What Does a Property Manager Do, and Do I Need One?
You might be wondering: what does a property management company do? A property management company is responsible for ensuring the rental properties in their portfolio are run according to the owners' specifications. A property manager supervises and coordinates maintenance work and deals with issues related to procuring and maintaining reliable tenants.
Not everyone is cut out to be part of property management firms. A commendable property manager has skills including savvy business acumen, effective communication, and sound organizational capabilities. They should be personable, resourceful, and proactive as this allows them to balance people and business management. If you wonder how property management companies work or you're considering hiring a property manager, we can help.
WHAT IS A PROPERTY MANAGEMENT COMPANY?
If a property management company is a business that maintains and oversees the operation of land, real estate, and residential and commercial property. So then, what is property management? The latter refers to running and overseeing the daily operations of a unit of real estate.
Depending on the size of their portfolio, a property management company will assign a team or manager who's responsible for tenant occupation, timeous payments, budget management, and property maintenance.
While it's sometimes considered pricey, the cost of hiring a property manager is tax-deductible against any income that the property generates. The scope of their duties and responsibilities varies from client to client; corporate property owners may provide a manifesto, whereas individual owners may offer verbal guidance on how they want their property managed.
TYPES OF PROPERTY MANAGERS
RESIDENTIAL PROPERTY MANAGERS
Residential property managers play an important role in overseeing the day-to-day operations of residential properties. They act as intermediaries between the property owner and tenants, handling various responsibilities related to property operations. For example, on residential properties, managers oversee tasks such as marketing vacancies, screening tenants, collecting rent, handling maintenance and repairs, enforcing lease agreements, and addressing tenant inquiries or concerns.
COMMERCIAL PROPERTY MANAGERS
These managers specialize in real estate used for commercial means and are familiar with the large-scale management of office blocks, retail, and industrial buildings. Their role requires an impressive level of organization and the ability to liaise between multiple tenants and building owners.
MULTI-FAMILY PROPERTY MANAGERS
Multifamily property managers oversee apartment complexes, taking on many responsibilities on behalf of a landlord. They maintain renter satisfaction, ensure the building is in good condition, and perform the standard duties of a property manager.
SINGLE-FAMILY HOME MANAGERS
These managers are employed by real estate companies, or real estate investors who own real estate investments and rent them out for revenue. They generally manage homes in areas dominated by high-turnover rentals, for example, holidaymakers.
WHAT DO PROPERTY MANAGERS DO?
Property managers have working knowledge of the real estate market as well as the law to ensure the legal management of property and tenants. Some states require them to be licensed real estate brokers, while others accept a qualification in property management or require no qualification at all.
Setting competitive rental prices is part of a property manager's job. They'll typically assess the market value, competition in the area, and the cost of repaying the mortgage, if applicable. Rent prices are based on a percentage between 0.5% to 0.8% of the property's total value. Other factors that can influence the rent price include additional amenities, access to transport, security, and the socioeconomic makeup of the area.
MARKETING YOUR PROPERTY
Hiring a photographer, creating listings on multiple platforms, and reserving slots for viewings take up time. A reputable property manager will create quality marketing content and signage and be available for open viewings. Nowadays, all property managers and companies need to be versed in social media marketing or have a dedicated in-house employee to handle online marketing.
SCREENING AND FINDING TENANTS
For most landlords, screening and finding tenants take time. Thankfully, this is a core component of what property managers do. Property managers invest time in this stage to ensure potential tenants are reliable, responsible, and trustworthy. While minimizing vacancies and maximizing income generated is key, it's also important to safeguard your investment from the headache of bad tenants.
Collecting rent is the most critical factor in sustaining cash flow. Most property managers communicate expectations through clear rent policies and handle collections, late payments, and evictions. It's their responsibility to set a collection date and stringently enforce late fee policies. Securing the right tenants and using efficient payment processing practices ensures real estate investments remain well-oiled.
