Owning and taking care of rental properties can be a full-time job. It’s difficult for owners or landlords to keep up with maintenance, rent collection, accounting, and occasional emergencies… especially when owning more than one property. Those who can’t or don’t want to do everything themselves might benefit from hiring a property management company.
While every company is different, most follow the same basic principles. Knowing how property management companies work, and what to expect from property management companies on a month-to-month basis, can help an owner decide whether they need one and help them search for the best fit.
Property management companies lighten the load for property owners by taking on a variety of tasks. Landlords pay them to handle both routine operations and emergencies. The exact list of what will be delegated to the management company will be spelled out in a contract, as well as payment terms (more on that later).
Companies might have their own staff to do the work, or they may use different vendors for projects that need to be done. Many do both. For example, a company could employ a handyman who does small repairs, mows the lawn, and vacuums the hallways. They could also hire a professional carpenter, plumber, or cleaning crew for bigger repairs or to get a unit ready for a new tenant.
Typical duties offered by property management companies include:
Depending on the level of involvement a landlord wishes to have, property management companies may do some of these things or all of them. Some owners, for example, wish to deal with tenant screening themselves to ensure that those living in their rental homes meet their personal standards. (Note that all leasing must comply with the Federal Fair Housing Act, prohibiting discrimination.)
There are also full-service property management companies who will do it all. When property managers take on these tasks and do them well, it takes a huge burden off of the property owner. They have someone else to rely on for ordinary things as well as unpleasant tasks, such as starting eviction proceedings and handling bad tenants.
Of course, this doesn’t mean the owner won’t know what’s going on at the property. There should still be ample communication with the company, and the owner should have final say in big decisions. But in many cases, there is little for the landlord to do other than watch for the direct deposit of rent revenue in their account.
Sometimes, investors who know how property management companies work have hired one before they even make a purchase. Others may consider hiring one after trying to do everything themselves.
There are situations where it is clear that hiring a property management company is a good idea:
There is often a tipping point when the cost of a property management company becomes “worth it.” The value isn’t only in dollars, but also the time and effort that the owner is spending on keeping the property running effectively.
Property management companies charge rental owners for their administrative and maintenance services. Exact costs vary depending on what property management companies do for the owners, but payment terms will be spelled out in a contract. Every company usually follows similar guidelines.
Usually, property management companies are paid between 8% and 12% of the property’s rental income. An owner should be sure they understand if this will be rent due or rent collected. This is important, as there is often difficulty getting tenants to pay on time. It is preferable to pay the company only for what they actually collect each month.
The contract should also spell out what will happen with vacant units. If a management company is paid the same amount whether there is a tenant or not, there may be little incentive for them to find a new renter.
On top of a percentage of rent, owners usually pay additional amounts for other expenses like repairs, advertising, credit and background checks, and accounting. This might be a flat fee charged each month, or an itemized bill for expenses. This usually depends on the number of properties covered by the contract.
For example, the company managing a small apartment building with four units might have one on-site maintenance man. The owner might receive a monthly bill based on actual receipts submitted by the handyman. On the other hand, with a large number of units, or a larger property management company, the owner is more likely to be charged a flat fee. The paperwork necessary to track specific expenses will simply be too cumbersome for a large operation to handle.
A number of normal monthly expenses are included in a flat fee. If there is something out of the ordinary, for example repairing a burst pipe, or replacing a unit’s refrigerator, the owner may be billed separately. All of this should be spelled out in the contract so the owner is not blindsided by a bill for a big-ticket item or project.
Often, a property management company will require a reserve account to be set up by the owner. This allows them to pay for expenses out of the account without having to wait for payment from the owner. How the account will be funded and used is another part of the contract. It’s important to know exactly what to expect from a property management company before signing the agreement.
Statistics show that there are over 275,000 property management companies in the U.S., employing more than 825,000 people. When an owner decides they need to hire one, they have plenty to choose from. Knowing what to expect from property management companies can help to find one they can trust.
The ideal property management company forms a true partnership with their property owners. They take good care of their tenants while also looking out for the owner’s best interest, all while following state and local laws.
Our blog post
5 Things You Should Know About Property Management Companies in St. Louis can help you narrow down the search. At Select Properties Leasing & Management, our professional staff is trained to offer world-class support to owners and tenants in the greater St. Louis area. We welcome your questions about how our company works and how hiring a property management company can work for you.
Cover Image by WICHAYADA SUWANNACHUN by Canva.com
Post originally published March 17, 2020
12851 Manchester Rd., Ste 110
St. Louis, MO, 63131
