You have bought a property and the first pat on the back is for deciding to save money by doing all the managing yourself. Not so fast. You can recoup the 8 to 10 percent a property manager charges and then some. With the extra cash generated by lower expenses, you can invest in more properties until the day you have established a nice little real estate empire. Some landlords try to maximize what they make on a property by hiring property management with a do-it-yourself mindset.
Here’s a breakdown of exactly what costs you should save over the DIY approach to being a landlord.
Shorter Periods for Vacancies
When you drive up to a hotel and the sign outdoors reads “No Vacancies,” you probably think hotel management knows what it’s doing. When you hire someone to manage your investment property, the professional in charge knows how to limit the amount of time between one tenant moving out and the next tenant moving in.
Typically they are more available to show properties and answer calls. A strong property manager has someone answering the phone 12 hours daily, where a typical landlord may be at work or miss calls and emails, delaying the property showings and fulfillment for days.
A potential tenant can see a property quicker, apply quicker; as a rule, everything moves faster. This translates to more showings and quicker turnaround times. Furthermore, a professional in charge of your rental property plan weeks in advance to replace a departing tenant with a new tenant. Shorter periods for vacancies generate more rental income.
A reputable company properly screens every prospective tenant that submits a rental application. You do not have to spend time waiting for background checks to clear, as well as spend time getting to know potential tenants. The company that you hire does all the screening for you and most likely does it better than you.
They have systems in place to identify potential problem tenants. A criminal background check is no longer enough to screen prospective tenants. The company that you put in charge of your property should screen for financial and employment issues.
Attracting better tenants equals less time and money spent filing legal action against tenants that are delinquent with paying rent.
The expectation as well with a property management company is that there is no leeway with late payments, as opposed to landlord reputations for being “soft”. The property managers at Utopia Management say that about 80% of their new property owners experienced late payments.
After signing on with management, the late payments reduced by about 60%. The theory is not only that the expectation for timeliness is set, but also property managers typically have easy payment options including online and by credit card.
Lower Maintenance Costs
The longer a maintenance issue goes undetected, the more expensive it will be to fix it. An on-site property manager conducts regular inspections of your entire rental property to discover maintenance issues. The best companies employ a maintenance staff to take care of the properties they manage.
This means you get charged a monthly service fee for maintenance instead of taking money out of your account every time something falls apart or breaks down on your rental property.
Companies that manage rentals can also save owners money on maintenance costs by negotiating better deals with contractors. You end up paying less money for maintenance expenses, which allows you to grow your property investment portfolio.
Sound Financial Decisions
Companies that have years of experience managing rental properties understand the nuances that define a local real estate market. A company like Utopia knows that what drives the rental property market in La Jolla is different than what drives the rental property market in Sacramento. Financially savvy companies know when they can raise rent and when they should ride out a short-term economic downturn.
You no longer have to guess how much to charge for rent.
Sophisticated Rent Collection System
One person versus dozens of tenants. It’s not Custer at Little Big Horn, but it can be a money drainer when it comes time for tenants to pay rent.
With a company that keeps everything tightly organized, the rent collection process gets much easier. You save money by ensuring everyone fulfills their monthly rent obligations. An online rent payment system that can set up automatic payments at the same time each month is a strategy used by the best companies.
You no longer have to bang on doors or make phone calls to voicemails to collect rent.
Decreases in Legal Issues
We already discussed the money-saving benefits of attracting the right tenants: Lower legal fees. Another way a property management company reduces the costs associated with ownership is by creating legally iron-clad leases that have received scrutiny from a real estate attorney.
You also benefit from the legal knowledge a property management team brings to the table. Different local laws govern rental property transactions in California and across the United States. What works in San Jose might not work in Riverside.
A company that stays updated on rapidly changing real estate laws can help you avoid costly litigation.
The Bottom Line
Although it is tempting to cut the eight to 10 percent management fee from your monthly income statement, the fact remains that for most owners, hiring a company that manages rental properties saves more money in the long run.
If you have a day job or plan to invest in additional properties, hiring a team of experienced property managers can save you both time and money.
Above all, the best companies offer something that you cannot quantify in terms of cost savings.
Peace of mind.