Are you thinking of getting into residential property investing but are unsure of the market and what it takes to be a landlord? Home ownership is at its lowest rate in 50 years, and renter households are expected to grow from 40.7 million in 2010 to 47.9 in 2020. This increase in renters means residential rental property is still an attractive opportunity for investors. The next question is, "Who is going to manage your property?"
Are You a Do-It-Yourself Person?
Many new rental property owners decide they will try to save money by managing their property themselves. However, unless you are a marketer, lawyer, bookkeeper, negotiator, handyman—and don't mind being on call 24/7—the DIY option might not be the best one for you. Many new landlords underestimate what it takes to manage a rental property and end up regretting their decision.
What's Involved in Managing a Rental Property?
Managing a rental property involves much more than simply collecting rent every month and unclogging a toilet now and then. Here's an overview of some of the tasks on your plate as a property manager:
- Marketing: Finding tenants for your rental property involves more than just putting a sign in the front yard. You need to understand the rental market in the property's neighborhood so you know how much rent to ask. You need to market the property effectively to get tenants quickly, as vacant rentals are costly, and you need to have a comprehensive and consistent qualification process to make sure you get good, responsible renters.
- Legal matters: You need to have a legal, foolproof lease agreement, and in case you need to start eviction proceedings, you'll need a lawyer or someone to provide legal advice.
- Rent collection: You need to set appropriate rent and payment terms, the date when rent is due, and consequences of late or non-payment—and be willing to carry through.
- Accounting: You need a record-keeping system for rent receipts, mortgage payments, repair invoices, insurance costs, and other bookkeeping matters.
- Maintenance and repairs: You need to be skilled in structural, plumbing, electrical, HVAC and other maintenance and repair tasks. And you need to be able to accomplish them quickly and satisfactorily.
All of this can be overwhelming for even one property. Imagine having to do all this for all the properties in your growing portfolio. The good news is, you don't have to. A property management company will manage your properties so you can spend your time on other tasks, such as finding more properties.
Can You Afford to Hire a Property Management Company?
Perhaps a better question is, "Can you afford not to?" A reputable, full-service property management company will handle all aspects of managing your rental property for a reasonable fee, typically 8%-12% of the monthly rent. These days, many property management companies use automated systems that take care of most management tasks, from finding and qualifying tenants to collecting rent to record keeping. A property manager will be the go-between between you and your residents. This lets you be the invisible owner, separate from the negative aspects of being a landlord.
Property managers usually will have a network of repair contractors who will, at a pre-negotiated rate, handle all repairs quickly and to the tenant's satisfaction. All this adds up to convenience for you and satisfaction for your tenants, which means fewer vacancies. However, when vacancies do occur, which they will, your management company should have potential residents already in the pipeline and ready to move in. A property management company will not only let you have a life outside of your property investment business, but it can actually save you money in the long term.