property management for the average home owner
Today’s property management is becoming less of an investors market and more of the distressed homeowner looking at a job transfer, military or civilian, who is now trying to walk their way through an unfamiliar path without hitting too many financial pitfalls along the way.
For most home owners, the purchase of a home is the largest investment they will ever make. With that in mind it isn’t hard to imagine why there is some hesitation when it comes to renting that very same home. How do you find a renter? How do you know if they will care for the home? How do you know if they will pay the rent? What do you do if they don’t? What if they trash your home? These questions are the same for every person taking their first step into the world of property management, because whether you are hiring a professional property management company or have decided to manage your real estate investment, you’re now into property management.
The main questions you need to ask yourself before deciding whether to hire a property management company is:
Do I have the time to, advertise my home for rent, show my home however many times it will take to get it rented out, prequalify my tenant through a tenant application process, sign a lease and then be on hand and ready for the inevitable 3 AM phone call because the water heater stopped running (he works the swing shift at the sewer plant and needs a shower now). If the answer to all of these is, Yes I have time for a second part time, sometimes full time job as a property manager, then you have two options: go and get another part time job that would probably pay better or jump in and get to work. Keep in mind that the amount of work that you put into your rental property both through advertising, showings, applications and tenant relations will pay dividends in the long term.
For example; if you put up a few ads, answer calls and return them within a day or two, do a gut check for an application instead of looking at credit, criminal backgrounds and previous landlord references. Then you are going to run into a few different results, first your home will sit vacant for a very long time, and second you will probably end up renting your home to the only person persistent enough to get through the process with you, who will inevitably end up being the worst tenant on earth whom you will be evicting within a 3 month time period. This is where most property management horror stories come from. If this process is done correctly renting your home out can be a harmless and profitable venture for anyone.
If you decide to hire a professional property management company there are a few things that you will want to keep in mind before selecting one. Property management companies vary in size, expertise, fee structure, etc. You want to be sure you know what you are getting into before you make an educated decision on which property manager will be the best fit for your needs.
Size is important, is this operation being run by a real estate agent who is doing this on the side, out of their garage and from their cell phone? Or do they have an actual physical address with an office and a staff of secretaries, maintenance employees, etc? If the it is closer to the first option you may want to proceed with caution, will your property manager be available for that middle of the night phone call or your phone call whenever for that matter. The major concern expressed by home owners and investors alike when if comes to property management is being able to get in contact with their property manager. There is nothing quite like having a $300,000 dollar investment being managed by someone that will not return a phone call or an email. Finding out if the company has a full staff that is available to take calls and get back to you quickly and informatively should be one of your first questions.
Expertise is worth finding out about before you enter into a contract with a company. Do they manage properties similar to yours, how long have they been in business (property management companies can come and go, you donít want to be thousands of miles away finding out through an email or a registered letter that the property manager you have been dealing with is no longer in business.). There is nothing wrong with a company branching out and moving into new areas of expertise, you just donít want to be on the front end of that. A property management company that has a track record is at least as good as that record, companies that have only been around for five years donít have anything to look at, they may be a great company but this is a lot like renting to a tenant with no credit score.
Finally fee structures, most home owners and investors focus on this aspect which is understandable because it includes the numbers you can look at before youíve signed up to try and determine what your return on your investment will be. The typical aspects of the property management fee structure are; the property management fee, the advertising costs, vacancy fees, tenant leasing fees, tenant administration fees and the rental property setup fee. Every company is different and these can all add up to a number that is far greater than what you thought you were getting into. With most property management fees you will want to ask specifically about each of these fees to determine what your actual cost will be. As an example one property management company may charge a 10% management fee and not charge many of the other fees while another company may charge an 8% management fee but also charge a tenant leasing fee. The 8% looks enticing but when you add the tenant leasing fee in which is typically a 25% to 50% fee of the first months rent, if the tenant moved out after 1 year you would have paid a 10%-12% management fee, if you add in a few more of these fees, advertising, vacancy, a setup fee all of the sudden you are looking at paying closer to a 15% management fee. There is no right or wrong property management fee structure, as long as you know what you are getting into from the start.
Property management is and always will be an important part of the real estate market, learning how to make it work best for you can increase the profitability of your real estate portfolio, whether that is one home that you would love to sell if you could or 300 doors on an apartment complex.