What Is Property Management?

In layman’s terms, property management is when an outside company oversees the operations and administration of another person’s property. This service absorbs the responsibility of interactions with tenants, financial transactions, repairs, renovations, marketing, and any other function of the property, aside from actually owning it. A sound property management company will handle the running of all aspects of your property.

Before hiring a property manager, you must evaluate your needs, size of the company, and if the cost is justifiable. You may not need a property manager if you own only a few rental properties. Once that number grows, the use of a property management company is more of an investment.

The saying is true: time is money. Chasing down late rent, seeking legal advice for new contracts, working with repair companies, and filling vacant rentals all takes time. You could spend this same time securing new investments to grow your portfolio further. With over 280,000 companies and 844,000 people working in the industry, property owners see the need for not wasting time.

Is Property Management More Than Renting?

By definition, property management is “the control, oversight, and operation of real estate, personal property, equipment, or other assets belonging to another.” It is much more than renting to tenants or maintaining the physical property itself.

Property management includes managing the equipment required for each property, handling the capital necessary to maintain well-running properties, and finally, overseeing and employing the individuals needed to process all facets of the business. With $76 billion in the industry, the need for property management is unquestionable. Projections show this revenue number to continue to grow.

Within the industry, there are different life cycles. Acquiring a property, taking over full responsibility for said property, and maintaining it is one life cycle. Past this, there is the cycle of renting units, legal work and contracts, collecting rent, and maintaining the property. Lastly, when a renter relinquishes his ownership, then final inspections, maintenance, marketing, showing, screening candidates, and circling back to the lease creation is the third life cycle. Property managers control responsibility for all of these.

Breaking Down Property Management

With much competition in the industry, it is imperative to know the type of property manager best suited to your needs. Knowledge is power when it comes to a free market. Ensuring you are hiring a property management company that understands your niche will save you frustration and money.

What types of property managers exist?

There are four basic types of property managers: Self-storage, Commercial, Residential, and Recreational Management. Likely, property owners will find themselves in one particular category, although it is not uncommon to see some cross-over. For example, an HOA management company may also have a few corporate companies renting out office space

Residential Property Management

Residential Property Management takes the form of three subcategories: HOA Management, Single-family Residential Management, and Multifamily Management.

HOA Management

One of the more up-and-coming options is HOA Management. These management companies predominately in quick-growing areas. As newer subdivisions put an HOA in place, property owners need management companies to take handle tasks such as HOA fee collection, central area repairs, pool and recreational space maintenance, accounting, and enforcement of HOA policies.

Single-family Residential Management

Single-family units are not necessarily stationed together. These are single houses often spread throughout an area. More than 12 million single-family homes are currently rented in the United States. In 2018, 43,000 new homes were built for the purpose of renting them, up 5% in 2017. With renter properties continuing to look more enticing, single-family residential management companies will grow or expand to keep up with the trend.

Multifamily Management

Imagine apartment or condo communities where many renters are in a single location. As with most management companies, multifamily management companies handle all aspects of running the property, right down to consulting with lawyers to handle any litigation that comes up during the course of ownership.

Commercial Property Management

On most urban roads, large buildings designed for business or strip mall sections with rentable office space line the streets. Commercial property managers navigate the world of warehouses, malls, and industrial property. Like any type of property, businesses outgrow or no longer need a space. Thus, the need for a property management company arrives. Advertising office space, managing landscaping, cleaning detail, ensuring proper electrical and internet options, legal advice, staff training, and human resources all fall within the scope of commercial property management.

Self-storage Management

According to a recent Forbes article, $5 billion was spent on new storage facilities in 2018. Although there is concern that the pace of new builds is short-sighted, the need for management of these properties is still justified. Not only will competitors be vying for new renters, but there is overhead to manage. Self-storage facilities employ workers who need training, management, payroll, and human resources. Operations are still necessary, evicting non-paying renters, and holding storage unit sales all must continue. A single self-storage facility can host numerous units, meaning copious contracts and potential legal battles. Many property owners gladly turn this headache over to a property management company.

Recreational Property Management

Recreational areas such as campsites, resorts, marinas, and RV parks make up a lesser-known property management sector. Like other niches, employee training is a focus. With a recreational facility, customer service is likely a higher priority, along with safety and first aid precautions. The business side still is necessary for a recreational facility or site. Rentals may more resemble daily site or hourly equipment rentals rather than long term contracts.

