Property management companies offer a variety of services in managing rental properties. These services are ideal for investors who want the benefit of owning rental properties without the hassle of having to operate them. In fact, 44% of real estate investors hire a property manager.
What is a Property Management Company?
A property management company typically has a team of property managers and administrative personnel to oversee day-to-day operations for real estate investors.
What Does a Property Manager Do?
Property managers typically handle the day-to-day operations of a rental business. However, tasks can vary based on the needs of the real estate investor and what specific services the property manager offers. Here are some of the most common tasks:
- Filling Vacancies – This includes marketing & advertising, screening tenants, and getting the new tenant set up with a lease.
- Repairs – If something breaks, your property manager is the first call.
- Landscaping – They’ll handle keeping the curbside appeal high.
- Collecting Rent & Paperwork – The monthly task of collecting rent goes to your property manager. They’ll also take care of doing new leases, adding addendums to contracts, or having the tenants update information.
- Evicting Tenants – The eviction process is grueling and includes tasks like filing paperwork and attending court hearings.
- Managing Tenant Complaints – Who wants calls from annoyed tenants? This is why you pay a property manager.
- Ensuring Owners Follow Laws & Regulations – They can help make sure that your property is compliant with the Fair Housing Act, not going over occupancy limits, and more.
- Prepare Taxes – They can help keep your tax documents in order and send them to your CPA.
While there’s even more they can handle, the scope of your property manager will come down to what they offer and what you need. Make sure when narrowing down choices that you pick one that does everything you’re looking for.
Should You Hire a Property Manager?
Short-term property managers can be the right solution for many investors, but for others, it represents an unneeded expense that eats too much into their profit. Look over the information below to help you determine what is best for your situation.
| Pros | Cons |
| Fewer vacancies | Extra expense |
| No dealing with tenant issues | Tenant screening procedures |
| No handling repairs/maintenance | Deferred maintenance |
| Invest in multiple areas | Lack of control in day-to-day operations |
| More free time | Mishandling of funds |
Pros of Hiring a Property Manager
For most investors, hiring a property manager is the best choice. Here’s why:
- Fewer vacancies – Property managers are usually incentivized to keep your property filled (depending on your payment structure), and they have experience with listing & marketing properties to get them filled fast. Higher occupancy = better profit
- No dealing with tenant issues – Tenants can be needy and difficult at times, and a property manager will resolve their issues (and handle the emergencies that come in the middle of the night)
- No handling repairs/maintenance – Most real estate investors aren’t professional handymen, so hiring a property manager lets you delegate the work to those who skilled in home repair and maintenance
- Invest in multiple areas – If the owner decides to manage the property themselves, it’s nearly impossible to have multiple properties in different cities
- More free time– Whether the owner wants to spend more time on other investments, has a full-time job, or just wants to have more free time, it’s all made possible with a property manager
For investors with many properties, who don’t want the hassle, or want to invest in different areas, it’s a no-brainer to hire a property manager.
Cons of Hiring a Property Manager
In many situations, hiring a property manager is the best way to handle investment properties. However, there are still a few situations where it’s more beneficial to do it yourself.
- Extra expense – A property manager usually takes about 8%-12% of your rental income. In a competitive market, that could eat up all of your profit, making hiring a property manager a nonstarter
- Tenant screening procedures – Some property managers are more concerned with filling the property rather than filling the property with great tenants. A tenant who can afford the rent, pays it on time, and cares for the property is essential to the success of any rental business
- Deferred maintenance – A property manager may push certain maintenance items back to a time more convenient for them. This can cause major issues down the road if mishandled or pushed too far out
- Lack of control in day-to-day operations – The business side of day-to-day operations will be handled by the property manager. While a property owner may prefer to have things work a certain way – that may not always be realistic for a property manager
- Mishandling of funds – A property manager could potentially mishandle funds by charging your account inappropriately, in an amount that exceeds an actual bill, or in frivolous unnecessary spending.
Those owners who decide not to hire a property manager are usually a little handier or have the number of a good handyman, and also don’t have a ton of properties. If you get the right tenants, an owner can reasonably handle 5-10 units without a ton of day-to-day maintenance.
Types of Property Management
Several property types are overseen by a property manager including:
- Residential properties – single-family homes, multi-family homes, apartments, vacation rentals, condos/townhomes
- Commercial properties – office properties, retail properties
- Industrial properties – warehouses, factories
- Special-purpose properties – churches, hospitals, theaters, schools
When searching for a qualified property manager, it’s important to note that most property managers only specialize in one type of property. If you have a diverse portfolio, make sure to use a manager with experience that matches your needs.
How to Find & Choose a Property Manager?
Now, you need to find an experienced property manager that you can trust with your extremely valuable asset. Here’s how to find the best one for you:
- Determine Your Needs – Do you need a property manager who will handle landscaping? What about having a cleaning crew on staff because you have 40 units?
- Find Potential Candidates – Now it’s time to look. Expand your search beyond Google and social media advertising—the companies you find there are often the most expensive. Try to rely on referrals where possible.
- Research Services & Fees – Do they match up with your list of needs that you created? At this point, you probably won’t have a pinpointed price, but for now you’re just looking to see if they’re in the ballpark.
- Check for Positive Reviews – Google Reviews and Yelp will be your best friend here. Don’t just rely on the star rating—read several reviews, especially ones less than 5 stars.
After these first steps, you’ll want to interview them, nail down all the costs, and check for certifications they may have as well as any property management organizations they belong to.
Property Management Certifications & Groups
As part of your research, let’s see what certifications and groups the property management companies belong to. It’s not the most important piece of the puzzle, but can give you some insight into how much knowledge they have and how seriously they take their profession.
