Good property management is key to maintaining the value of any investment property.
Having organized systems in place with standard procedures is absolutely necessary! This applies to any interactions with tenants, as well as property maintenance, accounting, and all other aspects of property management.
House Flipping Seminar: Property Management
Types of Property Managers
There are many types of property managers ranging from commercial property managers, to Homeowners Associations that manage condominium complexes or planned communities, to property managers that also offer investment opportunities and oversee rehabs, to property managers that manage single family residential rentals, and many more variations.
These companies’ management services may differ based on the types of properties they manage as well as the needs of the property owner. Some manage only the exterior of properties, such as for condominium complexes, while others manage multi-family buildings both inside and out, including handling the leasing process. Some are national or even international and some are local. Others may only manage smaller single family or duplex properties, and may not have any minimum number of properties required per owner. Since some of these property managers are huge while others are just run by a single person, there’s a huge variation of services and prices. While large property management companies are not affected by the loss of a key employee but may have greater fees or be less flexible, the service you receive from small companies might be greatly affected if a key employee leaves or goes on vacation.
Finding a good match between property management company and property owner is imperative for a successful and ongoing relationship. Making sure the needs of both sides match up regarding qualifications, knowledge of local markets, maintenance capabilities, sufficient training of employees, sufficient staff, and more, should be part of your evaluation process. The person who will be dealing directly with the property and tenants should be interviewed and evaluated.
Standard procedures and training are necessary for good property management, and often required by many states’ professional licensing boards.
If you are deciding whether or not you want to DIY or hire a property manager, here are some things to consider:
Do you have the time and skills to manage your properties, as well as all tenants, vendors, employees or contractors, bills, maintenance, marketing, and accounting?
Are you comfortable being accessible to tenants who encounter problems 24/7?
Are you well-versed in local and national Fair Housing laws?
A lot of people underestimate the time and effort involved.
Qualities of a Good Property Manager
- People Skills/Communication Skills
- Organization Skills and Detail Oriented Personality
- Research Skills
- Financial Planning and Budgeting Skills
- Properly Licensed and Trained
As a property manager, you will want to only accept properties to manage within your own special qualifications, and if you are not licensed, this would also limit you to only properties you own in most states (rules vary significantly by state so be sure to research your local laws). If you try to manage outside of your qualifications, it could cause you to lose your property, your business, or at the very least your reputation.
Focus on being great at the market you are targeting—if you specialize in single family homes and have no other employees, you may not want to take on a 500 unit apartment complex even though the money may tempt you. Do you have the capability to manage round the clock phone calls and maintenance requests, for example? Do you have the time to market, show, screen, and lease out that many units? After all that, do you still have time to do the financial statements and budget? Maybe you’ll want to hire help, but in order to avoid major liability issues you will want to make sure any employee you take on is well trained in Fair Housing Laws and qualified to do all aspects of their job properly.
The term “Tenant Cycle” refers to managing tenants from marketing to screening to maintenance to move out. But as mentioned, there are many more responsibilities that can be included in residential property management. Property managers may also be responsible for grounds and building maintenance, financial planning, and budgeting, managing contractors, and much more depending on the terms of the property management agreement. They also must manage the more mundane business related items such as insurance, business license and other license renewals and continuing education requirements, and potentially website maintenance, domain renewals, emails, and so forth.
Poor property management puts investments at risk.
Good property management is essential to maintaining the value of real estate investments, and without good property management there can be significant liability concerns, deteriorating real estate value, lower rental income due to vacancies or non-payment of rent, and greater legal costs with evictions and tenant issues.
Many people fear managing properties because of so many horror stories about bad tenants or lawsuits. These stories are true, but most all of the negative situations can be avoided with enough knowledge and good property management practices.
Property management is an important job that comes with a lot of responsibility. Your job as a property manager determines whether the property is a profit center or a liability, and if tenants’ are living in safe and comfortable conditions. Property management affects the property value, the property owner’s income and risk, and the tenants’ safety and daily life. It’s a big job that requires knowledge, organization, good communication and people skills, record keeping and many other skills that all come together in successful property management.
Property managers need to be able to handle many unexpected issues that arise from managing tenants and buildings. This could include anything from trees falling on roofs, or tenants causing a fire, or thousands of any other things you could not imagine until they happen. (We had one tenant complaining of ghosts in order to be let out of her lease and later learned she wanted to break her lease to move in with her boyfriend.)
So property managers must not only be able to handle stress at unexpected moments, but also be able to manage all different types of people including tenants, contractors, building owners, insurance agents, accountants and numerous others, and have relationships with contractors and professionals who can take care of the problems that arise.
Customer service skills are just as important as facilities maintenance skills or managing renovations and construction projects.
Property Management is a team effort with investors (and your vendors).
Property Management Tip:
Create a standard inspection report that you use for all tenants. When they move in they sign it, and when they move out they sign it. Take photos before move-in and after move-out, also. This helps eliminate disputes and missed items that may have been damaged by the tenant. The lease should include how large holes in walls can be from hanging pictures before the tenant must pay for repairs, for example. It will allow normal wear and tear, but your lease and documentation through an inspection report will distinguish normal wear and tear from damage.