What tasks can property managers take off my plate?

While this is not a comprehensive and exhaustive list, below are some of the tasks for which property managers are responsible:

Managing rent, including setting rent, collecting, and adjusting as needed
Responsibility for systems to collect and process rent
Knowledge of federal, state and local laws regarding rent adjustments/collections
Management of all tenant relations and responsibilities
Filling and marketing for vacancies
Interviewing, screening, and setting leases with new tenants
Responding to complaints and emergencies
Navigating move-outs and evictions
Creating budgets necessary for running all facets of the property
Maintaining all required record keeping, for example, bookkeeping, inspection records, training data, and tenant issues
Compliance and understanding of applicable federal, state and local laws
Property and grounds maintenance and repair
Responsibility for all areas of property employees relations
Supervision/responsibility for all subcontractors
Managing and processing any necessary taxes

Do I Need A Property Manager?

Determining if you need a property manager is something only you can decide. The undeniable question is, “can you let go of your desire to do it all yourself?” On the one hand, control of your property means you know precisely what is happening and how. However, does that equal the most profitable and effective solution?

Why should you hire a property manager?

Handing over a part of your profits to someone else should come with an evaluation of your goals and limitations.

How many rental properties do you own or plan on owning?

If you have one rental property and live close to it, managing it may not be an issue, especially if your property only has one tenant. Once you have multiple tenants and locations, controlling them on your own will become near impossible. At this point, you could hire a property manager and focus on acquiring more properties to expand your portfolio. Your time can be spent on investments and not drudging through the weeds.

Where do you live or is your office located in relation to your properties?

Do you have properties throughout the city or state? Perhaps you own a beach vacation property. Are you indeed able to inspect it throughout the year and after each rental? Simply visiting, inspecting, and maintaining these properties add up miles and time spent driving. This time may be better allocated to other business ventures.

Picture multiple tenants moving into different buildings across town on the same day. Can you give each tenant the time necessary for their initial walk-throughs, legal paperwork, and questions without feeling the pressure of rushing them along to drive to your second meeting? Relationships are a significant component in any type of business transaction. If you are spread too thin with travel, it will show, and your business will suffer.

Do you want to put in the time and effort to manage the property, know the laws, and work with the tenants?

If the answer is no, then consider a property manager. There is routine care needed for property management. Everything from simple office cleaning to repairing failed appliances or patching walls screams that maintenance is a must. Yet, these repairs can be more extensive and cumbersome, such as roof repair, blacktop issues, or even sewage backups.

Beyond maintenance, with tenants come problems. Being well-versed on state laws is imperative to ensure you do not end up with a lawsuit on your hands. Because we live in constant change, hiring a property manager brings reassurance the experts are drafting your lease agreements, screening applicants while keeping up with discrimination laws, and handling inspections, evictions, rent collection, and other unseen problems by the books.

Are you willing to put forth the effort to get the best tenants?

We all want the best tenants, ones that pay on time, and follow the rules. Landing these types of renters takes a thorough, tried-and-true screening process. It also requires a large pool of applicants to choose from to ensure the best make it through to your property. Property managers typically have ways to screen, within the law, to provide better selection. Further, they already have established means of marketing to reach a higher range of people. Proven companies may have waiting lists of individuals hoping to find a space within their budget and area.

Would you like some distance between you and your tenants?

While knowing your tenants has its advantages, there are also a plethora of reasons it may not be advantageous. For starters, if you become close to a tenant and they are late on their rent, is it comfortable for you to tell them? What about if they are many months late? Would you be able to threaten eviction to a friend?

What about if a tenant comes to you with a problem. Are you able to remain neutral and not take the issue to heart? What if they feel the rent is unfair and the property is needing repairs? What if they accuse you of over-charging and not taking care of their issues? Would you still be able to have a positive relationship?

Property managers can act as a buffer. They are the ones in charge of finding, screening, and offering leases to tenants. They collect rent and evict, if necessary. By handling all of the tenant complaints and issues, you keep a healthy distance and maintain your relationships.

How To Hire A Property Manager

Once you have decided to hire a property manager, it is crucial you don’t jump at the first one you find. Take the time to interview potential property managers, seek the recommendations of other property owners, and check up on references. It is worth the legwork.

