In todays modern age there are an abundance of services that are available to us. We have Netflix for movies, Spotify for music, we can call Uber Eats to deliver us food, and can order pretty much anything we want with an Amazon Prime subscription. Get it with next day delivery too! So what does a property management service provide? In this blog article I will go over what a property management service entails, why all property management services are not the same, and if it is even worth hiring a property manager.
A property management company basically does five things for you as part of their service.
- Property Marketing
- Lease Preparation & Execution
- Lease Enforcement
- Property Maintenance
- Financial Reporting
Now let's go into detail about each of these items.
When you first decide to rent your property you need to find a renter. This is done by marketing your property to prospective renters through various listing sites and databases. Some of these sites are available to the public and some are not. Once a tenant shows interest in your rental you will show them the property and if they like it, you will start the application process. The rental application is the start of the screening process and a good property management company will have a thorough tenant screening process. This screening process includes credit checks, employment history, past rental history, among other things to make sure the tenant is a good fit for the property.
Seems pretty simple, right?
Well, it's not as simple as it sounds. It may take several tenant applications before you find a tenant that is right for you. Getting the right tenant for your property is probably the most important part of the property management process. A bad tenant can lead to a ton of problems down the road. A good property manger will evaluate each potential tenant for your property and choose the right tenant for you.
Lease Preparation & Execution
After you find a tenant for your property and you have approved them through the application process the next thing that needs to be done is to sign a lease. The property management company will prepare the lease. The lease will outline the terms of your rental agreement and will include the appropriate disclosures. Common lease terms include the rental amount, deposit amount, utility responsibilities, and other items that govern the terms of the lease.
The tenant disclosures are also included with the lease. Disclosures are a very important part of the lease and shouldn’t be overlooked. Property management companies should be up to date on all the latest disclosure requirements. Especially, due to many recent tenant right’s laws that have gone into effect. Again, this is where a good property management company comes in and will advise you on getting all the correct disclosures for your property.
As stated above, the lease agreement will outline the terms with your tenant.
Now you need to enforce your lease terms.
Lease enforcement gives the property manager full management and control of your property. This is an important part of the process because it gives you the right to collect the deposit, collect the rent, and it outlines tenant and owner responsibilities. It also gives you the right to enforce lease violations. Some common lease violations are:
- Noise Violations
- Long Term Guests
- Unauthorized Pets
- Unauthorized Renovations
It also gives you the right to early termination of the lease or even to evict the tenant if certain lease terms are violated. A property manager comes in handy when things go south. You can choose the best tenant in the world, but sometimes events happen that are out of anyones control. Such as losing a job. This is another reason why an experienced property management company is key.
The property management company will be in charge of maintaining your property. As a tenant request repairs or maintenance, the property manager’s job is to coordinate with vendors to fix these problems. Some of these problems may be minor, such a clogged drain and some may be major like a busted water pipe. I have never seen a rental that hasn’t had at least one repair request during any given year.
It is very important that the property management company make these repairs in a timely manner because this ensures your property is well maintained and also will make your tenants happy. If you have good tenants they will expect to have these repairs done in a timely manner.
More importantly this will show them that they are in a well managed property and will encourage them to renew their lease in the future.
And you want to keep your good tenants.
Owning a rental is a business and an important part of any business is financial reporting. There are a lot of reports available to landlords, but the two main financial reports are the profit and loss statement and the balance sheet. The profit and loss statement will show all the income and expenses for the year. The balance sheet shows all the assets, liabilities, and equity of your rental.
Not only will this let you see if your investment is profitable, but you will pass these reports onto your tax advisor at the end of the year to do your taxes. Property management companies should provide financial reports to you as part of their service.
Are all property management companies the same?
When looking to hire a property management company you need to look at the fees the company charges compared to the services you get. Some companies have lower fees, but offer less services, and some have higher fees and offer more services. The key is to find a company that offers the services you want at an appropriate price. A property management company should provide at a minimum all of the services listed above.
Another way a property management company will differentiate itself is the efficiency that they conduct their business. One good example of this is some property management companies will have online support for both owners and tenants. Online support is great! Tenants can make repair requests and even pay rent, while owners can access financial reports and request cash disbursements. All online!
Communication is also a key differentiator. An example of this is how property managers communicate with tenants. Some property management companies will respond late for repairs. This leads to a poorly maintained property and an unhappy tenant and an unhappy tenant will most likely leave at their end of the lease.
It is costly to get a new tenant so you want to keep your tenants as long as possible, especially if they are a good tenant.
So take a look at all these factors and choose the right company that fits your needs.
So is it worth hiring a property management company?
When asking yourself this question what you should be thinking about is how you value your time. Being a landlord and doing it right is a full time business. If you have the time for it and think you can do it go for it, but for most people this is not the case. Most people have little time to allocate to managing a property and would rather be doing other things with their time. Also, there is a lot involved in managing a property such as drafting a lease, enforcing the lease, and keeping up to date on tenant and landlord laws. This is why most of the time I would say it is better to hire a good property management company to run your real estate investments.
You will have less stress and can be happy that your investment will grow!