Property management companies are great for investors who want to be less hands-on or who live far from their rental properties. What a property management company does to help investors is they manage the day-to-day operations of rental property. Depending on the property, management companies typically charge between 4% and 10% of gross monthly rent.
The most important step in owning a rental is deciding who will manage your property. If you’re going to manage it yourself, you will need to screen tenants. Luckily, Avail can help you with that. They screen tenants, post vacancies, and schedule maintenance repairs online. You can start today with their 30-day free trial, and your first unit is always free.
What Is a Property Management Company?
Property management companies manage one or more rental properties for investors who want to outsource their day-to-day operations. Property managers can be real estate brokers, individuals, companies (with or without staff), subagents hired by investor-managers, or resident-managers who live onsite. Property management companies handle residential, commercial, and industrial properties, often specializing in one or more of these types of properties.
In addition to traditional on-the-ground property management companies, there are also property management software solutions that can assist you in managing your maintenance, handling screening tenants, executing leases, and more. These are great for DIY landlords. Property management companies offer both comprehensive and a la carte property management services.
What Does a Property Management Company Do?
Property management companies provide both comprehensive and a la carte services that include everything from screening tenants, managing repairs and maintenance, to collecting rents and paying bills. When talking with prospective management companies, ask what services are included in the monthly management fee, which services you can pick and choose from, and which require additional fees.
Here are some typical services property management companies offer:
- Tenants: Property management companies handle tenant-related matters such as background checks, showing units, evictions, arranging clean-outs, handling leases, complaints and emergencies, and the turnover process when a tenant moves. They also will market your property to find good tenants.
- Finances: Property management companies often handle property finances, including collecting rents, setting and adjusting rental amounts based on current rental market data, establishing and managing escrow accounts for deposits and prepaid rent, bill paying, and can help with filing taxes.
- Property: Property management companies also manage vacant properties, such as coordinating opening and closing seasonal vacation rentals and vacant rental property. They will perform regular inspections of your property and offer a 24-hour service for emergency calls, coordinating with and scheduling subcontractors.
When to Hire a Property Management Company
Hiring a property management company may be right for you if you own a lot of rental properties, live far away from your properties, or want to be less hands-on. If you don’t have the skills to maintain the property or your time is limited, you may also consider hiring a property manager. Also make sure you can afford to hire a property manager.
A good time to consider hiring a property management company is before you buy rental property. By doing so, you can be sure to budget property management fees into your cash flow projections. If you already own rental property and are considering hiring a property management company, it’s not too late to review your property financial statements and decide if hiring a property management company makes sense for you.
Managing Out-of-State Properties
If you don’t live near your property, it can be challenging to manage both the day-to-day operations and unexpected issues as they arise. Hiring a property management company near your property can save you time and money from travel, as well as delayed response time when you can’t be at the property to address a problem.
You can certainly find and screen tenants from afar, but meeting face-to-face with a prospective tenant is usually better in order to determine if they will fit in well with the other tenants and their overall vibe. There are online software programs that allow you to collect rent, pay bills, and schedule maintenance. Some investors may even want to go the extra step of hiring someone local who can check on their property for them.
Maintaining Large Commercial Properties
Large commercial investment properties can be a good investment but require a lot of work to manage and maintain in comparison with smaller residential rental properties. If you’re buying a large commercial property, it may be a good time to consider outsourcing to a property management company.
Commercial property management companies have processes for screening applicants, finding and securing quality tenants, handling tenant inquiries, collecting rents, and managing commercial leases, which are often more complex than residential leases. They know the laws pertaining to commercial properties and tenants.
Building a Portfolio
If you’re building an investment property portfolio, you may want to consider hiring a property management company. Each property you purchase will need to be stabilized before you can move on to the next. A stabilized property is a property that is at or near occupancy, tenant turnover is minimal, rents are at market rate, and the property requires minimal improvements.
If you’re still in the process of building your portfolio, you can hire a property manager to help stabilize your properties for you. Alternatively, you can hire a manager to manage each property after it is stabilized, giving you more freedom to find the next property for your portfolio.
When Lenders Require Property Managers
A lender may require hiring a property management company if a borrower is buying commercial property, including residential properties with five or more units, office buildings, hotels, medical centers, retail stores, malls, warehouses, and garages. They also may require hiring one if the borrower has no prior experience with investment property, is buying a large volume of property, or lives far from the rental.
Working With Hard-to-Manage Tenants
Property managers are skilled in managing tenants and can serve as a buffer between the tenant and landlord when problems arise. They understand landlord-tenant laws in the area where they manage properties, which is important because landlord-tenant laws vary by state. Property managers can also handle evictions, property inspections, lease negotiations, and lease terminations, and have stringent policies about rent collection.
