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Basics Of Property Management

Have you considered Professional Property Management?

Want to know how professionals are Managing Property and the benefits of it?

Many “buy and hold” real estate investors decide early on that managing their own rental property simply isn’t worth the time and effort. This is especially true for investors that own properties outside of their immediate geographic area. While there are pros and cons to managing your own properties, ultimately it comes down to personal preference and capacity. Some people would rather be more hands on and save a few bucks while others gladly shell out a small percentage of their income to let somebody else manage the property.
For investors that opt to outsource managing property to a truly professional Property Management Company. Knowing what questions to ask and what charges to expect is an important part of making a good hiring decision. In almost any market, you’ll find numerous property managers of all shapes and sizes. For the investors less familiar with how property management companies work, here is a basic checklist to help get you started and a few of the expenses you may incur.
Leasing Fees

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How much does the property management company charge to place a new tenant in the property? I’ve found that anywhere from three quarters to a a month and a half of a months rent is fairly standard. Be sure to find out how the property manager advertises for tenants. A property manager with a lower leasing fee may not spend as much time or effort on advertising. It’s very important to ASK your managing property company what their average days it takes to lease a property, so you know in advance if they are any good, or if they even track those important metrics. It’s also important to understand how the property manager, or managing property company, screens applicants. At a minimum a property manager should:

Verify Income
Obtain credit report (look for prior judgments, eviction history, credit history)
Run criminal background check
Have a stated debt to income approach (ie. rent amount cannot represent more than 33% of tenants gross income)
Check rental references to understand rental history

Management Fee

All property managers charge a certain monthly percentage for managing the property. This is typically somewhere between 9% and 12% of the gross monthly rent OR charged as a flat fee typically between $99-$149. per month. An important question to ask the property manager is whether this fee is only charged when actual rent collected or if it is charged monthly regardless of whether a tenant is in the property. It’s also important to understand what services are included within this management fee. Some of the fees listed below may actually be included as part of the management fee and not charged independently.

Renewal Fee

This is a fee most property managers charge to handle the paperwork associated with renewing the contract for the tenant for another year (or more). This fee is typically anywhere from a few hundred dollars up to a half month’s rent. While this may seem like an unnecessary fee, I’ve found that a good property manager can save you thousands of dollars in vacancy and turn-over expenses if they are good at keeping tenants in the property for multiple years.

Evictions

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There are fees associated with filing the eviction and handling the corresponding court proceedings. I’ve found this varies from one property manager to the next. Some property managers simply pass on the actual filing costs, but manage the eviction as part of their management services. Most, however, charge a few hundred dollars (on top of the filing fees) to handle the eviction and court appearances. Real Property Management includes the cost of evictions with our basic service.

Escrow Account

Most property managers ask the investor for a maximum dollar amount that the investor would be willing to spend for maintenance/repairs without having to provide specific approval. This is really to help insulate the investor from having to make insignificant decisions that could easily be made by the property manager. To accomplish this, most property managers hold between $200 and $400 in a repair escrow specifically for these types of maintenance requests.

Repairs

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I think this is one of the most important aspects to property management. You may find a property manager that beats the competition in almost every other category, but if they don’t have a good, affordable solution for repairs and turn-over expenses, you may still end up spending more money. Some property manager simply outsource the maintenance to third party contractors that may charge high handyman rates, while others have handymen on staff that can make repairs and handle turn-overs at a very affordable cost. It’s important to know and understand this distinction when interviewing property management companies.

Inspections/ Trip Charge

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For many who get stuck with a property, managing property is an ancillary afterthought. But to the savvy investor it’s important that somebody get their eyes on the property at least two or three times a year to make sure the tenant is taking care of the property and ensure there are no major issues. Most property managers include drive-by’s as part of the management fee, but may charge for a specific inspection or trip charge (of $75 to $125) to go into the property and make assessments as to the condition of the property.

While different markets are going to have different nuances associated with how property management is done, understanding the basics (above) is important in selecting a property management company. Whether it’s a homeowner that can’t sell an individual house or an investor with a portfolio of 30 properties to a large firm with over 1000, ultimately you have to be comfortable with who you choose and trust that they will treat you fairly and honestly .

The best thing about a free market……competition!  If the first company you select doesn’t work out as well as you had hoped, you can always change. Remember, Real estate investing offers almost anyone the opportunity to accumulate wealth as long as they are willing to put in the hard work. To get a real estate investment career off the ground it’s essential to learn the tricks of the trade, hopefully this helps, good luck!!

 

@CincySalesGuy

 

Real Property Management is the nation’s leading property manager. For over 30 years, RPM has developed intelligent solutions for thousands of individual property owners, investors, tenants and Realtors.

 

 

3 replies
  1. John
    John says:

    It’s rare to see someone writing such detailed article. You highlighted all the important things that we should pay attention to, and you also mentioned the one thing that people often forget about – the cost of the repairs. Good one, keep up the good work.

    Reply

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