One of the biggest advantages of having a property manager is that they not only do all the management for you: tenant selection, completion of proper documentation, inspections, etc. – but they also do a lot of the accounting. From most of my property managers, I would get a monthly statement that detailed gross income, expenses incurred, their commission, and the net amount transferred to my bank account. This makes accounting very simple.
Property managers typically charge 4-15% of rental income to manage their properties. Generally, the larger your portfolio, the lower commission rate they will settle.
Another advantage of using property managers is that the less pleasant work of evictions, rent increase notices, and notices that require tenants to fix deficiencies to keep the property clean and tidy no longer need to be handled by you personally. .
So how do you choose a property manager?
As with selecting a property to buy, or selecting a real estate agent to work with, or selecting a dealer to work on your properties, it is somewhat of a numbers game. Follow the recommendations of friends or other owners, interview potential managers, ask them how they have dealt with particular problems in the past, and then give them a try. You can always change them later if you don’t agree. However, it may not always be so easy to change agents, especially if you have bought the property with the tenants in it.
Let me tell you about an experience I had with an agent in the UK. I bought a property with tenants and, by extension, had to bear the agent who originally rented it from them. As it was my first investment property, I didn’t want an agent to manage the property for me, I wanted to manage it myself. But it wasn’t that easy. The agent kept his security deposit because he had found the tenants and, although it was my property, he demanded that they pay the rent and also withheld the rent and did not pay it to me. I had no legal recourse unless I evicted the tenants, which I finally had to do. Everything was very friendly since the tenants knew what was happening. They spent a night away from the house to make it legal, then I presented the eviction notice from the courts to the agent and he was forced to return the security deposit and pay me what he owed me from the rent. After that, my tenants came back to me, we signed a new lease, and I managed the property myself. But as a warning, it doesn’t always work that way when there is an amicable eviction and your property is taken from another management agent.
The fact that you use a management company to take care of one or more properties should not be a foregone conclusion that you always use the same company for any subsequent property that you acquire in the same area. In fact, involving two competing companies can be healthy, as each of them will try to get it right for you to win more business. This ties in with my previous program on selecting constructors. Always get three quotes for any job and don’t get complacent using just one builder all the time. The same applies to agents.
You can lose your tenants and your rent very quickly if the property manager does not respond quickly to repairs or tenant complaints. Let me tell you about a situation that I had when I first entered the real estate investment business in the UK. Some tenants moved into one of my properties and signed a lease and paid a month’s rent in advance, as well as a security deposit. I turned over the management of that property to an agent with the understanding that my tenants would call them with any issues that arose and would act on my behalf immediately upon learning of any issues that needed to be resolved.
What happened next with these tenants was a nightmare. Unbeknownst to me, the ceiling started leaking in the master bedroom from day one. During the night, if it rained, they had to place buckets to collect the water that entered through the roof. They called the management company the next morning and were told that a roofer would be there to fix the problem. This went on for three weeks and each time the leaks got worse. The management company kept promising to send the roofer.
At the end of the three weeks, my tenant’s father, who was a lawyer, sent me a letter threatening to sue me if I did not return the tenants their security deposit, but also the first month’s rent and another month’s rent to compensate . them for all the emotional discomfort that it had caused them and the physical discomfort of living in those conditions, as well as for all the time they lost in their jobs looking for another place to live. The upshot of the story is that the management company never sent the roofer, never notified me, and was totally irresponsible. In the end, I lost my tenants, I lost money, and the management company lost me as a customer.
Of course, none of this would have happened in New Zealand because the law protects both landlord and tenant. However, if you are looking to invest in other countries, make sure you are aware of the current laws regarding all aspects of real estate investing.
To sum up:
On the bright side, agents can save you:
having to deal with the courts and eviction notices
Nasty issues like informing tenants about rent increases and complaints against them.
On the downside, they can be:
Lazy or irresponsible or negligent
Slow to get the right fixers out quickly
Careless in informing you when there are serious problems with your property
Here are some additional facts that could be a deciding factor for the owner when selecting a property manager.
One of the first things I learned to do when selecting an agent was see what the caliber of their traders was. Did he have a decent plumber, roofer, and electrician? Were they reliable? How much were your average prices? One of the most common expenses a landlord can have with your property is plumbing. During my years as a landlord, the number of times I was called to send a plumber to one of my properties, and the number of times other plumbers called previous plumbers and told me they had done it wrong, and the outrageous sums of money They charged for their mistakes made me seriously consider going to school and learning to be a plumber. I finally found a plumber who was moderately priced and knew what he was doing. The downside was that it took him a long time to go out and fix the problem. So if you get a property manager who seems reasonable, try checking out the merchants that you have on your books. No matter how kind the property manager is, it is your merchants who can ruin your reputation as a homeowner.
Now let’s say all merchants check. Now you are faced with an equally monumental task of testing the capabilities of a would-be property manager. The laws of a country change frequently and you, as well as your property manager, should keep abreast of those changes. Your manager has to track the rents, document everything, pay your rent on time, and make sure you have referenced the tenants correctly and accepted documents that are legally binding. Both you and the management agency need to be aware of all the properties you own: when the rents are due, when they are paid, when they are posted to your account, if the correct amounts have been paid, that you have up-to-date agreements between you and the agency, that all your tax records are accurate.
If you think property management is like a walk in the park, you are in for a rude awakening. There are complex tax issues, laws governing those taxes, laws regarding tenant rights, landlord rights, evictions, and contracts. You must be prepared to put in a great deal of time and energy as a real estate investor. It is not simply about finding a wonderful property. So you have to make sure it stays that way. A property manager may not know that the building is developing dry rot. You may not know that the wiring needs to be replaced. You may not know that the building is sunk. But since all of these things and many more greatly affect the property you are buying, you need to be aware of these things. These are things the property manager is not responsible for. So while you can always get a property manager to handle day-to-day operations, you really can’t afford to be an absent owner.
To sum up:
– Check out the merchants on the property manager’s books.
– make sure both you and your agent are up to date with tax laws and keeping your records.