Property managers will enforce the lease and deal with hard-to-manage tenants who break the terms of their leases. If a tenant is having wild parties and disrupting the quiet enjoyment of other tenants, the property manager will contact the tenant and reinforce the part of the lease as it relates to noise levels. If the tenant damages the unit, the property manager can make sure the tenant pays for repairing the damage.
When Not to Hire a Management Company
If you’re considering buying investment rental property, you’ve likely wondered what a property management company does, if you should hire one, or if you should manage your rental properties yourself. If you want to free up time for other things, hiring a property manager can certainly do that for you. However, there are circumstances where you won’t want to hire a property manager.
If you enjoy being a landlord and have the time to manage your property, or are an owner-occupied landlord, it may be better for you to self-manage your rental property. If turning your property over to a property management company eliminates all your profits or you have to pay out-of-pocket, it may be better to manage the properties yourself.
Property Management Fees
Paying property management fees for someone else to manage your rental property can save you time and in some cases money. These fees vary by provider and the services you select. Management company fees are typically between 4% and 10%, depending on the type of property.
Common Property Management Fees
Type of Fee
Monthly Management Fee
4%-10% of gross monthly rent; sometimes a flat fee of $200-$500/month
Setup or Onboarding Fee
Up to $300
Lease Renewal Fee
$0 to $200 per new lease
From 25% to 100% of one month’s gross rent per unit
$50 and up
$200-$500 per unit
Some typical property management fees include:
Monthly Management Fee
This is the most common fee charged by both commercial and residential property management companies. It is usually a fixed amount or percentage of gross monthly collected rents. Baseline fees include the day-to-day management of your property, bill paying, collecting rents, conducting inspections, responding to emergency maintenance calls, and coordinating repairs. If you have multiple properties, you may be able to negotiate a reduced fee.
Setup or Onboarding Fee
Some companies charge a one-time fee to set up your account and onboard you for their property management services. These fees can be up to $300. Depending on the type of property you’re having managed, you may be able to negotiate a lower fee for tenant setup.
The leasing fee is usually equivalent to one month’s rent or a percentage between 25% and 75% of gross rent. For example, let’s say a property management company secures a tenant for your vacant unit with a monthly rent of $1000. The company may charge you from $250 (25%) to $1,000 (one month’s rent) as an upfront leasing fee. Ask if advertising is included instead of paying an additional advertising fee.
Not all property management companies charge lease renewal fees, but you can expect to pay up to $200 per unit if this fee is charged. The lease renewal fee includes a rental market analysis to ensure tenants pay current updated market rental rates. It also includes the creation of new leases and documents and acquiring tenant signatures.
Some management companies charge a monthly vacancy fee of $50 or more per month. Other companies expect to collect the full monthly property management fee even if there are vacancies. This is a fee you want to avoid, so it’s important to make sure your property management company does their best to keep your rental units filled with good tenants.
Repair Reserve Fund
Typical rental property maintenance costs are around 1.5% times the gross monthly rent per year. If your rental property income is $3,000 per month, you can expect maintenance costs of $4,500 per year. Property management companies may require you to advance all or a portion of these reserves. If a repair costs more than the reserve, you’ll also need to pay those costs.
Sometimes this fee is included in the leasing fee, so be sure to ask. However, you can expect to pay $100 to $200 if the property management company has an effective marketing strategy.
How Property Managers Save You Money
You might ask, “What does a property management company do to save me money?” While these fees can add up, hiring a property management company can also save you money. In many cases, property managers can help you find tenants faster, lower tenant turnover, and improve your rent collection.
Some ways a property manager can save you money include:
Low Tenant Turnover
Property management companies have guidelines and systems for screening prospective tenants. Therefore, money lost through tenant turnover and vacancies is usually reduced. Should a property manager need to evict a tenant, they can often do some or all the eviction process in-house, or at least do some of the preliminary steps until legal counsel is needed.
Improved Rent Collection
Property managers have a process for collecting rent on time. They create a buffer between the landlord and the tenant, so you don’t have to be the bad guy when the tenant is charged a late fee or sent a Notice to Quit for nonpayment of rent. Property management companies will act immediately if rents are late.
Reduced Maintenance & Repair Costs
Property management companies have vetted subcontractors they use on a regular basis or have in-house maintenance staff so less time is wasted finding and scheduling repairs. Because they have a lot of properties to manage, some subcontractors give them discounted fees for consistent work.
Rental Market Analysis
Property managers are on top of current rental market rates and will often perform a rental market analysis to determine current rents, so you can expect to receive the highest rent possible for your units. Property managers can also help landlords increase their property value by making sure maintenance and repairs meet and exceed local standards.
