Are Property Management Companies Worth the Costs of Passive Income?

Property Management Companies

Most of the buyers I deal with are people looking for houses for their growing families or people looking for places of their own. but every now and then, I get a few people looking to buy properties as a form of income. A lot of them are people who want to retire early or people with a lot of saved money and plan to own residential or commercial properties, fix it up and rent it out, and then reap the profits for years to come.

But when I try to make conversation and ask them about their plan for operations, a lot of them seem dangerously clueless about what it means to be a landlord. I think what a lot of them assumed was that they only needed money to buy property and make renovations and all they had to do was put an ad out and wait for someone to fork over money every month until their contract expires. That’s only part of what it means to be a property owner, and even something as screening your tenants and handling eviction notices are easier said than done.

In these cases, I try not to dissuade them from the idea of becoming property owners. Instead, I offer a simple solution: hire property management companies to do all the work a landlord should be doing. It comes at a price, but when you’re about to go into a business with no experience and little to no knowledge on the details, it may be worth hiring a company to do the work for you.

Woes of a Landlord

Anyone who’s been a landlord will tell you that it’s not always about raking in the money from rented out properties. On top of getting your properties in good shape, you’ll have to thoroughly screen tenants and make sure they’re willing to pay and are unlikely to trash your house and cost you more than the deposit. Sometimes, it’s so hard to find the perfect tenant that some landlords are willing to risk taking any tenant just to fill up an empty property.

apartmentTake my cousin Emma, for example. She and her husband owned an apartment in a low rise in a prime location in Orlando and, with both of them living in Miami, decided to rent out the place. They had legal help from a lawyer friend and considered themselves lucky to have found their tenant, your typical high-achiever, organized, fresh graduate, type A kind of girl with a steady corporate job. They thought everything was settled and they wouldn’t have a problem.

Months into the contract, however, they found that their tenant always had something to complain about. The building came with an in-house handyman who could be called upon for the basic repairs (and the charge would go to my cousin and her husband, of course), but their tenant was always demanding they drive four hours north and supervise the handyman – who they, not she, should call – for a simple leak that could be fixed with a few turns of a wrench. From what my cousin told me, she was so high maintenance and even once argued she shouldn’t have to pay all the HOA fees because one of the light bulbs along the hallway outside her apartment was busted and hadn’t been replaced for a week.

My point is, part of being a landlord means dealing with people like this. Once in a while, you will be blessed with the perfect tenant: quiet, doesn’t disturb neighbors, pays their rent and bills on time, and only calls to complain when absolutely necessary. But don’t always expect that your tenant will be like this; some of them can be a nightmare, and some even difficult to evict. To be an effective landlord, you’ll need to be assertive and persistent when necessary.

If you are the type who easily breaks or bends, being a landlord can be a challenge if you’re dealing with stubborn people who miss deadlines or takes out the frustration of a leaky roof on you during your phone calls. Or, if you want to avoid all the work altogether, there’s always the option of hiring a property management company.

Property Management: How It Works

Property ManagementProperty Management Companies have a team ready to handle all the responsibilities of being a landlord, from creating the rent rates, to finding tenants, to moving out or evicting tenants. To put it simply: you own the property, they manage it and make it a profitable rental home. They’ll be the ones to put out advertisements and the rental rates in prices that you can profit from. Next, they find and screen tenants, choosing the one that is most likely going to create the least amount of fuss while always being on time with the rent.

From there, they handle all the legal matters and getting the tenant to move in. They handle all the complaints, emergency services, maintenance, and repairs the tenants ask for. They can also handle all the property taxes incurred through owning property and managing the employees involved with the property. Once the contract ends, the property management company will handle the tenant’s moving out. And if necessary, they can deal with eviction notices for unruly tenants.

Advantages and Disadvantages

It’s a convenient service for property owners who have the money and property to rent out their property, but don’t want to be bothered with this long list of tasks. Some property owners don’t have the skills or time to do all these, but a property management company has all the people equipped to get the job done.

property management company The advantages are plenty. First, if you live far away from the rental property, handling open houses and tenant complaints won’t be a problem. Second, if you’re looking at this as a real estate investor, chances are, you have a portfolio of other businesses and properties to attend to. Having to deal with a tenant means less time to focus on your other properties and investments. Third, if you lack the skills or your just downright don’t want to be bothered with all the technical duties of a landlord, it helps to simply pay a team of professionals to do the work for you.

The disadvantage here, though, is that property management companies won’t focus on your property or properties exclusively. If you’re only renting out one home, this might worry you because your property management company will treat your home like any other of their clients’ homes. If you don’t trust your property management company to be maximizing profits, this could worry you. However, if you have many properties and are finding it harder to deal with a growing number of companies, you should be willing to let someone else manage your properties if you still want time for yourself and your other investments.

How Much Does a Property Management Company Cost?

It would depend on which company you chose to manage your properties. Try looking for property management companies in your state (though, if you have properties in various states, it would be better if they serviced properties nationwide) and look through their reviews, rates, and offerings. Some property management companies don’t provide all services for much less, while others can give you hands-free property management for the best price.

Usually, property management companies take a percentage of the gross rent. This is called a management fee, and it comes on a monthly, weekly, or yearly basis, depending on the contract stipulations. However, be sure to read up on other fees, such as tenant placement fees and lease renewal fees.

Tips for Finding an Effective Property Management Company

property management company Not all property management companies are alike. Finding the best one would really depend on what kind of management you’re looking for, so the safest tip is just to do your research. Also, be careful of the hidden fees. Your property management company may charge high lease renewal fees, but only create 6-month contracts with tenants so that leasing and new tenants come more often.

As much as possible, you want property management companies that offer fewer tenant turnovers. A good and profitable time frame would be about two to three-year lease contracts. Since you won’t be handling the rent collection, you would want someone that lives in your property for a long time so that you can compensate the costs of hiring a property management company.

 

Is It Worth It?

If you have zero experience but have the money and resources to get properties you can rent out, property management is your convenient option. For a small cut off the rent and other miscellaneous fees, you get a team of professionals working for you, handling everything. For me, the price to pay for it is worth it. It’s passive income, giving you more time to focus on the rest of your portfolio while your property management company becomes the landlord your tenants need.

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