Are Property Management Companies Worth The Money?

There are many things in life that a person could do but they choose not to because of limited

skills, constraints of their time and/or money, or a multitude of other reasons. Renting your

home is usually considered a job for the professional, unless you are willing to make the

necessary sacrifices and put forth the right effort to get the job done. Much like anything in life

there is an easy way and a right way. There are a number of important considerations when

deciding if you should rent your home out yourself and handle everything or hire a professional

management company. Questions you should ask yourself include, but are not limited to:

Time:

Do you have the time to answer or respond to all of the phone calls and emails during the

marketing period?

Will you have the flexibility to show the property at a time that works for the prospective tenant?

When there is a maintenance issue (which can come up at any time) are you around and available to take the call and come up with the solution?

When you leave out of town, do you have a back up in place to handle your affairs?

If you can answer yes to all of these questions then you both have the time and are adequately

prepared to consider self managing.

Most of the work is done at the beginning. Your improvements, marketing, showings, etcetera are all done at the outset. The time requirements will become less after the first month of occupancy. Most repairs are also done at the beginning; things that you may have been able to live with the tenant may ask to get fixed early in their tenancy.

Contacts:

If you choose to manage the property yourself, you will need a good handyperson who is fast,

responsive, and can take care of a wide variety of issues that could arise. Do you know this

person; if not how will you find them?

If your primary handyperson cannot handle these functions, you need to have a plan in place for

finding someone. You should also have a backup for this person in case they are too busy,

unreachable, or found to be unreliable.

Try before you buy! Ask the handyperson to do some work for you before you commit to

this being your go to person. They should prove that they are responsive, do good work,

and are fairly priced. This is the area that is most likely to trip up a do it yourselfer!

Problems:

Problems with renters are almost inevitable. Usually they are small matters that can be handled

over the phone amicably. Sometimes they are issues that require a bit more finesse and

occasionally a firm hand.

Do you have it in you to demand payment of rent? What if the tenant is in violation of the terms of your lease, will you confront them?

What if they think a repair should be made and you don’t agree, how will you resolve it?

Imagine your tenant tells you that they have lost their job and have no place to go. How

will you handle your conflicted feelings?

If you are unsure, then managing yourself is not a good option. Renting your home the right way is treating it like a business transaction.

There are a number of issues that come up on a daily basis for those in the property management business. One of the exciting factors of being in the business is the constant change and new challenges that emerge regularly. The question should be, do you have it in you to show the right amount of assertiveness? If you come off as too nice and accommodating, you could be taken for weak and have issues with rent being paid on time. If you come off as too stern, you will detract tenants who have concerns about working with a control freak. To be a property manager, professionally or otherwise, you need to strike a balance of care and precision.

You should exude strong customer service in the initial period, while setting the framework for what will be a strong, legal document you intend to enforce. Be careful to not take a threatening tone and to avoid going over the eviction and penalty parts of the lease. A lease is a legal document, but that doesn’t mean you should just have them sign it. It’s a valuable exercise for both you and the tenant to go over the entire document, line by line. This is a non-confrontational way for you as the landlord to specifically discuss expectations of you both. It will make you more confident in your responsibilities and it will show the tenant that not only do you understand the contract, but that you are expecting them to fully grasp it prior to their signing and agreeing to it.

If you end up in court, it certainly wouldn’t hurt to be able to demonstrate that you went through the lease with them line by line, rather than admitting that they may have not actually read what they signed. We are all big boys and girls in this game, but I think it is always wise to be as explicit as you can on all terms. We have consistently found that a combination of both verbal and written agreement is the best recipe for consistent adherence.

Know and study the document you plan to use before you meet the tenant. If there are

items you want to alter within the lease, complete those and understand the entire

agreement before you provide it to the tenant.

Legal:

There are also a number of important legal considerations when being a property manager or

landlord. You should be sure to check how the laws in your home state function in relation to

this entire book, but especially this section. Generally speaking there are some over arching

national laws with regards to real estate, but the majority of the governance is done at the state

level. You should be aware that there are a number of protected classes that you are prohibited

from refusing to rent to based on their inclusion in a particular class. This includes, but is not

limited to: race, nationality, religion, color, disability, and sexual orientation. Many states

proceed further to include familial status . In these states you can’t refuse to rent to someone for

being a divorced person or having children. You should be consistent in the questions that you

ask, your tone, and level of accommodation when you speak to prospective tenants. There are

tenant advocacy groups that exist to ensure this compliance. It is imperative to be very aware

of the laws in your home state before you start. Mistakes here could find you in a court on the

wrong side of a court room, know your local laws.

Use common sense folks. Treat people the right way and don’t let any preconceived notions dictate who should be your renter or what the neighbors will think should not guide your decision making process.

Legal issues also include the actual documents that you will use. Many states have a statutory

form that you are required to use in a lease. They have found that this type of regulation ensures that tenants won’t fall victim to a slumlord. The lease also ensures that owners will have the proper recourse in the event of a bad tenant situation. When such a form exists you are usually heavily recommended or required to use it. Our management company has found that the statutory form is light on a few important issues. We decided that it was necessary to add an

addendum to cover things more clearly and to represent our owners more thoroughly.

Always use an addendum if your state requires a statutory form. The statutory forms are

meant to be fair and balanced, but you want an agreement that covers your interests.

You may not be able to alter the meaning of the original lease, but you can clarify or

address unmentioned terms from the lease in an addendum. Another important legal consideration is the rental license. Most states do this at a city level because of the need for an inspection. Your city may or may not require a rental license, but if you go at it on your own you will want to make sure that you know the proper compliance. This is customarily an issue in which a property manager would provide guidance on state and city specific requirements as well as how to contact the appropriate government office to receive information on inspection and licensing.

I usually recommend that homeowners do a Google search for “(Name of City) rental

license” which will take them to the appropriate site where they can find information and

start the process.

Another very important legal consideration is your potential liability. More specifically, how

does one limit their liability? The simplest way is to hold your property investment in an LLC.

LLC stands for “limited liability company”. There are a slew of options when considering

incorporating. Most people do choose an LLC because of its flexibility and because it’s

considered a pass through entity for tax purposes. Pass through meaning there is no taxation at

the corporate level, rather it passes through to the personal income tax returns of the owner. We

have an entire chapter dedicated to the LLC, its uses, and why we always recommend having

one.

Whether you manage the property yourself or have a property manager, the owner is first

in line to be sued for things that go wrong in a property investment. Protect yourself! If

you ever get sued you will be happy you did.