Introduction
Working with a property management company can provide significant benefits for real estate investors and landlords. Rather than managing every aspect of your rental properties on your own, you can outsource day-to-day operations and maintenance to professionals. This frees up your time to focus on other investments or priorities.
The main benefit of using a property management company is reducing the workload and stress of being a landlord. The company takes care of tasks like advertising vacancies, screening tenants, collecting rent, coordinating maintenance and repairs, addressing complaints, and ensuring compliance with laws and regulations. They have systems and expertise to handle the various aspects of property management efficiently.
Another major advantage is gaining access to a team of experienced professionals. This includes leasing agents, maintenance staff, accountants, lawyers, and administrative support. A good property management company will have extensive knowledge of the local rental market, solid relationships with vendors, and established procedures. This can optimize operations and help avoid costly mistakes caused by inexperience.
Overall, partnering with a property management company allows real estate investors to own and profit from rental properties with much less hands-on effort. The benefits of reduced workload, expert support, and efficient operations often make the fees worthwhile for landlords with multiple properties or limited time. But choosing the right company and defining the terms of service are key to a successful partnership. To help maximize your return with real estate investments, check out the following.The Hidden Dangers of Real Estate Investing in Richmond, VA, which includes What is Squatting, Understanding Eviction Laws in Richmond, VA, Working with an Experienced Real Estate Attorney, and Understanding Local Zoning Laws.
Services Offered
Property management companies offer a wide range of services to help landlords effectively manage their rental properties. Some key services include:
Leasing/Renting Services
- Advertising vacancies, showing units, processing applications and signing leases. The property manager will market your rental, screen tenants, handle all paperwork and act as the point of contact.
Maintenance and Repairs
- Managing routine maintenance, preventative upkeep, responding to repair requests, overseeing contractors and handling emergencies. This takes the burden off landlords.
Tenant Screening
- Thoroughly vetting applicants by checking credit, income, references, rental history, criminal background and more. This helps avoid problem tenants.
Rent Collection
- Collecting rent on time, issuing receipts, enforcing late fees, following up with delinquent accounts and pursuing evictions if necessary. This ensures steady cash flow.
Costs and Fees
Partnering with a property management company requires paying fees for their services. The most common fee structure is a percentage of the rent collected, typically 8-12% of monthly rent. This covers their core services like rent collection, maintenance coordination, and tenant management.
In addition to the percentage fee, most companies also charge set-up fees and fees for optional services. The initial set-up fee can range from $200-500 to cover administrative costs when taking on a new property. Optional fees may include:
- Leasing fee to list vacancies and find new tenants (50-100% of one month’s rent)
- Lease renewal fee when re-signing existing tenants ( $50-200 per renewal)
- Maintenance markup (10-25% on repairs and maintenance costs)
- Advertising fee to market vacancies ($100-200 per ad campaign)
Property owners should discuss the full fee structure in depth when interviewing potential management companies. Understand exactly what is covered in the base percentage fee versus what extras incur additional fees. Some companies offer an all-inclusive fee structure with few or no add-ons. The overall fee level will depend on the services provided and local market rates.
Finding a Company
When looking for a property management company, there are several key factors to consider:
- Check with your local real estate association for recommendations. Most associations have lists of reputable property management companies in the area. This can be a good starting point.
- Look at online reviews and reputation. Search for companies online and read through reviews on sites like Yelp, Google, and Facebook. This will give you a sense of their customer service and responsiveness. Pay attention to how they respond to negative reviews.
- Consider years in business. More experienced companies are likely to have solid processes and systems in place. Newer companies can be more budget-friendly but may not offer the same level of service.
- Ask about the number of properties managed. Bigger is not necessarily better, but companies who manage hundreds or thousands of properties likely have the staff and expertise to handle day-to-day management efficiently.
When interviewing potential companies, get a list of references and speak to current clients about their experiences. Finding an established company with a good reputation can provide peace of mind.
Interviewing Companies
When evaluating property management companies, it’s important to interview multiple candidates and ask the right questions before making a decision. Here are some key things to discuss:
Services. What specific services does the company provide? Typical services include advertising vacancies, showing units, collecting rent, responding to tenant issues, overseeing repairs and maintenance, paying bills, and providing monthly accounting statements. Make sure the services match your needs.
Experience. How long have they been in business? How many properties do they currently manage? Do they specialize in a certain type of property? Look for an established company with extensive experience relevant to your property.
Fees. What fees does the company charge? Typical fees range from 5-15% of collected rents. Make sure you understand all fee structures and costs.
Tenant screening. What is the screening process for prospective tenants? Thorough screening is crucial to minimize risks.
Maintenance and repairs. How does the company handle any maintenance issues or repairs? Do they have their own staff or use subcontractors? Understanding their process will help ensure properties are well-maintained.
Communication. How often and through what methods will they communicate with you? Make sure you agree on how you’ll be updated on your property’s status.
References. Always request 2-3 references from current clients and speak to them. This helps determine if past clients have been satisfied working with the company.
Thoroughly interviewing several property management companies and checking references will help you make the best choice for your needs. The right company can take care of all aspects of your investment property so you can minimize stress.
The Contract
The contract you sign with a property management company is very important, as it lays out the terms, responsibilities, and liability for both parties. Here are some key things to look out for:
Typical Contract Terms and Length
- Contracts are typically 1-2 years in length. Make sure you’re comfortable with the length of commitment.
