Leasing Service Management – Want to do your own maintenance?
Landlords often ask us: “Can I do my own maintenance?”. Many Landlords do their own property maintenance to directly control the cost and quality of the work done at their properties. Equally important is the communication and response time to new work orders. A full-service Property Manager typically will not allow for an owner to perform maintenance under the management agreement due to the protections a Manager is required to have in place as an Agent to the Owner and the responsibilities assigned to the Manager in the Management Agreement.
Rental properties require the most attention during turnover and lease-up. To address this need, many Property Managers offer a Leasing Service which allows Landlords to continue doing their own maintenance and avoid the heavy administrative burden of finding a tenant.
A Leasing Service plan typically includes the following services:
- Tenant Screening
- Lease Signing
- Security Deposit and First Month’s Rent Collection
- Managing phone calls and emails
- Coordinate Utility Transfers
- Pictures and Video Tours
- Tenant Orientation
The Property Manager’s responsibilities are complete once a qualified tenant moves into the property. The is Owner free to handle the maintenance and day-to-day decisions as they please.
A Leasing Service agreement is a good option for a Landlord who has good control over their occupied rental properties but does not have the time or resources to quickly fill a vacant unit with a well-qualified tenant.
Best Property Management Strategy: Manager vs. DIY Self-Manage.
Owning rental properties brings many challenges. Among the more significant decisions to be made revolve around how to manage the investment – self manage or hire a third-party?
Before reading further, it is important to note that hiring a property manager may not be the best option for you. There are situations in which self-managing is a better option than hiring a third-party. Some individuals possess strong skillsets which make them well-suited to self-manage their properties. This article will look at the benefits on each style so that you can make an informed decision best fit for your circumstances.
In addition to the general day-to-day management of a rental property, you must also consider your need for support in the areas of Marketing, Taxes, Accounting, Maintenance and Legal advice. Some of these areas can be covered by a property manager and others cannot.
When most people consider hiring a property manager the first and foremost concern is that of cost. However, there are many other important factors to consider. Owning a rental property is essentially the same as owning a small business and the similarities, responsibilities and duties of each coincide closely.
Top 5 reasons to hire a Property Manager
- Your Will Have More Free Time – In our experience, the primary reason for hiring a property manager revolves around time management. Many investors are focused on growth and are too busy to manage their own rental properties. Other investors place a very high value on their free time and prefer to spend time with their families, travelling or just not worrying about the next call from their tenant. Peace of mind is powerful and it is difficult to place a value on.
- Your Rents Will Likely be Higher – Many who self-manage often let their rents fall behind the market. A property manager can often pay for themselves just by consistently managing a rental at or above market rents. Property management companies continuously work the market and know how much they can push rents. As an example, consider a home renting for $1,000/mo: A market rent increase of just 5% translates to an additional $600 of income per year. This increase could be even more if the home is currently rented for less than $1,000/mo and the rent has not been increased for several years.
- You Invest Out-of-State – Owning rental properties out-of-state or even in a different city can be a good reason to hire a property manager. Laws affecting real estate vary from state to state and from city to city and having local knowledge is vital. You also need “boots on the ground” to ensure that your investment is preserved and cared for. Hiring a property manager is highly recommended if you do not invest locally.
- Relationships and the Experience of Professionals – When you hire a property manager you get the instant benefit of proven systems and many years of experience. There are many situations in real estate where experience can save you hundreds or thousands of dollars. Hiring with a property manager can also be a great resource for you to learn the business by associating with people who have been active in it for many years.
- You Don’t Know Where to Start – Let’s face it, some people just don’t have the time, knowledge or desire to self-manage a rental but they still recognize the powerful wealth building capability of real estate and want to own a rental portfolio. A property manager can give this wealth-building opportunity to people who otherwise may not be able to take advantage of it.
Top 5 reasons to DIY Self-Manage
- No Management Fees – The financial benefit of self-managing is usually very clear. If you self-manage you will save anywhere from 8%-10% of the rent collected each month. You will also save the cost associated with leasing the property which can range from 50%-100% of a full month’s rent. Using the example of a home renting for $1,000/mo: Your annual savings in management fees would be between $1,460 – $2,200 depending on your property manager’s fee structure.
- Ultimate Control for Decision-Making – Being a self-manager means that you are the person making all decisions large and small related to your rental property. You will always have your own best interest in mind. Being in control squarely places responsibility on you to delegate tasks or handle them yourself as you see fit. Having a strong team in place will assist you in delegating.
- Gain Valuable Experience – There is no doubt that you will learn may valuable lessons and insights by managing your rental properties. You will learn each step in the process by direct interaction. Each day carries the potential for something new and unprecedented to be learned and these experiences are invaluable to you as you grow your real estate investing career. Self-managing is also a great primer for interviewing property managers in the future should you decide later to hire one.
