Both first-time investors and real estate industry veterans often struggle with a perennial question: When is it worthwhile to pay for the services of a professional property management company?
Property management firms offer large-scale and small-asset real estate investors alike a slew of valuable services. These services can make the process of generating passive income from real estate significantly easier. On the other hand, their fees can eat into your potential profits. There are other trade-offs to consider as well.
Making the decision to hire a property manager often comes down to a simple equation of time and money. If the cost of a property manager is less than the opportunity cost of managing properties yourself, it’s probably a good investment. It’s an equation every investor will have to solve for themselves.
Property management vs. asset management
Before we get into the pros and cons of hiring a property manager, it’s important to draw a distinction between property management and asset management.
Property managers simply handle the day-to-day tasks associated with leasing and managing a rental property. Asset managers use a more holistic approach to maximize the potential income a property can generate. Asset management is less common, particularly for small investors.
Property managers help investors minimize the amount of time they spend working on their investment properties. They draw from a rich background of industry expertise to provide tenants and property owners alike with a smoother, more professional renting experience. For many investors, it makes sense to contract with a property management company.
Whether or not it makes sense for you to work with a management company ultimately depends on your property and your own goals for your investment.
Here’s why you should hire a property manager
Thinking of hiring a property manager? There are a lot of positives to consider and plenty of opportunities to avoid headache. Here are just some of the benefits associated with hiring a professional to handle your investment property:
•Regulatory expertise: Property managers know the relevant local rules and guidelines associated with renting real estate in their respective markets. They’re responsible for ensuring your investment is up to regulatory snuff at all times. They can mitigate potential legal risks you may encounter managing the property on your own. This is a particularly valuable asset in strictly regulated, highly urban markets.
•Professional knowledge: In addition to regulatory knowledge, property managers also possess the business savvy necessary to maximize your property’s profitability. They know how to run your asset in a way that best serves your tenants and helps you generate the highest possible passive income. They will also help you market your property, which is one of the most essential steps to successful real estate investment.
•Improved flexibility: When you’re working with a trusted professional property management expert, you won’t have to worry about leaving town for the long weekend. Working with a professional frees you up to focus on your day-job, your family or your next big investment. One of the primary benefits of hiring a property management company is that they’re responsible for the day-to-day aspects of your rental property.
These positives make it well worthwhile for many real estate investors to delegate management of their rentals to someone else. Especially with more rent checks rolling in, paying for property management may just end up being the premium you pay for peace of mind.
Here are the drawbacks
There are, of course, several drawbacks also associated with professional property management teams. Here are just some of the adverse impacts that a professional property manager may have on your investment:
•High fees: One of the most significant drawbacks associated with property management companies is the high fees they charge. Typical real estate management companies charge the first months’ worth of rental income, in addition to 8 to 10 percent of each month following that. This can eat into your profits if your building was already performing well. It’s important to remember, however, that property managers can often boost your income generation.
•Bad communication: Another issue commonly associated with property management companies is the fact that you, the property owner, aren’t communicating directly with your tenants. While most property managers are adept at translating the needs of both tenants and real estate investors, it’s often far too easy for this communication to break down. If you prefer to be a hands-on real estate investor, or if you like personally screening and building relationships with your tenants, you might not delegate these duties to a property management firm.
•Difference in standards: Property management companies manage all types of real estate. As a result, their processes and expectations are built around common benchmarks. This can lead to a difference in standards between you and the company. For example, you might have a higher standard for screening tenants. Or, the management company may be too lax in the contractors they use for maintenance. Relinquishing control to a property management company can mean settling for different standards.
These drawbacks might be deal breakers for you. Or, they may just warrant more thorough vetting of the property management company you choose. Either way, they demand consideration before you sign any sort of management agreement for any of your properties.
It comes down to your preference as an investor
Ultimately, the decision to hire a property manager for your investment portfolio depends on your property’s positioning and your long-term objectives for your assets. If you believe professional property management is right for you, be sure to reach out to members of your local real estate investment community to learn more about the best companies operating in your area.
It may be tough to give up some of your monthly profits, but consider what you’re getting in return. If the expense is worth the flexibility and seasoned expertise, find a property manager you can trust. If you think you’re up to playing landlord, save those fees and put them back in your pocket as profit.