Here are a few organizations that are great to belong to that also have certifications that property managers can receive:
- The Institute of Real Estate Management (IREM)
- The National Apartment Association (NAA)
- The National Association of Residential Property Managers (NARPM)
- The National Association of Realtors (NAR)
- Community Association Managers International Certification Board (CAMICB)
Aside from those, there are a few more that are essential for high-quality property managers to have:
- Real Estate Broker’s License or Property Manager’s License – In most states, it’s actually a legal requirement to have a real estate broker’s license. In others, it’s a requirement to have a property manager’s license. You can quickly check to ensure that your property manager is compliant with your state’s regulations.
- Certified Property Manager (CPM) – While this one isn’t legally required, it’s become so standard that it almost might as well be. It’s recognized internationally, and property managers, on average, earn more than double when they become a CPM. In other words, it’s a good idea to check that your potential property manager is a CPM.
There are dozens of organizations and certifications associated with property managers, but these are just some of the most important ones.
What Questions Should You Ask a Property Manager Before Hiring?
At this point, you probably only have 2-3 candidates left. Hopefully one of those stands out above the rest so you don’t have to hold in-depth interviews with multiple property managers. Here are the best questions to ask:
- What Services Do You Offer? – Now’s the time to get a detailed explanation of everything they’ll do for you. You’ve already researched this beforehand, but hearing everything explained can provide some needed clarity.
- How Many Rental Properties Do You Manage? – This helps you know how much experience they have, but also can let you know if it feels like they’re spread too thin. You don’t want to be a company’s lowest priority.
- What Types of Properties Do You Manage? – If they primarily handle homes, but you own an apartment complex, perhaps you’re not talking to the right person for the job.
- How Long Have You Been Managing Properties? – Let’s get someone who’s not trying to learn on the fly.
- Have You Evicted Someone Before? What Happened? – As evictions are both legally tricky and costly, you want someone who’s handled this situation before. These two questions give you a feel for how they handle this scenario.
- How Do You Determine Rent? – Rent is tricky. Too high, and you’ll have trouble filling the unit. Too low, and you’re leaving money on the table. You want them to stay on top of rental prices and keep you at the norm, or just below to entice long-term tenants.
- How Long Does it Take You to Fill a Vacancy? – Again, this is a Goldilocks situation. If they fill it too fast, they might be getting low-quality tenants. Too slow, and they’re costing you money. You care more about the nuance of their answer and less than a simple answer of “fast.”
- How Thorough Is Your Screening Process? – You want incredible tenants, so you better find out how much work the property manager plans to put in to find them!
- How am I Billed for Repairs? – Do you need to keep an escrow account so they can draw on it automatically, or do you want them to bill you individually?
- How Often Do You Provide Updates? – Any good property manager will send you regular communication about how things are going. Nail down that expectation now.
Most Common Property Management Fees
In general, property management companies charge about 8%-12% of your rental income. They can charge you in a few different ways:
Percentage-Based Management Fees
In this scenario, the property owner pays a percentage of the total rental income collected each month. This is the most common (and usually most desirable) way for property managers to charge. Vacant properties are already expensive for the owner who has to cover the mortgage without rental income. If they have to pay for their property manager as well, that can get pricey quickly.
Fixed Management Fees
Fixed fees mean that the property owner usually pays a set amount per unit. This is usually only desirable for a property owner who owns a ton of property and can therefore reasonably predict and plan for a certain number of vacancies each month. They will often get a discount on their fees for having many properties.
Other Potential Property Management Fees
In addition to regular monthly fees, there are other costs for a property owner:
- Onboarding – This would be a one-time charge to start the relationship with the property manager.
- Tenant Placement – Some property managers will charge to bring in new tenants. Be careful that this fee isn’t too high, or else they’ll be incentivized to turn over tenants more often.
- Repairs – While repair costs are charged to you whether you have a property manager or not, sometimes they will charge a bit of a markup. This isn’t the end of the world as they should be compensated for the hassle.
- Contract Termination – Some companies will charge you to end a contract before the term is up. Try to steer clear of these fees, or else ensure that they’re very small.
- Eviction – You’ll usually be charged legal fees, as well as a fee from the property manager for taking on the situation.
- Lease Renewal – Some managers will charge you for putting together the new lease agreement and getting the tenant to sign it.
How to Read a Property Management Contract
Hopefully, you’ve got a single property manager now that you’d like to hire. They’ve drawn up a contract, but what do you need to look for in it?
- Expected Services – Everything that you’re expecting them to do for you should be outlined here, as well as the fees attached to any of those services.
- Authority to Spend – This states that the property manager has the ability to spend money on repairs or other necessities without having to first contact you. Often, there will be a certain limit, and anything over that number will require your approval.
- Fees – Ensure that these are the same as what has already been discussed.
- Term/Duration – How long is the contract for?
- Cancellation policy – When are you allowed to cancel the contract? Make sure this is specified, and if there are any penalties for ending early.
- Owner Obligations – What is expected of you? For example, there may be a certain amount of money that you need to keep in the spending escrow account.
- Rent Collection – How will they collect rent, and how will they get money over to you?
This is probably a good time to have your attorney also look this over to make sure everything’s good.
Red Flags in Property Management Contracts
What should be kept out of the contract?
- Inappropriate Fees – Anything that looks suspicious should be questioned, especially if it doesn’t line up with what had been previously discussed.
- Cancellation Locks – If you’re required to pay an exorbitant fee to cancel, negotiate with them or walk away.
- Unclear Language – If something doesn’t make sense, ask questions.
