The Definitive Guide to Property Management
Imagine that you own a property, lease it to tenants, and keep the rent as revenue. That sounds like a fantastic deal, right?
For people who have never invested in real estate, the prospect of doing so can be as alluring as this:
Rental Income less (Mortgage + Expenses) = Profit
What the equation above doesn’t take into account is the actual property management or landlord duties in a nutshell.
On the surface, property management may seem simple — easier said than done.
Finding tenants to rent the homes, taking care of maintenance issues, and following up on unpaid rent may all be extremely time-consuming if not daunting.
In comes a committed property manager ready to handle all the landlord’s duties at a fee.
The manager can be an individual or a business that oversees the day-to-day responsibilities of a real estate investment.
In this guide, we will explore the function of a property manager in real estate.
Table of Contents:
· Property manager definition
· Types of property managers
· Duties and responsibilities of a property manager
· The cost of property management
· The benefits of a property manager
· Real estate courses
· Property management skills
Overview
A property manager typically oversees the daily operations of a residential or commercial property.
Their main role is to generate income whilst maintaining the property’s integrity and value.
Other common names for a property manager include a real estate manager, building manager, property administrator, or landlord.
The buying and selling of land, and property management are also intertwined as you must first acquire land on which to build property.
This begs the question, “what came first, the chicken or the egg?”
Types of Property Managers
Because there are different types of properties, property managers may specialize in managing residential or commercial real estate.
Furthermore, a property manager might choose to focus on managing a specific type of residential or commercial property.
Below are four of the most common types of property managers:
Commercial Property Manager
Someone who describes himself or herself as a commercial property manager often has direct management responsibilities for properties that are leased or rented to a third party.
They may also manage land that is used to generate revenue. Often this includes managing industrial property, office buildings, retail storefronts, and warehouses.
HOA Manager
Boasting chic upmarket locations, 24hr guarded security, and unmatched amenities, master-planned communities are increasingly becoming popular with new homes and neighborhoods.
Homeowners Associations handle the affairs of such communities.
Having said that, the management of these HOA’s is increasingly becoming big business for career property managers.
Multifamily Manager
Sometimes referred to as building managers, multifamily property managers are responsible for managing a large building and its grounds.
This management type is the same as managing an apartment community with many renters.
Self-Management
If you prefer to manage everything yourself, you can choose to work as a D-I-Y (do-it-yourself) property manager.
Doable? Yes. But since you’re learning on the job, the process involves a rather steep learning curve.
Duties and Responsibilities of a Property Manager
The duties and responsibilities of a property manager go far beyond what many people envisage — they frequently perform other tasks than collecting rent.
Below are some of the duties performed by a property manager.
Finding and Retaining Quality Tenants
Finding and keeping good tenants can result in fewer tenant vs landlord issues, consistent rental income, and a fewer vacant units.
Property management will also involve handling the following:
· Marketing and advertising
· Tenant viewings
· Tenant references and background checks
· Tenancy agreements and inventory
· Communication with tenants
Maintenance and Repairs
All rental properties need regular maintenance and repairs to ensure they’re habitable and safe for tenants.
Besides handling both regular and emergency maintenance, property management will also involve:
· Liaising with tradespeople
· Communicating with tenants
· Property inspections
Rent and Debt Collection
Property managers and leasing agencies are in charge of making sure that tenants pay their rent in full and on time.
Additionally, they will pursue unpaid bills and find a solution for tenants that have fallen behind on their rent.
Compliance, Health & Safety
Fines for non-compliance can be debilitating, and compliance requirements for rental properties are both extensive and complex.
By staying up-to-date with any legal developments and new regulations, property managers ensure the rental property is compliant at all times.
Ensuring that safety regulations for gas, electricity, and fire are in place are other important compliance requirements for a property manager.
The Cost of Hiring a Property Manager
The cost of hiring a property manager or company will vary depending on the:
- Specific company
- Expertise level
- Individual certifications
- Location of the property
- Number of properties being managed
In-depth knowledge of the industry and technology can also contribute to higher salaries.
Meanwhile, the average fee or commission is between 6% and 12% of the total monthly rental income for the property.
Along with a percentage-based management fee, working with a property manager may incur the following additional fees:
- Management fee
Rather than charge a percentage, some property managers may choose to charge a flat fee for their services.
Same as for the percentage, the cost will vary depending on the property manager and location.
2. Maintenance fee
Whether the owner has hired help, managing property involves paying for maintenance costs.
While some property managers’ charges may depend on the incident, others may impose a fee to cover the expenses of any monthly repairs that tenants may need.
In either scenario, the property manager might additionally bill the landlord for assistance in handling the problem.
3. Leasing fee
To offset the costs of advertising your property to potential tenants, a property manager may additionally charge a leasing fee (sometimes known as a new tenant placement fee).
This fee can be broken down further as move-in costs, tenants’ interview expenses, as well as marketing costs.
The leasing fee can be paid as a flat fee or as a percentage of the monthly rent, the same as other fees/expenses.
4. Lease-renewal fee
Some property managers charge a fee when a tenant requests a lease extension.
