People looking to invest in rental properties as a means of diversifying their asset portfolio will usually find themselves asking the following question: should I use a property manager or manage the property myself?
The answer is an unequivocal: it depends. Property managers are known to take between 7% and 20% of the gross rent. This means, simply put, that a property manager is an expense to owning the property, in addition to maintenance, taxes, insurance, and a variety of other expenses associated with real estate investment.
That said, there can be inherent advantages to hiring a good property manager. Here are a few of them.
1. A good property manager can add value to the property. This is one often overlooked value of using the services of a property manager. If the owner ever wants to sell the property, one excellent selling point in any advertisement is a line like this: “Property management already in place.” This makes it easy for new (and even existing) real estate investors who are looking to enhance their portfolios with good properties that already have sound management.
2. A good property manager gives the owner more free time. Time is money. If the owner has more free time that is not consumed by answering midnight calls about toilets that won’t flush or examining the property for obvious problems on a periodic basis, then that owner is free to do other things, such as look for other real estate investments.
3. Good property managers can shorten vacancies. A property manager has a full time job that includes, among other things, showing the property. The property owner may not, and probably does not, have the kind of time necessary to devote to showing the property. This means that, not infrequently, accomodations have to be made for scheduling conflicts between the owner and the prospective tenant. This would usually increase the vacancy time for the open unit. Vacancy time, of course, means that the owner is not receiving rent for that unit.
4. Property managers take care of a lot of administrative work. This is not only a time-saver, but is also a nuisance-saver. Property managers will keep track of expenses, will handle receipts, and provide monthly, itemized accounting information to property owners. This saves a lot of hassle when it comes time to file taxes.
5. Good property managers stay up to date on local and federal rental housing laws. There are federal rental housing laws such as the Fair Housing Act. And there are state and local laws that vary based on location. Some cities, like Boulder Colorado, require rental properties to be licensed under City law. In Boulder rental properties must pass a detailed property inspection and pay an administrative licensing fee. If a real estate investor is not current on local and federal rental housing laws it could end up costing them a lot more than the cost of rental license fee.
While property managers certainly cost money, the benefit gained from investing in their services is a sound return on investment. Real estate investors who don’t want to have their time monopolized by adminstrative tasks and management hassles would do well to use the services of a good property management company.