A Guide to Hiring Your First Property Management Company
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 11/07/23.
The best way to make the most out of real estate investing is to replace yourself as soon as possible. Think about it: Your time is the most valuable resource you have, so why not hire a property management company to handle things on your behalf?
This is something all landlords eventually have to tackle: do the work themselves, or hire a third property to manage issues. Both perspectives have their pros and cons, and we'll get into them later on in this guide.
Figuring out business space for rent isn't just about whether the deal makes sense in the beginning. Indeed, real estate portfolio additions require looking at whether or not the deal makes sense for the long term. As your portfolio grows, managing it will take significantly longer than in the beginning.
Are you someone who wants to make your real estate investments as passive as possible? If so, then looking towards hiring your first property management company is a great idea. It cuts down on the work you have to pour into each and every property.
What Is a Property Management Company?
A property management company is in the business of taking over most real estate management tasks without your involvement. This can include everything from collecting rent all the way up to getting the property prepared for the next tenant, even if the previous tenant moved out before the end of the lease.
In fact, a property management company handles the brunt of tasks that would otherwise become exhausting.
Can a property management company lighten your load? Absolutely. They do more than just schedule when the plumber comes out or when it's a good idea to get a landscaper to the property. They're up to date on important laws and regulations, such as fair housing laws. It's important that advertising your properties stays within the boundaries of the laws of your area.
Given the severe consequences of violating fair housing policies, the management company can protect you from legal liabilities. It isn't just fair housing policies to consider but eviction policies as well. Evictions are stressful, but making hasty decisions can lead to the courts taking your tenant's side of the story instead of yours.
Every property management company is different, with different specialties. Some are well-versed in multifamily housing, while others specialize in commercial properties only. Acquiring a property manager to oversee your holdings is a complicated decision. After all, you'll have to consider the property management company as another expense, which will take away from the cash flow and overall profit of your real estate portfolio.
Pros of Outsourcing Your Property Management
The decision to outsource property management to a third party is complicated. Is it the right decision for you? Let's look at the pros of outsourcing property management:
- Time freedom. As you add to your real estate portfolio, the demands on your time increase. A property manager takes care of your properties, freeing up your time immensely.
- Potential for fewer vacancies. A seasoned property management company is aware of the local market and can put strategies in place to limit vacancies. Looking for business space for rent gets easier when you have a management system in place.
- Your properties are advertised by someone else. Marketing is a tough practice for landlords, so why not turn that over to the property manager?
- Efficient eviction handling. No one looks forward to evicting a tenant (well, maybe some), but putting a property manager on the case keeps it a business decision, not a personal one.
As you can see, the benefits of property management are immense. It is still important, however, to weigh the disadvantages as much as the advantages, as you'll see in the next section.
Cons of Third-Party Property Management
Just as there are advantages to third-party property management, there are disadvantages as well. We've included one of the top issues below:
- Less autonomy. No two people are ever going to make the same decision the exact same way, and this is true within the world of property management. Be willing to give up day-to-day control for time freedom.
- Higher fees compared to the DIY route. Third-party fees can add up; in some cases, property management companies can charge 12 percent! That's a lot of expense compared to handling the property yourself.
- Potential for inconsistent handling. Not every property management company has dialed in its processes, meaning that some issues can go overlooked.
As you can see, you have to weigh the advantages against the disadvantages to get a clearer picture of outsourced property management.
Hiring Tactics
Ready to hire a property manager? It's time to look at a few points of interest before finalizing any arrangements. Here's what you need to know:
- Ask about their current workload. This is a fair question, as you must know if they can handle adding your properties to their management holdings.
- Tenant screening is critical. Everyone handles tenant screening differently, so understanding what their specific process looks like is critical.
- Get specific about your needs. Do you need to handle routine property inspections? If so, ask upfront if this is included in the future agreement between you and the property management company.
- Understand their fee structure fully before moving forward. Everything is up for negotiation, including property management fees. Ensure that you are not only aware of the fee structure but that everything is in writing at all times.
- Leave the door open for additional questions. Working with a property management company requires solid communication. Don't be afraid to get your questions answered.
Like any other business transaction, property management requires agreement and understanding on both sides. The points in this guide will set you up for a successful deal that lets you outsource property management tasks without creating new problems.
If you feel pressured to select one company amongst so many, it is wiser to pause than to push forward.
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