Updated: February 22, 2022, 5:35 p.m.
As your real estate business grows, you may need an extra helping hand to manage the long list of tasks that come with being a landlord. You can hire an on-site property manager for yourself or possibly have a tenant oversee the management of the property, but both can have complications. Hiring a third-party property management company can reduce your overhead and will generally be a stress-free approach to passive income from your investment, but it comes at a cost. Read on to find out exactly what property management can offer the real estate investor and what to expect if you decide to use property management.
What is property management?
Property management is used for any type of rental property, including residential rentals or commercial real estate. The management company helps manage the day-to-day operations of the rental property or property portfolio on behalf of the landlord. The manager oversees rental operations as well as the maintenance of the property and coordinates the buying and selling of a property with a real estate agent.
A professional property manager will manage all aspects of their clients’ properties, from screening potential tenants to collecting rent. They handle all tenant maintenance requests and will engage the appropriate service to repair any issues. A property management company will even handle evictions and filing of all paperwork associated with it or other government programs. Think of property management as a one-stop-shop for all of your landlord’s needs.
When to use a management company?
An investor who works full-time in their real estate business and is comfortable with day-to-day management of multiple rental properties may enjoy interacting with tenants. For them, a property management company may not be attractive, even if they can afford the costs.
On the other hand, an owner who still has another job may not have time, even if he has interest. There may also be a real estate professional who simply prefers to offload the constant loss on time to someone else and views his property strictly as a passive investment.
A few additional situations may indicate that using property management services would be beneficial:
- You have too many properties to manage yourself properly.
- You don’t want to hire employees for your real estate business.
- The investment property is not close enough for you to physically visit.
- You can easily pay the fees without significantly affecting your cash flow.
- Your rental property is part of a government-subsidized program, such as Section 8.
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What to expect
The cost of property management will vary depending on the location and the number of units you own, but you can expect to pay the property manager between 5% and 10% of the rent collected from your properties. In general, the more units you have, the less they will charge you. But regardless, depending on the market and how you’re sitting on the trade, 5-10% can take a good chunk out of your profit.
Finding a quality property management company is key. If you’ve decided to spend the money, be sure to hire a qualified property management company. If you are part of an investment network, ask around for recommendations, do a little research online to cross-check reviews, and ask your real estate broker or agent if they offer property management services or if they has a management company to recommend. . You’ll also want to interview several of them to make sure they’re a good fit with your business model and get any questions you’ve answered before making your final decision.
The bottom line
As a real estate investor, it’s important to balance your time and cash. If your business model includes rental properties, you will likely need to consider property management at some point. Property management can take a heavy load off your hands, but it’s not cheap, so analyze the numbers to decide if your time is worth it. It might not make sense right away, but as your real estate business grows, you might want to reconsider asset management along the way, as fees come down with an increasing number of units. .