could also cover the time and cost to communicate with the new tenant including materials sent to them. You definitely want to make sure the handoff to the property management company is smooth. This reduces worry and anxiety that could be experienced by your tenants. A good first impression is important to minimize the chance of a tenant not renewing the lease under new management.
Management fee. For the general management services of the property management company, a fee is typically charged in the form of a percentage of the gross rents collected or due, or a flat monthly fee. Pay close attention to how the company handles rents due if that is how your fee is calculated. You could be charged a management fee even if your property is vacant. The norm for rental management fees is typically 8 to 10% of the gross rent. When comparing property management companies, take a look at the services included in the management fee. It can be different.
New tenant fee. This is also called a leasing fee. It is charged when a new tenant has been procured and the lease agreement has been signed and executed. This fee can be 25% to 100% of the first month’s rent. It is separate from the management fee described above. Also, an additional fee may be charged when the lease is renewed.
The leasing fee typically helps the property manager offset the costs associated with time, effort and services to perform advertising, showing the property, screening tenants (one of the top 3 landlord mistakes), preparing paperwork, and inspecting the property prior to tenant move-in.
Advertising fee. Although the leasing fee may include costs of advertising the property to prospective tenants, the property manager may charge an additional fee for advertising. Advertising can consist of creating media such as taking photos or videos.
Lease renewal fee. Upon a lease renewal or extension, a property manager may charge $250 or less depending on a full or shorter lease term. Some property management companies may not charge this fee.
Vacancy fee. Some companies may charge for vacancies. Our view is that one of the main jobs of the property manager is to keep a unit fully occupied for as long as possible and to make the time in-between tenants as short as possible.
Although achieving these goals is not 100% in the power of the property manager, there should be plenty of incentive without a fee to eliminate a vacancy. Rental turnover is the time period when one tenant moves out, and the property is vacant until another tenant moves in. No rent is collected during this time, but other bills and costs associated with the property still get billed or need to be paid. Therefore, rental turnover affects the property management company’s ability to get income.
Maintenance account. This is not a fee, but rather a reserve account for expenses. This can be an amount equal to one month’s worth of expenses such as mortgage payments (if applicable), condominium or other association dues, other monthly or rental obligations of the owner, plus an agreed upon amount in reserve for maintenance and repairs. This reserve can also help with R.T.M.O., or “repairs after tenant moves out”.
Depending on your agreement, the property manager can also hire, supervise and terminate contractors working on property maintenance and repairs. In addition to the maintenance account, you can set a threshold for pre-authorized expenditures. If there is an expense above the threshold, the property manager must contact you for approval before proceeding.
Eviction fee. Your property manager can act on your behalf to serve notices, initiate eviction steps, obtain legal representation or appear in court and sue to recover rents owed or for damages. Eviction fees may be charged for the property management company’s time and cost related to these activities as well as any related attorney fees.
Possible Additional fees. Additional fees beyond the ones mentioned could include past-due fees if the management fee is not automatically deducted from gross rents, and you are late in paying them to the management company. In fact, any property management services that are not paid for by the due date could incur a late fee.
What’s the property manager’s background and experience?
As with any potential business partner, contractor, or company you desire to perform services for you, making the right choice up-front is critical. Ask the property management company what other properties they manage. Check-online to see existing listings or advertisements. Does the company manage properties similar to yours?
The well-known People, Process, Technology (PPT) framework talks about how to achieve effective change and get stuff done! Without each of the three legs to stand on, the table falls down. You can have the greatest process and technology, but if you don’t have the right people, success won’t be achieved. Ask the property management company who will actually take the lead on managing your property. You want to make sure they are experienced and competent.
How do they handle marketing rental properties?
As mentioned previously, you want to make the time in-between tenants (rental turnover) as short as possible. Ask the property manager how they would market your specific property, and how they will reach the demographic and quality of tenants important to you and your income! Marketing is not one-size fits all.
How do they operate?
Referring to PPT again, you want to understand the processes of the property management company. What are the company’s business hours? Do they have weekend personnel? How are emergencies handled? How do they handle accounting and the reports that are sent to you? What is the frequency of those reports and what information do they contain?
Some of the company procedures may be spelled out in your agreement with the property management company, but not all. Make sure you understand the procedures in the agreement before you sign it. Ask the company to clarify as many procedure steps as necessary to help you understand.
How will they increase the income and value of your property?
You can often tell if there is a property management issue simply by driving by a property. If the yard is unmowed and full of weeds, or the exterior is in disrepair, it’s usually a problem with money, a problem with property management, or a combination of both.
A good property manager can be your boots on the ground, especially if you don’t live in the area. They stay in touch with the market which allows the rent and your rental income to increase over time which can help fund maintenance and repairs. The property manager can also keep the property in good standing with local codes and safety laws which can prevent costly lawsuits and repairs. This annual focus on maintenance can help increase the value of your property over time.
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