MANAGING MAINTENANCE AND REPAIRS
How does a property management firm work when it comes to maintenance and repairs? They either use an in-house team or hire contractors to complete the work for them. Property management agencies strive to keep real estate healthy, presentable, and operational. This includes tasks such as carrying out repairs, inspections, painting, cleaning, and gardening. Good property managers have efficient communication with tenants to ensure all maintenance issues are addressed promptly.
MANAGING THE BUDGET
In addition, property managers handle all property-related payments. When managing property, they prepare a property's annual operating budget and work closely with the owner to maximize rental income and ROI. When preparing the budget, they'll factor in ongoing expenses, repairs, maintenance, and administration costs. A property manager is also expected to prepare periodic financial reports on the building's financial condition, as well as its income and expenses.
KNOWING LANDLORD-TENANT LAWS AND REGULATIONS
Compliance with state and federal law is crucial to the success of rental property. If owners have multiple properties in different states, such as vacation rentals, this can be overwhelming. This is where it's advantageous to hire a property management agency as they understand the laws, ordinances, and regulations of real estate, including compliance with fair housing and discrimination law.
SAVING YOUR TIME AND MONEY
Time and money are of the essence for real estate companies. So what do property management companies do? They work to protect real estate investments and guarantee the steady flow of passive income. Like all businesses, they ensure your investment makes money by finding the optimal ratio of costs and revenues. On the practical side, they run the operation and help you save countless hours of procuring tenants, doing maintenance, and balancing the books.
COMMUNICATING WITH YOU ABOUT ANY NUANCE OF YOUR PROPERTY
Property managers are more frequently at their clients' properties, so they often communicate concerns and suggestions for improvement. Keep in mind that the revenue generated from real estate is directly dependent on the quality of management. Those with experience can reliably predict opportunities and challenges that may arise, as well as provide possible solutions.
How Much Does It Cost to Work with a Property Manager?
When considering working with a property manager, it's important to understand the costs involved. Here are some key points to consider regarding the expenses associated with hiring a property manager:
- Management Fee: Property managers typically charge a management fee, which is a percentage of the monthly rental income. The exact percentage can vary but is commonly between 8% and 12% of the rent collected. This fee covers the property manager's services, including tenant management, rent collection, maintenance of the property, and financial reporting.
- Leasing Fee: In addition to the management fee, property managers may charge a leasing fee when they secure a new tenant for your property. This fee is usually equivalent to one month's rent or a percentage of the first month's rent. It compensates the property manager for marketing the property, screening tenants, and preparing lease agreements.
- Vacancy Fee: Some property managers charge a vacancy fee if your property remains unoccupied. This fee helps cover the costs of marketing the property and attempting to secure a new tenant during periods of vacancy. The vacancy fee is typically a percentage of the monthly rent or a fixed monthly amount.
- Maintenance and Repair Costs: Property managers may charge additional fees for coordinating and overseeing maintenance and repairs. These costs can vary depending on the extent of the work required and the property manager's preferred vendors or contractors. It's important to clarify how maintenance and repair costs are handled and if there are any markups or additional charges involved.
- Additional Services: Depending on your needs and property requirements, property managers may offer additional services beyond the standard management duties. These could include accounting services, legal assistance, eviction handling, or property-specific services like landscaping or pool maintenance. Additional services may come with separate fees, which should be talked about and agreed upon ahead of time.
- Other Potential Costs: It's important to ask property managers about any other potential costs that may arise during the management of your property. These could include administrative fees, advertising expenses, legal fees for eviction proceedings, or fees for lease renewal or termination.
It's best practice to discuss and clarify all fee structures and potential costs with prospective property managers before entering into an agreement. Different property managers have varying fee structures and service packages, so it's crucial to compare and evaluate your options to find the one that best suits your needs and budget. Remember to consider the value of the services provided by professional property managers and the potential benefits in terms of time savings, expertise, and maximizing rental income.
The Pros and Cons of Hiring a Real Estate Property Manager
Hiring a real estate property manager offers numerous benefits, but it's important to carefully consider both the pros and cons before making a decision.
