Owning rental property has a certain amount of appeal, mainly due to the fact that you own an asset that you can sell later, if you like (and if it appreciates enough in value). On top of that, your rental property can provide you with a regular income stream.
Many people see owning rental property as a great source of passive income. However, once you become a landlord, you might find that managing a rental property is anything but “passive.” If you are struggling with the duties of a landlord, it doesn’t mean that you have to give up the rental property. You can consider hiring a property management company to take on those duties for you.
A property management company provides services related to the administration of rental properties. These companies arrange for maintenance and repairs on the property, as well as handle all of the day-to-day matters associated with keeping the rental property running smoothly. A management company can hire on-site managers for each location, as well as make sure that there is proper security when warranted.
There are also property management companies that will fill vacancies and handle paperwork. As long as you are willing to pay the fee, it’s possible to have a professional company handle almost anything, leaving you free to travel, or build your business in other directions, or engage in other activities.
Some of the reasons to use a property management company include:
A good property management company can smooth things for you, since the right company will understand the various laws in your city and state, as well as adhere to fair housing laws. If the income you receive from your properties is large enough to handle the fees that you will pay to a property management company, and still leave some for you to accomplish your passive income goals, consider hiring a company.
The key to a good experience with a property manager or property management company is the agreement. You want to make sure that you understand the agreement.
One of the most common ways to structure an agreement with a property management company is for a percentage of the rents received. Find out what the fee entails. One management company might quote you a low fee, but the fine print could exclude items like paying bills and evicting tenants. The more you want the management company to handle, the higher the fee will be. Think about what you want handled, and then look for a reputable company that takes care of everything you don’t want to do.
If there is the possibility of extra duties, hammer out how they will be handled. You might require the manager to approve it with you first. You should also determine whether the fee is a flat fee or a percentage. Most management companies, though, will handle tenant issues, have someone on call for emergencies, maintain the properties (landscaping, etc.), and arrange for repairs.
Realize, too, that you need to understand liability. Your property management company isn’t usually liable for the damage done by hired third parties. If you want to encourage managers to perform due diligence prior to hiring a professional to take care of something, make sure to include a “reasonable care” clause that requires the manager to screen third parties before contracting them.
Get recommendations from other property owners that you know, and check with the Better Business Bureau to find out if there are problems with the management company. Ask if you can avoid getting into a long-term contract with a property management company until you see how well the arrangement works. Many companies require a commitment of at least six to 12 months, and may charge termination fees if you cancel before the initial contract is up.
With a careful search, it should be possible to find a property management company that meets your needs — and frees you up for other things.
Photo credit: Luke Wisley.
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