Investing in rental properties is a great way to make money from real estate. However, many people pass on this opportunity because they dread the idea of dealing with tenants and maintaining another property in addition to their home. This is because they erroneously assume that becoming a real estate investor means becoming a landlord too.
Indeed, you can avoid this by hiring a professional property management company to take care of your rental business. Just like everything else in real estate, working with a rental property manager has advantages and disadvantages, and we’ll have a look at them below.
The Pros of Hiring a Rental Property Manager
One of the most important benefits of hiring a property manager is that this will turn your rental property into a passive investment. You can forget about midnight calls from tenants, leaking pipes, late rent, eviction, vacancies, and all the other inconveniences related to owning a rental business. The company will oversee all these and any other issues. Instead, you can focus on spending your passive rental income in the most pleasant way or on growing your real estate investment portfolio. Don’t forget that real estate investors are recommended to buy a new investment property every 2-3 years to grow their business in a sustainable manner.
More Efficiently Run Business
Property managers are professionals who know how to optimize the rental process. They are well connected with dependable licensed vendors who offer them discounted rates. This means that any fixes and repairs on your rental property will cost less. Moreover, they are closely familiar with the local rental market, so they can set the optimal rental rate, push tenant retention up, and minimize vacancies. No matter how much you care about the wellbeing of your property as the owner, you can never achieve the same level of efficiency and optimization unless you turn into a full-time landlord, losing your current job.
Knowledge of Local Legislation
US rules and regulations for long-term rentals are usually landlord friendly and not prohibitive, unlike recent bills related to short-term rentals. Nevertheless, there exist significant differences between landlord-tenant laws across states, counties, and cities. You might not be familiar with them outside your location or even in your own city if you were never a party to such a relationship. On the other hand, professional property managers are experts on local rental legislation and will make sure that your property abides by all rules, keeping you out of trouble with the authorities. This is very important for a successful real estate investor.
Ability to Invest Out of State
Most people tend to buy rental properties close to their home because of their familiarity with the local housing market as well as the need to be available to tend to all the needs of their renters. Property management makes out of state real estate investing feasible. This advantage is particularly important for investors who live in overpriced, unaffordable markets with low return or in markets with low price to rent ratio where people prefer to buy a home rather than rent.
Better Return on Investment
All of the pros listed above mean one and the same thing: that hiring a professional property manager leads to a higher return on investment. Why is this? It is simple – you make more money from your rental property because of higher income and lower expenditures. After all, the goal of every rental business owner is to maximize his/her return on investment.
The Cons of Working with a Professional Property Management Company
Property Management Fees
Professional property management has very few disadvantages, but one of them is that it obviously costs money. Most companies charge an initial setup fee which is usually around $300 as well as a monthly management fee which ranges between 3% and 10% of the monthly rent. Other companies also charge a one-time leasing fee when a property becomes vacant, a lease renewal fee every time a lease is renewed, and an eviction fee if such a situation arises. As you can imagine, all these payments can add up to a significant part of your rental income and push your return down.
However, generally speaking, property management is becoming less and less expensive as more companies enter the market and as a large portion of the business gets automated due to technological developments. Moreover, as long as you hire a good manager, he/she will optimize all aspects of your rental business which will overcompensate the additional cost of the management fees.
Less Control Over the Property
Another con to consider is that by giving away the management of your rental property to a professional, you also give up a significant part of the control over your business. You will have no say in who lives on your property and who doesn’t; how much rent he/she pays; whether he/she gets evicted; and what maintenance and repair works get implemented. This is not necessarily a bad thing, but it’s definitely something to keep in mind, especially if you generally like being in charge. Once again, this means that you have to do detailed research on property management companies available in your market and choose the best one. It’s usually better to go with a bigger national property manager as those are more efficient and have proven experience and satisfied customers.
The final drawback of hiring a property manager is that no one cares about your property and the success of your rental business as much as you do. After all, that’s not only your source of additional income but also your pride and sense of accomplishment. A professional property manager will treat your rental as a business and nothing else. Nonetheless, that’s not necessarily a bad thing.
Now that you know the advantages and disadvantages of using professional property management versus managing a rental property on your own, you can make an informed decision on the best approach for you. Whichever strategy you decide to use, make sure that you study the real estate market well and analyze properties for sale in detail in order to buy a profitable investment property.
About the Author: Daniela Andreevska is Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. We provide all the real estate information in easy to understand visualizations.
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