One of the biggest advantages of having a property manager is that they don’t just take care of all the actual administration for you: tenant screening, completion of proper paperwork, inspections, etc. – but they also do much of the bookkeeping. From most of my property managers, I would get a monthly statement detailing gross income, expenses incurred, their commission, and the net amount transferred to my bank account. This makes accounting very easy.
Property managers typically charge 4-15% of rental income to manage their properties. Typically, the larger their portfolio, the lower the commission rate they will accept.
Another advantage of using property managers is that the less pleasant work of evictions, notices of rent increases, and notices that require tenants to fix deficiencies to keep the property clean and tidy, no longer need to be managed by you. personally.
So how do you choose a property manager?
Just like with selecting a property to buy, or selecting a real estate agent to work with, or selecting a merchant to work on your properties, it’s somewhat of a numbers game. Go with recommendations from friends or other owners, interview prospective managers, ask how they’ve handled particular issues in the past, and then give them a try. You can always change them later if you don’t agree. However, it may not always be as easy to change agents, especially if you have purchased the property with the tenants in it.
Let me tell you about an experience I had with an agent in the UK. I bought a property with tenants and, by extension, took care of the agent who had originally rented it to them. Since it was my first investment property, I didn’t want an agent to manage the property for me, I wanted to manage it myself. But it wasn’t that easy. The agent kept his security deposit because he had found the tenants and even though it was my property, he demanded that they pay him the rent and then on top of that, he withheld that rent and did not pay it to me. He had no legal recourse unless he evicted the tenants, which I eventually had to do. It was all very friendly as the tenants knew what was going on. They spent a night out of the house to probate it, then I served the court eviction notice with the agent and he was forced to return my security deposit and pay me what he owed me in rent. After that, my tenants came back to me, we signed a new lease, and I managed the property myself. But as a word of caution, it doesn’t always work that way when there’s an amicable eviction and another management agent’s property is seized.
Just because you use a management company to take care of one or multiple properties, it should not be a foregone conclusion that you always use the same company for any subsequent property you acquire in the same area. In fact, involving two competing companies can be healthy, as they will each try to do well in order to win more business. This ties back to my earlier program on builder selection. Always get three quotes for any job and don’t settle for just one builder all the time. The same applies to agents.
You can lose your tenants and your rent very quickly if your property manager does not respond quickly to repairs or tenant complaints. Let me tell you about a situation I had when I first got into the property investment business in the UK. Some tenants moved into one of my properties and signed a lease and paid a month’s rent in advance, as well as a security deposit. I had turned over the management of that property to an agent with the understanding that my tenants would call them with any issues that arose and would act on my behalf immediately upon learning of any issues that needed to be resolved.
What happened next with these tenants was a nightmare. Unbeknownst to me, the ceiling started leaking in the master bedroom from day one. During the night, if it rained, they had to bring out buckets to collect the water that entered through the roof. They called the management company the next morning and were told a roofer would be there to fix the problem. This went on for three weeks and each time the leaks got worse. The management company kept promising to send the roofer.
At the end of the three weeks, my tenant’s father, who was a lawyer, sent me a letter threatening to sue if I didn’t return the tenants their security deposit, but also the first month’s rent and another month’s rent to make up. for all the emotional discomfort that it had caused them and the physical inconvenience of living in those conditions, as well as for all the time they wasted at their jobs looking for another place to live. The upshot of the story is that the management company never sent the roofer, never let me know, and behaved totally irresponsibly. In the end, I lost my tenants, I lost money, and the management company lost me as a client.
Of course, none of this would have happened in New Zealand because the law protects both the landlord and the tenant. However, if you are looking to invest in other countries, make sure you are aware of the laws in force regarding all aspects of real estate investing.
To sum up:
On the plus side, agents can save you:
paperwork
having to deal with courts and eviction notices
issues such as informing tenants of rent increases and complaints against them
On the negative side, they can be:
lazy or irresponsible or negligent
Slow to get the right fixers quickly
Negligence in informing you when there are serious problems with your property
Here is some additional information that could be a deciding factor for a property owner to select a property manager.
One of the first things I learned to do when selecting a broker was to see what the caliber of their traders was like. Did he have a decent plumber, roofer, and electrician? Were they trustworthy? How much were their average prices? One of the most frequent expenses that an owner can have with his property is plumbing. During my years as a landlord, the number of times I’ve been called to send a plumber to one of my properties, and the number of times other plumbers have noticed the previous plumbers and told me they did it wrong, and the outrageous amounts of money they charged for their mistakes, made me seriously consider going to school and learning to be a plumber. I eventually found a plumber who was moderately priced and knew what he was doing. The downside was that it took a long time for him to go out and fix the problem. So if you get a property manager that seems reasonable, try checking out the merchants he has on his books. As nice as the property manager is, it’s his dealers who can ruin his reputation as a property owner.
Now let’s say all traders exit. Now you are faced with the equally monumental task of testing the capabilities of a potential property manager. The laws of a country change frequently and you, as well as your property manager, must keep abreast of those changes. Your manager has to chase down the rents, document everything, pay your rent on time, and make sure that he has referenced the tenants correctly and agreed to the documents that are legally binding. Both you and the management agency need to be aware of all the properties you own: when rents are due, when they are paid, when they are posted to your account, whether the correct amounts have been paid, whether you have up-to-date agreements between you and the management agency. agency, that all your tax records are accurate.
If you think property management is like a walk in the park, you’re in for a rude awakening. There are complex tax issues, laws that govern those taxes, laws regarding tenants’ rights, landlord’s rights, evictions, and contracts. He must be prepared to spend a great deal of time and energy as a real estate investor. It’s not just about finding a wonderful property. So you have to make sure it stays that way. A property manager may not know that the building is developing dry rot. He may not know that the wiring needs to be replaced. It is possible that he does not know that there is a collapse of the building. But since all of these things and many more greatly affect the property you are buying, you need to stay on top of these things. These are things that the property manager is not responsible for. So while you can always get a property manager to handle day-to-day operations, you really can’t afford to be an absentee landlord.
To sum up:
– Take a careful look at the merchants on the property manager’s books.
– make sure that both you and your agent are up to date with the tax laws and the maintenance of your records.