- You Live Near Your Rentals – While on its own, this may not be reason enough to self-manage, it can make a huge difference when all other factors point to self-managing. If you live nearby your rentals you will be much better prepared for success as a self-manager.
- You Have a Very Unique Home or are House-Hacking – Most property management companies are highly systematized and properties that don’t fit into their systems are often overlooked because they don’t follow the normal flow of business. Sometimes, the property may not be unique but the circumstances surrounding the property are unique (such as an owner-occupied single-family home with leases on some bedrooms – “house-hacking”). House-hacking is an ideal self-management situation.
How you ultimately decide to manage your property comes down to 3 primary factors:
- Cost OR Opportunity Cost;
- Location(s) of your rental properties; and,
- Knowledge OR Desire to Learn.
Be honest when you answer these questions for yourself and you will be rewarded with knowing you made the best decision for your specific situation.
What is a Property Management Tenant Guarantee?
One feature of property management contracts we receive a lot of questions about is the Tenant Guarantee. What exactly is a Tenant Guarantee? What does it cover? How does it work? What is NOT covered?
The best property managers have developed and honed their screening criteria to identify a highly qualified and reliable tenant. In doing this, professional property managers significantly reduce their client’s exposure to evictions. By using a highly effective and proven screening process a property manager can offer a guarantee to the owner when placing tenants into a rental property.
What is a Tenant Guarantee? A Tenant Guarantee is a guarantee that the tenant will perform according to the lease. A tenant who does not perform according to the lease will trigger the Tenant Guarantee. It is important to understand what kind of situations the management contract consider to be “triggers” of the guarantee.
How Does it Work? Tenant Guarantees vary in the length of time in which they are valid. Most are valid between 30-90 days from the first day of the lease and others may be valid for 6 months or even 1 year. If a tenant moves out without good cause, owner approval, breaks the lease or gets evicted from the home while the Tenant Guarantee is in effect, the guarantee is triggered.
What does the Tenant Guarantee Cover? A Tenant Guarantee covers the cost related to finding and placing a screened and qualified tenant into a rental home – commonly know as a “Leasing Fee” or “Tenant Placement Fee”. Under most Tenant Guarantees a new tenant will be found without the owner having to pay a second Leasing Fee to the property manager.
What is NOT covered by the Tenant Guarantee? A Tenant Guarantee does not cover the costs of turnover or repairs, unpaid rent or attorney fees (your manager may offer other plans to cover these costs). A tenant guarantee is commonly limited to finding a new tenant without the owner incurring an additional Leasing Fee. A Tenant Guarantee is not a refund of the original fee paid.
I hope this has given you a better understanding of a Tenant Guarantee but if you still have questions please contact us by phone at 616-301-9450 in Grand Rapids or 269-220-6033 in Kalamazoo!
Property Management Problems and How to Avoid Them
Property Management horror stories are easy to find. If you know a real estate investor, you have likely heard about a problem he/she experienced with a property manager and Google is full of scathing 1-star reviews of property management companies.
Property management is a difficult business. Nonetheless, it is still a service-based industry and your property manager must always have your best interest in mind and maintain or (hopefully) exceed the industry standards. It is also important to recognize when things go wrong which are outside of a property manager’s control and when they are not.
Here are the most common property management problems and tips which will help you avoid them:
- Below Market Rents: Rents are the largest income stream for many real estate investors. Your rents should be on par with current market rates in order to maximize your potential income. Periodically performing your own rental comps will quickly tell you if your manager is keeping up with the market. Rental comps are easy to do using any of the popular real estate apps and websites. You can also call another property managers in the area and ask them their opinion on the home and ask them to provide real life examples supporting their claims. There are times when slightly below market rents are acceptable, however, this should be discussed with your manager to weigh the pros/cons.
- Hidden Fees: Hidden fees are a problem in many industries but when your investments are on the line, hidden fees are much harder to absorb. Before you sign a property management contract make sure you have read it, you understand it and you ask questions to clarify anything you do not understand. Your prospective manager should be up-front with their pricing and not hesitant to discuss it with you.
- Mixed Messages from the Company: Do you talk to a different person every time you call the management office? Are you getting different answers to the same question? Do you have more questions now than you did when you picked up the phone in the first place? Staff turnover and over-staffing is a common problem with property management companies. Ask your salesperson about the staff you will be dealing with once you sign up and the stability of the staff.
- Poor Reporting/Communication: Timely and smart communication is ideal and non-communication is a deal-breaker. Your manager should be communicating with you regularly and fully comfortable with all modes of communication. You don’t want them constantly hiding behind an auto-attendant or administrative assistant. Their reports should be consistently delivered each month and your questions answered clearly and quickly. Any deviation in reporting or a failure to deliver reports can be a huge red flag that must not be ignored.