- The contract should clearly spell out services to be provided, like collecting rent, maintenance, accounting, etc.
- It should detail fees – how much and how they are calculated and paid.
Liability and Protections
- The contract should limit your liability as the owner, especially for injuries, damages, violations, etc.
- Require the company to carry insurance that covers their staff actions. Make sure policy limits are adequate.
- Require background checks on employees that access your property.
Cancellation Policy
- Understand cancellation terms, like required notice periods. Aim for 30-60 days.
- Make sure you can terminate for non-performance or breach of contract.
- The company may require a termination fee if you end the contract early.
Carefully reviewing the contract and negotiating needed changes is crucial before signing. Consult an attorney if you have concerns. The contract protects both you and the management company, so taking the time upfront is well worth it.
Ongoing Relationship
Once you’ve signed the contract, you’ll want to establish clear communication protocols with your property management company. How often and through what methods will you communicate? This ensures you stay updated on your property while not micromanaging the company.
For maintenance issues, clarify the process for assessment, approval, and resolution. Many companies have pre-set limits on repairs they can authorize without checking with you. You’ll want to find that balance between being informed and allowing the company to quickly handle problems.
Request regular reporting from the company, such as monthly statements, rental updates, maintenance logs, etc. The reports should provide the level of detail you need to oversee your investment. Some owners want very hands-on detail, while others prefer higher-level summaries.
The ongoing relationship requires trust and transparency from both parties. You’re handing over control, so you need reassurance things are being handled properly. At the same time, you don’t want to impede the company’s work with excessive oversight. Finding that equilibrium leads to a smooth partnership.
Pros and Cons
Benefits of using a property management company
- Hands-off investment: Property management companies handle all aspects of renting out and maintaining the property, from finding tenants to handling repairs. This allows the owner to have a more passive, hands-off investment.
- Expertise and efficiency: Companies have experience, systems, and contractors in place to advertise vacancies, screen tenants, collect rent, enforce leases, and oversee maintenance efficiently. This can be far less time-consuming than an owner attempting to self-manage properties.
- Consistent revenue: Companies work to minimize vacancies by quickly preparing and showing properties, advertising listings, and screening applicants thoroughly. This enables more consistent occupancy and cash flow.
- Legal compliance: Companies keep up-to-date on landlord-tenant laws and fair housing regulations to help avoid legal issues. Their systems protect the owner’s legal rights and compliance obligations.
- Tenant relations: With a neutral third party involved, there is clearer separation between owners and tenants. This can help avoid tense personal conflicts and maintain positive tenant relations.
- Access to data and records: Companies maintain detailed records on property performance, maintenance requests, tenant histories, etc. This provides valuable data and insights for current and future management.
Potential downsides to consider
- Loss of control: Owners forfeit direct control over tenant selection, maintenance schedules, etc. This requires trusting the management company.
- Management fees: Typically 8-12% of monthly rent. This cuts into profits versus self-managing.
- Limited customization: Companies have standardized processes that may provide less flexibility or customization for a specific property situation.
- Tenant turnover: Some companies prioritize filling vacancies over nurturing long-term tenants. This can lead to higher turnover.
- Deferred maintenance: To maximize profits, some companies defer maintenance and repairs. This can degrade properties over time.
- Lack of direct oversight: Without eyes on a property, problems can be missed until tenants complain. Close communication with the management company is essential.
Alternatives
Self-managing
One alternative to partnering with a property management company is to self-manage your rental properties. This can make sense if you only have a handful of properties, have the time and ability to handle maintenance and repairs yourself, and want to avoid management fees.
With self-management, you take on all responsibilities – marketing, tenant screening, collecting rent, handling maintenance requests, and dealing with emergencies. This requires being available most of the time and having the know-how to do minor repairs or oversee contractors for bigger projects.
The main advantage of self-managing is avoiding the monthly management fee, which can add up over time. However, you also miss out on the expertise and systems a professional management company provides. If you choose self-management, be sure you fully understand landlord-tenant laws and fair housing regulations.
Using an owner’s association
For multi-family properties or HOAs, using an owner’s association to handle some management responsibilities may be an alternative to a property management company. The owner’s association typically deals with common areas, building exteriors, amenities, insurance, budgeting, and rule enforcement.
This allows individual owners to handle their own unit without the full cost of professional management. However, the owner is still responsible for maintenance, repairs, tenant screening, leasing, rent collection and legal compliance for their unit. An owner’s association also has membership fees and doesn’t provide the full suite of services an experienced property management company can offer.
Conclusions
In summary, partnering with a property management company can be a wise decision for rental property owners who want to reduce their workload and risks. The key benefits are having an experienced company handle tenant screening, rent collection, maintenance, and legal compliance on your behalf. However, it’s critical to find an ethical, competent company that’s a good fit for your properties. Take time to research options, ask questions, check references, and review the contract thoroughly. The management fees, generally 8-12% of monthly rent, reduce your net income but can be well worth it for the time savings and peace of mind.
Overall, if you live far from your rental property or lack time for the many landlord duties, hiring a property manager makes sense. Just be sure to find one that meets your needs and expectations. With an excellent company overseeing operations, you can step back from the day-to-day work while still earning solid rental income. We are one of the top Home Buyers in Richmond, VA, so we can help.
Call Us Today at (804) 420-8515
