As military families, we always are thinking ahead a few years and if you are a homeowner there is no doubt you have considered what you were going to do with your home when it was time to move. If you have considered renting your home out, you may have considered a property manager. Do you need one? Here’s a quick breakdown of the pros and cons of hiring a property management company.
The Pros and Cons of Hiring a Property Management Company
9 Benefits of Hiring a Property Management Company
A good PM will provide you with a ton of resources, protect your home, and make sure you have a steady stream of income from that property. If you’re new to the landlord-ing game, it may be a good choice to hire a professional. They can make the whole process easier for you. Here are a few more reasons you may want to hire a property management company.
Leases reviewed by local attorneys: Laws vary by state, and it’s imperative that you abide by those laws or a savvy tenant can take huge advantage of you. Where do you put the security deposit? How can you collect rent? What are the timelines for eviction, repairs, or notifying the tenant that you will be entering the property? These are all things a good property management company should know and take care of for you. But you should still be aware regardless.
Tenant screening services: You will need to have a process for applications, credit checks, and calling of references. A property management company will do this for you and is used to hearing people’s stories. Because of that, they can immediately disqualify applicants that don’t fit their requirements.
Eyes on the property: If you aren’t physically near the property, it may be difficult for you to keep an eye on it. A property management company will, do checks at regular intervals (quarterly or every six months) to make sure it’s still standing and it’s in relatively good upkeep.
Money collection services: Tenants send money to the property manager and the property manager takes their fee and sends the rest to you. This keeps a good paper trail and keeps your accounts separate.
Eviction protection (in some cases): SOME property management companies will offer an “evection guarantee”. In the event the tenant needs to be evicted, they might place a new one without charge. Not all PMs do this, but it’s a bonus.
Handyman and repair services (that you pay for): A property management company has connections with numerous service providers so you won’t need to search for your own if you don’t want to do so.
Marketing services for new tenants: It’s easy for tenants to look at a single website to view rentals, so your property management company has an instant audience for your property. A good one will also market your property on all sorts of sites.
A middle man to communicate with the tenant on your behalf: If you don’t like confrontation or you just don’t want to deal with a whiney tenant, a property management company may be a great choice. They will field all the annoying calls about light switches that don’t turn on lights and other tenants caused issues not requiring repair. You also won’t have to deal with tenants who draft their own legal documents in order to intimidate you, argue with you about normal wear and tear, or are looking for a way to take advantage of the situation.
Peace of mind in knowing someone is looking out for your investment: Whether you’re overseas, in a different state, or just down the road, you still have a busy life to live and might not want to add managing another property. A good property management company will be that person for you.
11 Downsides of Hiring a Property Management Company
There really are a lot of up sides to having a good property management company, but therein lies the catch. Many of them are NOT good. The horror stories are numerous. Some will do the minimum amount of work, and some can get overwhelmed when numerous properties need something all at once. Not only is this frustrating for you, but it’s also frustrating for the tenant. It’s easy for a tenant to then start to care a little bit less about your home if you’re making their lives difficult. Here are some downsides to consider before hiring a PM.
Hiring a PM is not a “set-it-and-forget-it” situation. Many people have to manage a property management company just like they would a tenant. Laws, payments, property checks, repairs. You need to keep an eye on all of these things. If your a/c goes out in the summer and the property management company doesn’t address it in the appropriate timeline, you can be out rent, end up paying for a hotel or additional a/c unit, or just stuck with an unhappy tenant who will now be a huge pain at best and care very little about your property at worst.
Your standards may not be their standards. “Excellent condition” is a completely subjective term. To you, that might mean clean floors, well-groomed lawn and garden, no clutter and zero damage. To a property management company (who has seen the best and absolute worst home upkeep), “excellent condition” might simply mean functional. Sure the fridge is an absolute mess with dents in the door, but it still keeps the food cold right? Good enough. That door has a hole in the back? Well, it still closes, right? At least it’s better than the house that needed $20k of repairs after that last tenant! Set expectations before you sign a contract with your property management company if you choose to go that route.
You may not have control over the lease language. Most property management companies have a set lease that everyone signs. They may not be willing to alter that for you.
Your contract with the property management company is often not negotiable. What if you aren’t happy with their work? You may not be able to fire them without paying a fee. What if the current tenant wants to buy the property? You will likely have to pay the property management company a fee if they placed that tenant.
Monthly fees. You will be paying 10%-%20 per month for your property manager to have your property on their books. If nothing happens and the tenant doesn’t need anything, you’re paying for that PM to collect a check and send you the remainder. You will also pay upwards of 40%-50% for the first month of every new tenant. This pays for their finding and screening of tenants. If your mortgage is close to the amount of rent, you may end up losing money every month by hiring a PM.
You only get to screen tenants based on numbers. Because you don’t get to meet the tenants in person or talk to them on the phone, you don’t really have a chance to gut check. The best tenants we’ve had have all been people with whom we were comfortable even if their credit wasn’t great. They were people who seemed to jive with our energy if you will. Of course, that can backfire if the numbers don’t match, but the point is you don’t get that chance with a property management company.
There is often a set amount up to which the property management company is allowed to authorize a repair. If the blinds dry rot and need to be replaced, the PM can have the handyman come out for $95 and replace it without asking you. This amount is usually per incidence, so a picky tenant could potentially nickel and dime you to death if the property management company isn’t evaluating each issue to see if the tenant caused it.
You are paying for repairs and for someone to coordinate them. Many property management companies will add an additional coordination fee for scheduling a repair at your property even if it’s just a phone call. You can just as easily call someone, get your own quotes, pay, and have the service provider call the tenant for scheduling. Are three phone calls worth $50 to you? Maybe yes, maybe no.
Untended repairs will add up with multiple tenants. As a follow on to the above, every little issue for which your property management company chooses not to charge the exiting tenant will add up for you over time. When it’s time to sell the house, you will have to foot the bill for every one of these little issues. You can’t charge a tenant for normal wear and tear, but you should charge them to repair the damage they caused to your property.
A middle man causes potentially huge delays in communication. If your home has a non-emergency issue and they cannot get ahold of the property management company, what happens? When you’re managing the property on your own, the tenant calls or texts you directly, you call the repair person, and the issue is corrected. Add in a property management company and no action can be taken until they can get ahold of you and you approve their actions. This is frustrating for both the tenant and the landlord.
You are not immune to eviction. Landlords with property management companies still have to evict tenants from time to time. Stuff happens in people’s lives and neither you nor any property management company can guarantee it won’t happen to your tenant. If that happens, your property management company will likely only take certain actions. The rest will be up to you.
The decision is really up to you and depends largely on the amount of effort you’d like to put into managing your rental. There are people who self-manage from Japan and people who use a property management company when they move across town. It’s somewhat a question of emotional convenience vs monetary convenience. The bottom line for many who choose self-manage is that you are spending hundreds of dollars every month for the convenience of having someone else collect the check. You still have to pay for everything and make all the decisions. Ultimately, a bad property management company can be as damaging as a bad tenant, but a great one can really save your investment and give you peace of mind. If you decide to go with one, be sure to screen your property management company like you would a new tenant and be sure to know that contract front to back.
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