Let's delve into the pros and cons of hiring a real estate property manager so you better understand the potential impact on your investment.
The Pros of Hiring a Real Estate Property Manager:
- Time and Stress Savings: A property manager handles various time-consuming tasks, such as tenant screening, rent collection, property maintenance, and handling tenant inquiries or complaints. Hiring a property manager frees up your time and reduces stress by allowing professionals to handle these responsibilities for you.
- Expertise and Experience: Property managers bring valuable knowledge and experience to the table. They're well-versed in local real estate laws, regulations, and market conditions. Their expertise helps ensure that your property remains compliant, and well-maintained, and attracts quality tenants.
- Mitigate Liability: Property management companies have a deep understanding of landlord-tenant laws and regulations. This helps you mitigate potential legal risks and liabilities. They ensure that all necessary legal documentation, such as leases and rental agreements, comply with current regulations, protecting you from potential legal disputes or non-compliance issues.
- Quality Tenants: A property management company employs rigorous tenant screening processes to identify reliable and responsible tenants. Their experience and access to comprehensive background checks help reduce the risk of renting to problematic tenants who may cause property damage, payment issues, or disturbances. This may not seem necessary, but having quality tenants fosters a positive living environment for other residents and promotes long-term tenant satisfaction.
- Shorter Vacancies: Property management companies have expertise in marketing rental properties effectively. They understand how to implement various marketing strategies, utilize online rental platforms, and tap into their network of real estate professionals to attract prospective tenants. Their efficient marketing efforts, combined with their experience in setting competitive rental prices, minimize vacancies and ensure a steady stream of potential renters for your property.
- Lower Maintenance Costs: Property management companies have established relationships with contractors, maintenance teams, and vendors. They can negotiate discounted rates for repairs and maintenance services due to the volume of work they provide. This cost advantage can result in lower maintenance expenses for property owners and contribute to higher profitability.
- Better Reviews and Tenant Satisfaction: Property management companies prioritize tenant satisfaction by addressing concerns, handling maintenance requests promptly, and maintaining clear lines of communication. Satisfied tenants are more likely to renew their leases, reducing turnover rates and associated vacancy costs. Additionally, when tenants have positive experiences, they're more likely to provide favorable reviews and referrals. This enhances your property's reputation and desirability.
The Cons of Hiring a Real Estate Property Manager:
- Cost: Hiring a property manager requires proper funding. Property managers typically charge a management fee, which is a percentage of the rental income. Leasing fees and additional fees for maintenance or repair coordination may also apply. These costs can eat into your income and reduce profitability.
- Loss of Control: Handing over property management to someone else means relinquishing some control over decision-making processes. In some scenarios, you may need to consult and seek approval from the property manager on various matters related to your property.
- Finding a Reliable Property Manager: Finding a trustworthy and competent property manager can be a challenge and this is a process you don't want to rush. It requires thorough research, checking references, and conducting interviews. Entrusting your property to an inexperienced or unreliable property manager could lead to poor management or tenant-related issues.
- Communication and Alignment: Effective communication and alignment of expectations with the property manager are crucial. Miscommunication or a lack of understanding can result in unsatisfactory management practices or conflicts. Regular communication and clarity in expectations are essential to mitigate these risks.
- Dependency on a Third Party: By hiring a property manager, you'll have to rely on their services. If the property manager becomes unavailable or doesn't fulfill their duties satisfactorily, it may disrupt property operations or require finding a replacement.
It's important to weigh the pros and cons based on your specific circumstances, investment goals, and available resources. Evaluating these factors will help determine whether hiring a property manager is the right choice for you.
How do property management companies work? The good ones work closely with property owners and developers to keep tenants happy, maximize income and add value to cities through sustainable real estate management. If you need a professional property manager now, 33 Realty can help. With our experience, you can expect 100% occupancy and 100% satisfaction. To find out more about our comprehensive property management services in Chicago and Illinois, contact us.