Accounting & Recordkeeping
Property management companies can handle your rental property accounting, advise on rental property tax benefits, and perform other accounting duties, so they’re alert to discrepancies. They pay your bills on time to avoid late fees and may be aware of other money-saving discounts, such as the best times during the year to have carpets cleaned, windows washed, appliances upgraded, and so on.
One of the top reasons landlords hire a property management company is to save time. With your time freed up from having to manage day-to-day operations, you are free to focus on building your rental property portfolio. There is always a time savings when hiring a good property management company, and time is money!
Tips for Hiring Property Management Companies
Six tips for hiring a good property manager are:
1. Check Experience & Credentials
Most states require property management companies to have a property management or real estate broker’s license. You can search your state board of registration. Also see if they hold any other memberships or certifications with national property management trade organizations. In addition to certifications, ask how long they’ve been in business, how many properties they manage each year, and if you can speak to a few landlord clients and tenants they’ve managed.
2. Conduct Online Search
You can conduct an online search through professional directories such as the National Association of Residential Property Managers (NARPM) or the Institute of Real Estate Management (IREM). You can also search for online company reviews, check the Better Business Bureau (BBB) listings, and scan their social media pages for reviews and complaints.
3. Ask for Recommendations
Ask other investors, landlords, realtors, and people you know who are tenants for recommendations to property managers they have experience with. Ask why they are referring the company to you, and get detailed information about their experiences, positive or negative. Ask for examples of their experiences with the company they recommend.
4. Conduct Interviews
After you’ve narrowed your search, set up interviews with the property manager. Ask how many properties they’re currently managing and if they have the resources to see that your property gets the necessary attention. Ask how often they will inspect your property. Pay attention to how they communicate with you. If something doesn’t feel right, trust your instincts. It’s best to meet in person, but if you live a distance away, you can meet virtually.
5. Review the Property Management Agreement
Review their property management agreement and the systems they will use to manage your rental property. Review the sections on the services offered, fees charged, and what your responsibilities will be. Be sure they’re in compliance with fair housing laws. Review the hold harmless clause that protects the property manager from liability, except in cases where they have been negligent. Be clear on the contract duration and cancellation policy.
6. Ask the Right Questions
As part of your interview and screening process, here are a few additional questions to ask:
- Are they available 24 hours a day? Do they use a calling service for after-hours?
- What is their response time for emergencies and to tenants in general?
- How often do they send you updates and status reports?
- Are they using software to manage your property? Is your information secure? What accounting systems do they use? When will you get paid?
- What is their employee turnover rate? If people leave the company frequently, that’s a red flag.
- What is their property management fee structure? What’s included in the monthly management fee? Can services and fees be customized to your needs?
Property Management Company vs Self-managing
By now you should have a good understanding of when to hire a property manager, what a property management company does, and how much it will cost. Perhaps you decided hiring a property manager is not right for you. If so, there are alternatives to hiring a traditional property management company.
Self-managing Rental Property
Some landlords prefer to manage their own rental properties. Perhaps you have the skills and experience, or are eager to learn and engage with tenants, providing suitable housing. There are several areas you will need to learn how to do when self-managing rental properties.
- Research and set local current market rents. Look in local newspapers, Craigslist, and other local apartment sites for comparable rentals.
- Create tenant applications, leases, and other tenant documents.
- Advertise and market vacancies. Take advantage of free online marketing like Craigslist and Facebook. Local newspapers are also a good choice.
- Screen tenants. Check criminal records, rental history, and eviction records, verify income and employment, and check their social media accounts if available.
- Maintain the property. Perform routine and preventative maintenance and repairs, and fix unexpected repairs quickly.
- Collect rent, pay bills, pay taxes, and enjoy your profits!
Property Management Software Makes DIY Easier
Property management apps and software can save you a lot of time and money. There are apps that provide tenant applications, leases, and background screening, manage routine and preventative maintenance, collect rent, pay your bills, and market your property, whether you live near your property or out of town. They strive to provide DIY landlords and tenants with a great rental experience.
A traditional property management company would cost between 6% and 10% of the gross monthly rental income, plus the additional fees we discussed earlier. Hiring a property manager would let you be virtually hands-off. Property management software would likely cost up to $50 per month, but would require you to play a more active role. Property management software is for DIY landlords who want to organize and streamline the property management process.
We hope we answered your question on what a property management company does and when to hire one. You may want to hire a property manager if you own a lot of properties, don’t want to manage daily operations, feel overwhelmed by too many tasks, don’t have maintenance skills, your time is limited, you can afford it, or you live a distance from your rental properties.
Avail is an online property management service that makes it easy for landlords to manage their rental properties. Using Avail, landlords can market their properties, attract and screen potential tenants, and collect rent online. With Avail, landlords get access to resources to help them grow their portfolio and manage properties more efficiently. Landlords can also manage their first property for free.