The Benefits of Hiring a Property Management Company

If you’re a part-time landlord managing your own rental property, you either already know (or will soon discover) just how easy it is to get blindsided by the unpleasant aspects of property management.  The archetypal example is a late night call from a frantic tenant who’s toilet is spewing sewage like an active volcano.  But surprises come in other forms too.  For example, there’s always the tenant who calls with a long-winded sob story conveniently ending with a desperate plea for some type of rent abatement.  How do you muster the courage to say “no”?  Won’t this destroy your amicable relations?

Well, here’s the solution: Get a management company.  Insert some distance between yourself and the tenant.  Property managers are built to tackle the dreary aspects of real estate leasing and administration.  They don’t work for free, but landlords generally consider it money well spent.  It’s basically like paying someone else to have your headaches.  Among other things, property management firms have ready access to contractors, familiarity with local law, experience with the tenant application process, and financial reporting software.  Better yet, a property manager shields the landlord from the client, making it wonderfully easy to refuse a request for rent relief.  The landlord simply says “no,” and the management company reports back with the stock “sorry-there’s-nothing-we-can-do” response.  After all, the property manager is getting paid to be the bad guy.

The functions performed by a property manager typically include:

• Advertising the apartment and showing it to prospective renters.
• Managing the tenant application process.
• Overseeing security deposit escrows and ensuring compliance with local law.
• Collecting and accounting for rent, including the assessment of late fees.
• Addressing routine maintenance problems.
• Periodically inspecting the property, including at the termination of the tenancy.
• Cleaning and re-keying property at the conclusion of the lease.
• Bookkeeping.
• Special projects.

The cost of hiring a property manager is typically a percentage of the monthly rent, plus various and sundry fees for incidental services, such as a “leasing fee,” which covers the effort and expense associated with marketing the apartment to prospective new tenants.  There may also be a vacancy fee (in case the apartment is not generating any income), or even an initiation fee.  Typically, the base fee ranges from five to ten percent of the monthly revenue (and the cost is tax deductible.)  Tying the property management fee to a percentage of the rent is an effective means of incenting the property manager to keep the property occupied with high-quality tenants.

Landlords should be aware, however, that there can often be conflicts of interest with the property manager.  For example, and this is rare, the property management firm may be getting kickbacks from third-party vendors, ranging from subcontractors to insurance brokers, in return for job referrals.  On the other hand, a property management firm may be able to deliver savings to clients based on its own bulk retention of these same types of third-party vendors.  In addition, property management firms are situated to earn additional fees through “special projects,” as, for example, by managing the replacement of a roof.  In these instances, the landlord needs to ensure that the price fairly reflects the value and that any billed time has been accurately recorded.

Landlords who live far away from the apartment they’re renting, travel with regularity, own multiple properties, or simply lack sufficient free time are all ideal candidates for property management assistance.  So if you’re a landlord, and you’re considering the retention of a property manager, be sure to ask some or all of the following questions when interviewing potential candidates:

• Where is your office?  (If possible, physically inspect it.  Some landlords get antsy and nervous when they walk into a dusty office with paper stacked everywhere and no semblance of organization.)
• What other properties do you manage?  (Ask for addresses and references.)
• How many employees are assigned to these properties?  (Be certain that your apartment will receive sufficient attention.)
• Who will be assigned to manage my property?  (There’s no harm meeting the person you’ll soon be spending considerable time with.)
• How responsive will you be?  Can you be reached 24/7/365?
• What is your proposed fee structure?  What functions are included within the fee and what functions entail additional expense?
• Do you have any office manuals that set forth standard policies and procedures pertinent to property management issues, including relevant local law.
• How are the employees of the property management firm trained?  Do they have prior hands-on real estate experience, or were they hired fresh out of school three weeks ago?
• What types of relationships do you have with vendors?  Do you have preferred contractors?  If so, in what areas?  Do you have any financial arrangement or understanding with any such contractors that is not disclosed to your clients?
• What financial reporting or bookkeeping software tools do you use?
• Do you have a calendaring system in place to ensure the payment of all scheduled rent, the timely renewal of insurance coverage, and other time-sensitive matters?