Hiring a property manager is a personal decision. It is not the right move for everyone. Here are nine things to consider to help you determine if you should hire a professional to manage your investment for you.
1. The Location of Your Property Compared to Your Primary Residence.
The more kilometers between you and your investment property, the harder it is to manage. If your primary residence is in Toronto and your rental property is in Windsor, it will be harder for you to find tenants, to handle tenant complaints, to quickly respond to emergencies, to take care of maintenance issues and even to ensure rent is collected on time.
The time it takes you to get to the property and the cost of getting there will also add up. In situations such as these, hiring a good property manager can make sense and actually save you money.
2. Consider How Many Units You Own
As the number of units you own increases, so do your responsibilities. The more tenants you have, the more maintenance issues, complaints and vacancies you will have to deal with. In addition, if your units are spread across multiple properties, your time commitment will increase as you will have to manage the cash flow of each individual property as well as physically commute from property to property to handle issues.
3. Look at Your Experience Before Hiring a Property Manager
If you want to invest in real estate, but don’t know the first thing about property management, hiring an experienced property manager can be the right choice for you. Learning as you go can become very expensive. For a property investor who is just starting out, hiring the wrong repairman or taking too long to fill a vacancy can quickly eat into your potential income. Mistakes such as being accused of discrimination because you did not understand the Fair Housing laws, or of being a slum lord for not getting the heat fixed in time, can lead to the demise of your investment.
4. Can You Afford to Hire a Property Manager?
Before you hire a property manager, you need to assess your finances. Property managers are not free. Managers will charge a fee, on average, between 4% and 10% of the monthly gross income for the property. The typical fee for a single family rental property is closer to 10%. The fee for a property of 10 units or more is typically between 4% and 7%.
For example: A single family home with a gross income of $1,000 a month might have a management fee of 10%, or $100, while a 5% fee would only be $50. In this scenario, paying the property manager $50 a month for managing a property would not be a great enough incentive to attract a quality professional. However, for larger properties, assuming the monthly income is $20,000, a 5% management fee would be $1,000, and should be enough to attract a seasoned professional.
Some property managers will also charge tenant placement fees, which is a bonus for finding a tenant. These fees will vary from a few hundred dollars to as much as one month’s rent.
5. Do You Have the Time to Manage Your Property?
If you have a full time job while you are investing in property and simply cannot give your property the attention it needs, the success of your investment could depend on hiring a good property manager.
Also, realize that time is money and managing a property takes time. If you feel like the day to day obligations of property management are impeding on time that could be better spent making more money at your other job, or looking for other investments, hiring an outside manager may be the right move for you.
6. Are You Willing to Give Up Control?
Property managers can be in charge of everything from collecting rent to filing taxes for the property. Are you willing to give someone else that much control? While they may have the experience and a piece of paper that says they are certified, do they have the passion for your investment?
7. Are You Willing to Take on The Liability of a Property Manager?
Just as property managers have the ability to make decisions on your behalf, they can also make mistakes on your behalf, and the mistakes can cost you dearly. Property management contracts often have something called a “hold harmless” clause which is meant to protect the manager, except in instances of gross negligence, by placing the responsibility on the property owner.
For example: The property manager violates Fair Housing laws when looking for tenants and has a complaint filed against them. As the property owner, even though you did not commit the violation, you hired the person who did, so you could be liable.
8. Do You Have a High Vacancy Rate or Problems With Your Cash Flow?
Good property managers are skilled at finding and screening tenants quickly, and will have a network of reliable, cost effective repairmen to handle emergencies. Most professional property managers will also understand landlord-tenant law, thereby reducing the risk of a lawsuit.
9. What is Your Tolerance for Dealing With Tenants?
Is the stress of dealing with evictions, complaints and maintenance issues taking a toll on you? Property managers are skilled in handling landlord-tenant conflict. They have an understanding of landlord-tenant law, and can serve as the middle-man, or buffer, for problems. In addition, if the tenant knows they are dealing with a third party, they may act more professional as well.
You do not have to hire a property manager just because you are new to property investing, have many units or are having trouble filling vacancies. Personal experience is often the best teacher and everyone has to start learning somewhere. If you educate yourself about property investing, ask the advice of others and have a strong desire to manage your property well, chances are, you will succeed.