- Expensive: There are many factors that drive the cost of property management in a given region. Among these are: the quality of the housing, the location of the home, the current rental and housing market, local manager competition and the anticipated monthly rent of your home. Understanding your local market and the amount of work your investment properties require will help you negotiate with a property manager. A “needy” home is more expensive to manage.
- High Maintenance costs: Maintenance can be handled in two primary ways – In-house staff or trusted vendors. Each style has its pros and cons. Ask your property manager to describe their maintenance system and ask what their typical costs are to service the most common problems. You may also ask them what they will do to keep costs down at your rental property.
- Doesn’t do Inspections: Inspections are a core task of owning rental properties. Inspections should be done regularly. If a manager does not provide routine inspections they may be understaffed and incapable of servicing their clients properly. The best way to find out how inspections are handled is to find someone who is currently under their care and ask them.
- Placed a Bad Tenant: Placing a bad tenant is one of the most expensive mistakes a person can make in rental real estate. Doing the upfront work of an intense background check is paramount. The vast majority of Landlord Nightmare Stories could be avoided with this one step yet there are many who still don’t do it. Despite strict screening criteria, some tenants just fall on hard times or bad luck and this situation is not something that can be screened upfront. If you are experiencing a bad tenant find out what went wrong – is the manager negligent or is something else going on outside of their control?
- Lack of Owner Mindset: Simply put – your property manager should own rental properties. It is the only way for them to truly understand the unique stresses and satisfaction that come with operating a successful rental business. It will make communication between you and them much easier and hopefully result in a stronger relationship. Without the Owner Mindset, your property manager will be more likely to make decisions that are not in your best interest despite the fact that they may truly think otherwise.
If you have never hired a property manager for fear of having one or more of these problems, use this list as a guide when you interview potential managers – It will give you a strong start in the process and the managers you interview will know you are serious about property management!
When should you hire a property manager? As with any large decision, there are many factors that you should consider as you decide what is best for your situation.
Here is a list of 6 questions you should ask yourself to help you decide if hiring a property manager is right for you:
1. Do you know the laws related to being a Landlord? This may seem like a basic consideration, however it is important and often overlooked. The laws involved with being a Landlord or property owner are many and diverse and the consequences for violating them – intentional or not – can be severe. These laws also vary from City to City and State to State. Even if you do not hire a property manager you should – at the very least – have a real estate-minded attorney with whom you consult regularly. The MSU College of Law publishes an online guide titled “Tenants and Landlords – A Practical Guide” which can be found with a quick Google search. This is required reading for any Michigan Landlord!
2. Do you have a system in place for handling maintenance and after-hours calls from your tenants? Routine maintenance and after-hours calls are inevitable when you are a Landlord. If you are a handy person, routine maintenance may be easy and enjoyable for you. On the other hand, if you have not done any basic building maintenance, these tasks will be difficult for you and probably cost you a lot more to complete on your own than if you were to hire them out. If you plan to manage your own rental property, contact several local vendors including plumbing, HVAC and general maintenance and have them ready to go when you need them. Having backup vendors is equally important!
3. Do you live nearby your rental properties? You want to be able to check on your properties at regular intervals to make sure that the home is being properly cared for. Drive-by and interior inspections should be a part of your management routine. If you live very far from your properties, chances are you won’t be thrilled to drive by them on your day off. A local manager or agent can take on the responsibility of routine inspections and deliver a report to you.
4. Are you putting off responsibilities related to your rental portfolio? You need to honestly ask yourself if you can make the time sacrifices and tough decisions required to be a successful Landlord. Rent Collection, Late Payments, Regular Maintenance, Application Screening, Showing vacant units, and the list goes on. A high degree of consistency, diplomacy, organization and a strong team is required to be a successful Landlord. If you find yourself procrastinating any or all of these duties as a Landlord, it may be time to add a property manager to your real-estate team.
5. Are you capable of handling the financial reporting for your portfolio? Basic accounting knowledge is vital if you want to be able to understand how your rental business is performing. This is probably THE MOST OVERLOOKED ASPECT of do-it-yourself Landlords. Having accurate financial records throughout the year will save you money throughout the year and on your taxes – your tax preparer will spend less time wading through receipts and they will be able to spend more time focusing on the tax advantages specific to your situation. In addition, you will quickly be able to understand the financial health of your portfolio at a glance and know if you have a problem siphoning profits from your bottom line.
6. Do you have the time to make the most of your real estate investment? The difference between a ho-hum real estate experience and a great experience comes down to the time and experience of those who are performing the work. Leveraging the time of others with more experience will greatly increase your chances of achieving a highly successful rental real estate business. Make sure you do not burn yourself out!
When investing in real-estate, it is important to focus your time and energy on the tasks that bring you the best return and enjoyment. If these 6 questions make you shudder with anxiety then hiring a property manager is probably going to be a good thing for you. If you feel that you have a solid grasp on these topics and enough time to attend to them then you can probably self-manage without too much assistance.