Should you manage your own property or hire a property management company?
How do you know if you should hire a property manager or manage your own properties? One might thing it is related to how large the property you are dealing with, but truthfully there are many other factors. Do you live close to the property and can check on it regularly? Are you familiar with the local property management licensing requirements? Do you have the appropriate skills and contacts to manage tenants and maintenance issues? Do you have a full-time job? Do you want to reduce your risk and reduce your time involvement? A larger investment property does mean greater risk and therefore may require greater management attention, however even a small property may benefit from management.
Managing properties of any size can require a lot of time and effort as well as cause liability and require immediate emergency response times. Remember as a property manager or an investor managing your own property, real estate is not just an investment but also an ongoing business.
What goes into property management and how much time does it take? Many people do this in their spare time while they work other jobs.
Let’s make a list of some of the many tasks property managers are responsible for here:
- Marketing and showing the units to potential tenants
- Find and screen tenants
- Lease documents along with necessary other documents
- Security deposits (state law varies regarding holding security deposits in escrow accounts and may also require any interest made on security deposits be paid to the tenants)
- All communications with tenants
- Collecting rent
- Paying bills to keep the building operating
- Collecting late fees or filing evictions and following appropriate legal procedures for these situations
- Staying up to date and following carefully all local and federal Fair Housing Laws and implementing equal rules for all
- Maintaining the building
- Tenant’s maintenance requests
- Managing contractors and vendors
- Managing problems among tenants
- Overseeing capital improvements
- Managing issues with neighbors/neighboring properties
- Working with an attorney for your business structure and all legal issues
- Daily accounting and quarterly or annual tax prep
- Create monthly financial statements
- Manage property loans
- Marketing and advertising
- Snow removal and yard maintenance
- Dealing with any violations from the city such as long grass or dumping that happened on your property
- Managing move outs (cleaning and repairing, refunding security deposits, properly documenting any deductions)
- Managing the budget for regular expenses and upcoming maintenance, repairs, and replacements
- Inspecting work of contractors
- Responding to prospective tenants
- Dealing with complaints (both legitimate and not) and dealing with difficult people
- Property tax appeals if necessary
- Market research to keep on track with market rental pricing and concessions
- Raising rents and fees to market rate
- Universal policies and procedures for all tenants
If you are also the owner, you must have funds available out of pocket for all bills, repairs, or other operating expenses when funds are not available from the building operating accounts.
Another thing to consider, is that often without a property manager you don’t have the distance you needed to make non-emotional decisions or view tenants as they appear on paper. When you deal directly with your own tenants, you may make allowances based on emotions or tenants’ convincing stories of why rent is late or why their credit is bad. While compassion and understanding can build good relationships with tenants and reduce the number of tenant changeovers, sometimes this can also hurt your bottom line, and other times it could even be a violation of Fair Housing laws.
When you are deciding whether or not to manage your properties yourself, put a monetary value on your time.
Hard costs do not take into account the cost of your time driving to and from the property, or to and from hardware stores, and your time working on the property or managing others who are working on the property. Figure out how many hours you are working on the property in any capacity, and figure out how much that time is costing you.
This is the momentary value of your time, but there may also be other costs such as not spending time with your family when you are taking care of the property and running over to deal with emergencies.
Good property managers are also important when you want or need to sell your properties.
Without good property management, you may not even be able to sell an investment property if you want to unload it. In order to sell it, you may need to show income statements and positive cash flow. If your operating expenses show a loss, it will be a lot harder to sell the property. If you have tenants with leases that are causing problems, this may also present a problem for selling the property. So property management is so important no matter what you plan to do with your property!
Even if you do decide to manage your own properties, don’t skip the reporting. Financial statements are imperative for knowing how well a property is managed, because they will tell you if rents are priced properly and if the property manager is doing their job well, whether the property manager is you or an external manager.
Whatever you decide, be sure to get everything in writing!
Any agreements from owners, property managers, contractors, tenants, vendors, or any professionals should be in writing.
Keep in mind that well established property managers have relationships with local vendors that may provide faster and more reliable service, and possibly better pricing for repairs. However, some property management companies may mark up their vendors to make extra money, so evaluate if you will want to compare pricing and ask them to use vendors of your choice who bill you directly. This decision also depends on how much time you have to devote to any aspect of managing your property and your budget. Many new and small landlords have tight budgets and expect to benefit more from property appreciation than monthly income, so every situation requires a specific solution that’s right for each property owner. That being said, hiring an affordable and professional property management company can also offer significant time and money savings in the right circumstances, as well as helping to reduce risk.
Since poor maintenance and management can cost you in terms of both property value, lost or lower rental income, and liability risk, be sure you are not losing money by trying to save a little bit. As the saying goes, “don’t pinch pennies while losing dollars.” Likewise, you don’t want to put your entire investment at risk from liability by saving money on a qualified and professional property management company.
Large, medium or small—a well-managed investment property will be a prosperous asset for both owner and management company.