Before meeting with a prospect, evaluate what you need the property manager to do. Are you seeking someone to control everything aside from owning the property, or do you want to remain involved in some aspects of the business? Not every property management company provides the same service, so knowing what you expect helps minimize future misunderstandings.

Once you know what you want, craft a job description, and create questions based on it. If you have self-run your property for some time, you should know the day-to-day and unexpected tasks. This list of items allows you to keep focus during the meeting, as well as ensure the questions you ask are the same for each property-manager interview.

Understanding how many properties the potential management company runs in an area is helpful. This clues you in on if they are capable of growing with you, as well as saving you money in repairs. Property managers with a strong base can negotiate savings on routine maintenance since they likely can buy parts in bulk.

During your interview, ensure the company is willing to assume fiduciary responsibility, meaning they take responsibility if they do not act financially appropriate. Some states require they be a licensed real estate agent. Knowing these requirements is vital before your meeting.

Sample questions to ask a property manager

This list is not comprehensive; however, a respectable and sound property manager should know and expect these questions.

How do you screen potential tenants?
Do you have a pool of applicants from which to pull?
How long does it typically take to fill a vacancy?
What marketing methods do you use to find tenants?
Do you assume financial responsibility?
How do you anticipate growth with your staff and prospective properties I may acquire?
How many employees do you have?
Where and how many current properties do you manage?
What is your eviction process? How many evictions have you filed?
What is the late rent process?
How do you handle maintenance requests? How do you bill these in your fee?
What qualifications and certifications do you have?
Do you belong to any business professional group or association?

Property management credentials

Because states have individual laws, the particulars for a property management company will vary from state to state. It’s not enough to check with just federal and state requirements. A property manager will also need to abide by local and county laws. As a property owner, you need to know the company you hire has a thorough understanding of each.

Most states require some form of real estate licensing by a local real estate board. Beyond the license, a property manager could have a REALTOR certification. This certification is not the same as a license; however, it is excellent to hold. The certification is obtained through the National Association of Realtors (NAR).

Other certifications to look for are:

Certified Manager of Community Associations (CMCA) – this certification indicates that the member is constantly informed of changes with property management laws for their state. Members must prove continuing education with the certification.
Residential Management Professional (RMP) – certifies the holder maintains ethical and professional standards. The holder must have a real estate license, as well as two-year experience and managed 25 units during the candidacy period.
Certified Property Manager (CPM) – this certification takes extensive requirements. Before achieving it, a 1-2 year class is necessary, followed by a test and capstone, which takes another 2-4 months. Holders of this certification can work with any asset class.
Certified Apartment Manager (CAM) – as the name states, this is the certification to look for in property managers working with apartment buildings. Like CPM, this requires a class, test, and project to achieve certification.

How Do You Pay Property Managers and How Much Do They Cost?

Hiring a property manager means you are going to have to pay for their services. Although fees vary, nationally, the average is 8-12% of the monthly rental value of the property, plus any expenses that occur. Watch for the language here. Rental value, rent due, and rent collected all mean different things. If they are basing it on “rent collected,” you are not owing for a tenant who is not paying rent.

You may find that instead of the percentage, they charge a flat rate. This could be a good deal, but it also could be a way to stick you with hidden fees. If it seems too low, beware.

Potential fees

Beyond the upfront cost, there may be other fees associated with a management company. Below are a few of the more popular ones:

Maintenance/Repair Fee: find out what services your monthly fee covers and what it does not. Labor charges can come at a $20-40/person rate. On the other hand, the property manager may charge an upfront monthly fee, so they do not have to go to you every time a repair is needed.
New Tenant/Leasing Fee: this fee covers the necessities for screening, background checks, financial verification, and paperwork. Because this fee is relatively standard, it is also essential to look into the company’s screening processes to ensure they are renting in a manner that does not cause high tenant turnover.
Vacancy Fee: as a rule, this is a fee placed when you first sign with a property management company. If you are asking them upfront to fill vacancies, they will charge a fee to cover the costs of a relator, marketing, and the hours of work required to fill a vacancy.
Eviction Fee: evictions happen. Evicting a tenant is a process that costs the company time not just in processing the removal, but also potential court costs. A property management company typically charges $200-500 for eviction.

To Hire A Property Manager, Or Not To Hire A Property Manager

When it comes to how you want to manage your property, the choice is yours. You can run your property solo, or you can take the advice of a company who has put years and investment into using the most effective and professional methods.