Over the last few years, the property management industry has grown, with an annual market share of over $101 billion. As a real estate investor, you may wonder if hiring a property manager is right for you and your rental business. Each situation is unique, but we’ve put together a property management overview for you. Let’s discuss what property managers do, types of property managers, and the pros, cons, and fees associated with management companies. Ready? Let’s dive in.
What Do Property Managers Do?
A property manager handles tasks delegated by the property owner. The manager maintains the property’s value and deals with the unit’s daily operations. Depending on your needs and budget, a manager’s duties may include these:
- Arranging repairs
- Bidding for vendor services
- Collecting rents
- Communicating with tenants
- Coordinating real estate tax reviews
- Creating and maintaining budgets
- Dealing with tenant complaints and requests
- Drafting and signing lease agreements
- Enforcing laws and regulations
- Handling late payments
- Inspecting properties
- Making mortgage payments
- Managing the property’s staff
- Marketing vacant units
- Overseeing evictions
- Screening potential tenants
This role differs from a community manager, who focuses on common areas instead of individual units and may not deal directly with the property owner.
What Kinds of Property Managers Are There?
We categorize property management by industry, then by portfolio size or specialty. Your portfolio will determine what kind of manager would be best for you. Which of these four industries do your properties fall into?
The Four Categories of Property Management
1) Residential
These managers work with short- or long-term residential rental properties, like these types of units:
- Apartments
- Condos
- Foreclosed homes
- Gated communities
- Manufactured homes
- Multifamily homes
- Single-family homes
- Timeshares
- Townhouses
- Vacation rentals
If you need help managing bookings, providing after-hours support, or keeping up with zoning laws and building codes, a residential manager can help.
2) Commercial
Commercial managers focus on retail properties, public accommodations, and office spaces. This group handles more than the ongoing maintenance and leasing requirements. They’ll also manage parking, security, shared spaces, and utilities.
3) Industrial
If you own manufacturing facilities, warehouses, or distribution centers, an industrial property manager will be best suited for your portfolio.
4) Special Purpose
Is your property designed for a specific use? Resorts, sports arenas, theaters, care facilities, schools, and churches all fall into this category. Any property that uses unique construction materials, has a distinctive layout, or can’t be easily converted for other uses may be a special purpose property. Managers in this group need specialized knowledge, like expertise in business management and property law.
Types of Small-Scale Property Managers
Portfolio sizes and specialties also create niches for property managers. These five subcategories all fall into the small-scale property management group.
1) Self-Managing Property Owners
If you own a rental unit, but you aren’t working with a property manager right now, you’re a self-managing property owner, handling all the daily operation tasks for your unit.
2) Individual Property Managers
Independent contractors fall into this group. They set their own rates and schedules and may work with multiple clients. You can hire an individual manager to oversee any type of rental, from residential to special purpose.
3) Individual Building Managers
A building manager focuses on a single property. They’re in charge of staff, maintenance, and tenant relationships.
4) Resident Property Managers
Resident managers live on-site. They work either full- or part-time to oversee vendor access, tenant requests, and daily operations. Depending on the property’s size, it may have multiple managers to provide 24/7 support.
5) Management Companies
Hiring an independent contractor or employees isn’t for everyone. Partnering with a management company may be a better option for you. Small-scale management companies specialize in partnering with clients who have less than 1,000 units. They frequently focus on working with a particular type of property, like single-family homes, or a certain client, such as mom-and-pop landlords with less than five units.
Why Hire a Property Manager?
Working with a property manager can help reduce your legal exposure and stress levels, particularly if any of these situations apply to you:
- You have multiple units, or you own properties in different states.
- The laws and regulations for rental properties vary by state and locality. Keeping up with current requirements is a challenge when you have units in several states. However, when you work with a local property manager, they monitor the laws that affect your property.
- You don’t live near your property.
- Even the best rental property and tenants need in-person attention occasionally. If you live far from your unit, providing that care may be a hassle. But a property manager in the area can quickly address any maintenance needs or tenant requests.
- Your property is part of an affordable housing program.
- Affordable housing programs come with complex requirements. An experienced property manager can help you navigate the guidelines and offer fair housing.
- Hands-on maintenance isn’t possible or practical for you.
Like many rental property owners, your real estate investments may not be your sole source of income. You may travel frequently or have health issues. Other jobs and responsibilities can affect your ability to work on your units. But delayed responses to tenant requests or necessary maintenance cause frustration for tenants. A property manager can prevent frustrations and free you of the daily tasks that come with your units.
What Are the Drawbacks of Hiring a Property Manager?
Before you hire a property manager, consider what the downsides may be for your business.
- Loss of Control
- You must give up a bit of control over your unit when you have a property manager. This may be a relief for some property owners. For others, it’s a challenge that just adds more stress.
- Different Management Styles
- A manager’s tenant-screening process may not be as thorough as you’d like. Their response time might not fall within your range of acceptability. If your standards don’t align, you won’t be happy working with them. Look for a manager who has standards and processes that are in line with your own. Be clear about your expectations up front.
- Reduced Profits
Every expenditure cuts into your bottom line. Depending on what level of service you need from your manager, the costs can add up. Make sure the return on investment is worth it for you.
What Do Property Managers Charge?
There are several costs associated with property management.
- Management fees: These can range from 5% to 12% of your rents.
- Maintenance charges: This may be a flat fee or a percentage that varies depending on the company, individual, and location.
- Leasing costs: Think of this cost as a new-tenant placement fee. It covers marketing, managing applications, and move-in outlays.
- Lease-renewal fees: These costs cover the time needed to renew leases and collect signatures from property owners and tenants.
Pricing and fee structures may vary depending on your needs, and management companies may not charge each of the fees above. Make sure you understand how costs are incurred and billed so you’re not surprised later.
Takeaways
Property management is a requirement when you own rental units, whether you act as a self-managing owner or hire a company. No matter what industry you’re in, there’s a property manager whose specialty aligns with your portfolio. Outsourcing can save you time, reduce your liability, and ease stress, but it comes with a cost. If you aren’t comfortable giving up some control over your property, or your business isn’t ready for the added costs, self-management and specialized software may be better options.
Use our overview as the first step to determine if a small-scale property manager is appropriate for your rental property. Then, as your portfolio grows and changes, reassess to see if it’s time to hire a small-scale manager.
