The pros and cons of using a property manager to rent your property

One of the biggest advantages of having a property manager is that they don’t just take care of all the actual management for you: tenant selection, completion of proper paperwork, inspections, etc. – but they also do much of the bookkeeping. From most of my property managers, I would get a monthly statement detailing gross income, expenses incurred, their commission, and the net amount transferred to my bank account. This makes accounting very easy.

Property managers typically charge 4-15% of rental income to manage their properties. Generally, the larger your portfolio, the lower the commission rate they will accept.

Another advantage of using property managers is that the less pleasant job of evictions, rent increase notices, and notices requiring tenants to remedy deficiencies to keep the property clean and tidy no longer need to be handled by you. personally.

So how do you choose a property manager?

Just like with selecting a property to buy, or selecting a real estate agent to work with, or selecting a tradesman to work on your properties, it’s somewhat of a numbers game. Go with recommendations from friends or other owners, interview potential managers, ask them how they’ve handled particular problems in the past, and then give them a try. You can always change them later if you don’t agree. However, it may not always be that easy to switch agents, especially if you have bought the property with the tenants in it.

Let me tell you about an experience I had with an agent in the UK. I bought a property with tenants and, by extension, I took care of the agent who had originally rented it to me. Since it was my first investment property, I didn’t want an agent to manage the property for me, I wanted to manage it myself. But it wasn’t that easy. The agent kept his security deposit because he had found the tenants and even though it was my property he demanded rent be paid and then on top of that he withheld that rent and didn’t pay it to me. He had no legal recourse short of evicting the tenants, which I eventually had to do. It was all very friendly as the tenants knew what was going on. They stayed one night out of the house to legalize it, then I served the court eviction notice to the agent and he was forced to return my security deposit and pay me what he owed me for rent. After that, my tenants came back to me, we signed a new lease, and I managed the property myself. But as a word of warning, it doesn’t always work that way when there’s an amicable eviction and your property is taken from another managing agent.

Just because you use a management company to look after one or several properties, it should not be a foregone conclusion that you will always use the same company for any subsequent property you purchase in the same area. In fact, involving two competing companies can be healthy, as each of them will try to do well to win more business. This ties in with my earlier program on constructor selection. Always get three quotes for any job and don’t settle for using one builder all the time. The same applies to agents.

You can lose your tenants and your rent very quickly if the property manager does not respond quickly to repairs or tenant complaints. Let me tell you about a situation I had when I first got into the real estate investment business in the UK. Some tenants have moved into one of my properties and signed a lease and paid a month’s rent in advance, as well as a security deposit. I had handed over the management of that property to an agent with the understanding that my tenants would call them with any issues that arose and act on my behalf immediately upon learning of any issues that needed to be resolved.

What happened next with these tenants was a nightmare. Unbeknownst to me, the ceiling began to leak in the master bedroom from day one. During the night, if it rained, they had to take out buckets to collect the water that came through the roof. They called the management company the next morning and were told a roofer would be there to fix the problem. This went on for three weeks and each time the leaks got worse. The management company kept promising to send the roofer.

At the end of the three weeks, my tenant’s father, who was a lawyer, sent me a letter threatening to sue me if I didn’t return the tenants their security deposit, but also the first month’s rent and another month’s rent to compensate. for all the emotional discomfort it had caused them and the physical inconvenience of living in those conditions, as well as for all the time they lost in their jobs looking for another place to live. The upshot of the story is that the management company never sent the roofer, they never told me, and they behaved totally irresponsibly. In the end, I lost my tenants, I lost money, and the management company lost me as a client.

Of course, none of this would have happened in New Zealand because the law protects both the landlord and the tenant. However, if you are looking to invest in other countries, make sure you are aware of the current laws regarding all aspects of real estate investing.

To sum up:

On the plus side, agents can save you:

paperwork
having to deal with courts and eviction notices
issues such as informing tenants of rent increases and complaints against them
On the negative side, they can be:
Lazy or irresponsible or negligent
Slow to get the right fixers fast
Failure to tell you when there are serious problems with your property

Here are some additional pieces of information that could be a deciding factor for a homeowner to select a property manager.

One of the first things I learned to do when selecting a broker was to look at the caliber of their dealers. Did you have a decent plumber, roofer, and electrician? Were they trustworthy? How much were their average prices? One of the most frequent expenses that an owner can have with his property is plumbing. During my years as a landlord, the number of times I was called to send a plumber to one of my properties, and the number of times other plumbers took notice of previous plumbers and told me they did it wrong, and the outrageous amounts of money they charged for their mistakes made me seriously consider going to school and learning to be a plumber. I eventually found a plumber who was moderately priced and knew what he was doing. The downside was that it took him a long time to come out and fix the problem. So if you get a property manager who seems reasonable, try checking the dealers he has on his books. No matter how nice the property manager is, it is his dealers who can ruin his reputation as an owner.

Now let’s say all the traders exit. Now you are faced with the equally monumental task of testing the capabilities of a prospective property manager. The laws of a country change frequently and you, as well as your property manager, need to keep abreast of those changes. Your manager has to chase rents, document everything, pay you rent on time, and make sure he has referenced tenants correctly and agreed to legally binding documents. Both you and the managing agency should be aware of all the properties you own: when rents are due, when they are paid, when they are posted to your account, whether the correct amounts have been paid, whether you have up-to-date agreements between you and the agency, that all your tax records are accurate.

If you think property management is like a walk in the park, you’re in for a rude awakening. There are complex tax issues, laws that govern those taxes, laws regarding tenants’ rights, landlords’ rights, evictions, and contracts. He must be prepared to spend a great deal of time and energy as a real estate investor. It’s not just about finding a wonderful property. So you have to make sure it stays that way. A property manager may not know that the building is developing dry rot. He may not know that the wiring needs to be replaced. He may not know that there is a collapse of the building. But since all these things and many more greatly affect the property you are buying, you need to stay on top of these things. These are things that the property manager is not responsible for. So while you can always get a property manager to handle day-to-day operations, you really can’t afford to be an absentee landlord.

To sum up:

– Take a careful look at the merchants in the property manager’s books.
– ensure that both you and your agent are up to date with tax laws and your record keeping.

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