This cost may be a set amount or a part of the monthly rent, the same as the other fees. But few property managers charge this fee.
Pros and Cons of Hiring a Property Manager
There are both advantages and disadvantages when choosing to work with a property manager.
Pros
Ideal for investors with many properties
It’s a tall order for one person to properly manage multiple properties and still keep everyone happy.
And when your pressed for time to handle other important tasks, a property manager is on hand to steady the ship.
Not in charge of any operational duties
The fact that they will handle maintenance and upkeep is another noteworthy advantage of hiring someone else to manage your properties.
Rather than attempt to handle every issue yourself, you can rely on a property manager or their in-house maintenance crew to handle the work for you.
Avoid stress
Managing a property can be challenging and stressful. Receiving a call in the dead of the night about an incident within the property can take a toll on any property investor.
That’s why hiring a property manager and delegating such duties might be a good decision to make.
Get the inside scoop
A property manager has their finger on the pulse of the property market surrounding your building, which is another advantage.
By advertising accurate rental rates and conducting a complete property study, a property manager can also help maximise your ROI.
Preferred network of vendors
Finding a reliable vendor can take a long time, especially if you are new to the area.
Property managers have a network of recommended service providers, including contractors, handymen, electricians, plumbers, and other home service providers.
They’ve also developed solid, cooperative ties with nearby merchants, so you won’t have to worry about being overcharged for repairs.
Additionally, the property manager will guarantee that the repairs are done to high standards.
Cons
Loss control
Hiring a property manager might not be a good idea if you’re the type of person that demands complete control over every element of your business.
You give up a great deal of power when you allow someone else to manage your property.
Without consulting the owner, a property manager will recruit staff, interview and approve renters, and may even make minor modifications to the property while doing maintenance or upgrades.
High management costs
Working with a property manager isn’t free. As we mentioned above, there are several costs associated with hiring one.
These expenses may differ, but they often represent a sizable portion of your monthly rental income.
Before hiring a property manager, D-Y-R (do your own research) on the individual or company to make sure their services fit your budget.
Finding a trustworthy manager
You should take the necessary precautions to ensure that you’re selecting the ideal property manager to look after your real estate investment.
You wouldn’t rent out your home without thoroughly screening the prospective renter, right? Then why hire a property manager without prior screening?
Real Estate Courses
While a high school diploma may be enough for someone to start working as a property manager, many employers prefer their managers to have a bachelor’s degree in business administration, finance, real estate, or another related field.
Additionally, some businesses consider applicants who have real estate-related vocational training or a real estate license.
Below are some of the in-demand real estate courses:
· Real estate development
· Management
· Finance
· Property management
· Urban planning
· Management of affordable housing
· Senior housing
If returning to school is not an option, you can invest in online courses to advance your knowledge and develop your skills further.
On-the-job training is also important.
Beginning at an entry-level position may be necessary, but after learning the ropes, you can easily move up the ranks.
Property Management Skills
Having the following skills is important for a property manager:
· Good customer service
· Great communication
· Time management
· Resourceful
· Attention to detail
· Sales-driven
To add on, many property management professionals are well-versed in property management software that helps automate the bulk of their work.
Using property management software makes it easier to manage front office functions and balance other daily operations more efficiently.
Property Management FAQs for Investors and Landlords
What are the benefits of real estate investment?
You get four main benefits from real estate as an investment:
1. Income — when considering rental properties, you should automatically think of income. This is what you remain with after deducting all the property’s expenses.
2. Accumulate equity — as the tenant religiously pays rent every month (hopefully), the principal on the mortgage will reduce as you build equity.
3. Tax savings — the bulk of the property expenses including property taxes, mortgage interest, maintenance, insurance as well as management fees are all tax deductible.
Asset depreciation is another write-off you may need to discuss with your accountant.
4. Increase in value — though demand for housing may not be consistent, the value of your property will increase over time.
What are the common mistakes property owners/ investors make?
- Buying a run-down propert
- Choosing a bad location
- Demanding rent that is above the market rate
- Setting complex rules when interviewing potential tenants
- Ignoring the advice of property managers
- Failure to respond to tenant requests on time
How much will a residential property lease for?
Several market variables such as the property’s location, its condition, and rental rates of nearby comparable properties will affect the lease rate.
However, the markets that determine the value of a property are different from the markets that dictate the lease rates.
Why should tenants be screened?
a) Stability of employment — this will determine whether the tenant is likely to stay long-term and if they can afford the rent.
b) Proof of identity — the property manager needs to save copies of the tenant’s identification
c) Positive credit history — has the renter been consistently paying rent in the past?
d) Avoid overcrowding — controlling the number of people that will be living in your property is important as overcrowding can lead to excessive wear and tear of the building.
How do I start investing in a rental property?
i. Determine your financial position
ii. Identify your target market (low income, middle class or opulent).
iii. Pick a specific real estate investment strategy.
iv. Choose the criteria for investment properties.
v. Setup your investment team.
vi. Prepare to finance.
vii. Raise money for reserves and down payments.
viii. Don’t forget to D-Y-R to find a good deal.
ix. Create a schedule and take note of important investment milestones.
