Before you decide to self-manage or hire a property manager, you need to understand what goes into managing rental properties.
A novice investor may see a rental property as a simple equation of: rental income - (mortgage + expenses) = profit.
While this formula is the basic mantra for an investor, you also need to include your landlord duties and energy into that equation. Investors can choose to hire a property management company to handle these duties or self-manage their rental properties. Alternatively, a lot of investors have found success in self-managing their rental properties as a way to cut down on their management expenses.
In order to decide what option is best for your portfolio, let’s take a look at all the landlord duties you will be taking on if you self-manage or that you could pay a property manager to handle. These duties may include a monetary expense and always include the time required of you or your manager.
Maintenance
Owning a rental property involves managing routine and emergency maintenance. Renters are notorious for harder wear and tear on a house than owners, so rental homes require more energy from the owner or manager to upkeep.
You need to schedule seasonal maintenance to keep appliances functioning, gutters from overflowing and to check in with your tenants. And you need to respond to emergency maintenance from your tenants. Good maintenance management will significantly improve your bottom line.
Addressing Vacancies
When a rental property is vacant or vacancy is looming, you need to get the next tenant lined up quickly. Finding your next tenant involves more than just putting an ad up on Craigslist. Don’t forget about property visits, talking to prospective tenants and meeting them for showings. You will need to collect rental applications, complete tenant screenings and approve your future tenants.
Additionally, you will need to prioritize tenant screening. A profitable investment relies on good tenant screening. As part of this process, you should look at a rental applicant’s credit report, criminal history and eviction history, verify income and call references and past landlords. This time investment will give you the best chance of an eviction-free rental situation.
Tenant Relations
A good manager will check in with their tenants at least once a quarter. This check-in can be regarding seasonal maintenance reminders or asking if everything at the property is working well. If the tenant does have any issues, you will be the one to rectify the situation.
Sometimes a tenant will call you with a legitimate complaint. Other times, you will get tenant calls for things like “the dog across the street is barking again,” a problem that should be the tenant’s to handle. Regardless, you will be your renter’s point of contact for anything related to your property, good or bad.
Rent Collection
Rent collection should be easy enough: "Mail me a check by the first of the month and I’ll deposit it."
But what if the check doesn’t show up? That’s time you have to spend calling your tenant, listening to their excuse and waiting extra time to get your money. What if the tenant lies about the check being in the mail? What if the mail carrier misdelivers the check but your tenant is on vacation and can’t send a new one?
All the "what ifs" that go into rent collection can typically be managed with an online rent payment software, but if a tenant misses a payment, you will still have to figure out what happened.
Lease Enforcement
You will be responsible for making sure your renters follow the lease terms. If you find out a tenant is breaking the lease, you need to follow your state’s rental law regarding a Cure or Quit Notice, which gives a renter to option to fix a lease violation or you will move forward with an eviction.
Other Landlord Duties
The duties listed above are just some of the duties you will face when you own rental property. Others include:
- Rental law enforcement and compliance
- Tenant turnover
- Inspections
- Raising rent
- Evictions
- Insurance
- Taxes
Benefits of Property Management
Property managers have made a career of understanding the rental industry. Most importantly, they understand rental law and what it takes to meet federal Fair Housing laws and other state statutes. Property managers are usually connected to the industry through associations and professional groups that give them updates on rental law and policy changes.
Self-Management Vs. Property Management: Which Is Right For You?
Property management companies typically charge between 7-10% of your monthly rent to manage your properties (the property manager I hired charges 7%). For a $1,200 property, you will be looking at $120 per month given to your manager for them to handle all of the issues listed above.
You need to decide how much you value your time. For a low maintenance tenant, $120 per month might seem like a ton of money to give someone else to simply deposit a rent check.
But if the tenant calls a few times a month, constantly complains about property upkeep, is late on their rent or does any lease breaking activity, that could require hours of your time a month. Suddenly, $120 for four-plus hours of management doesn’t seem too bad.
Conclusion
Purchasing rental property is a great way to build equity and diversify your portfolio. When choosing whether to invest your time by self-managing, or pass the management duties along to a property manager, understanding all the duties required of maintaining a successful rental property will help you make the decision that is best for your rental business and lifestyle.
