Property Management - What's the Deal?

As any landlord with more than one or two rental properties can tell you, managing them is a trying and frustrating process. Some landlords simply throw their hands up and sell their rental units, others lose hair over them, and others hire property management companies to manage them. We'll try to answer a few questions about what these management companies do, don't do, and why many landlords turn to them.

Property management companies exist to do exactly that: manage the day-to-day headaches that arise from owning a rental investment property. They screen tenants to fill vacant rental units, sign rental agreements & disclosures, receive rent, keep accounting records, oversee legal obligations like lead paint tests, act as a contact for maintenance and repairs, and for any questions from tenants.

That all being said, there are some tasks that management companies can't or don't perform in most circumstances. Typically, they don't pay property taxes, or maintain rental property insurance (although your mortgage lender may be able to handle that for you in the form of escrows). Management companies usually don't make payments on your behalf, except to contractors or handymen. Lastly, they don't usually handle rental property registrations with local municipalities or government entities.

At about this time, you might be wondering what property management companies typically charge for their services. As a landlord, I've usually paid 7-10% of gross rental income; so, if a property's rent is $1,000/month, a management company may charge $80/month for that property. Therein lies the disadvantage of hiring such a company, as many landlords have only slim cash flow margins each month on their rental income.

The primary advantage of using a property management company, aside from the obvious time and expertise that they bring to the table, is simply this: they will take on the recurring headaches and sleepless nights brought on by the stress of managing real estate. Keeping all of the accounting, laws, tenants, repairs, contractors, and vacancies straight is a full time job for anyone managing more than a few properties, and the fact is most landlords just don't have the time or inclination to be responsive and available. The answer? Let someone answer the 2:38 AM phone calls.

Brian Gregory has performed property management services for himself and others for many years, before deciding to move and pass along his property management duties to an established property management company. He would urge all new landlords and real estate investors to do their own property management at first (links - property management software and free rental forms), in order to better understand the industry, and then hand off the property management responsibilities to someone else once they (inevitably) decide it's not for them.

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