What does a property manager do? If you own a rental property and want help, a property manager can relieve you of a whole bunch of headaches.
A property manager works for landlords, handling the day-to-day details of running a building. If you dream of collecting income from rental property but cringe at the idea of collecting rent or getting calls from tenants about burst pipes, a property manager could be well worth the money.
“Property management isn’t a glamorous business,” says Dana Anderson, president at Bay Management Group, a property management company in Philadelphia. “Tenants can be difficult, landlord-tenant laws are complicated, and property maintenance can be stressful. Having someone handling those problems for you gives you peace of mind.”
Let's explore what property managers do, how much they cost, and how you can find a reputable one.
What does a property manager do?
Property managers provide a range of services to rental owners. Generally, they will do the following:
> Price your rent. Property managers will help you determine what rent to charge by looking at what comparable rentals are leasing for in your area. An experienced property manager also relies on their experience and instinct to set rents that move properties, says Peter Lohmann, CEO at RL Property Management Group in Columbus, OH.
> Market your property. Property managers do more than just post your rental on Craigslistthey generate leads through social media, advertising, and the multiple listing service so that real estate agentscan show your place to their rental clients.
> Vet tenants. The best way to reduce turnover is to find great tenants, and a good property manager is going to use state-of-the-art screening to find responsible renters, Lohmann says. So, in addition to running a credit check, property managers screen tenant applicants by checking their criminal history, verifying their income and employment, and contacting their previous landlords, says Stephanie Witko, director of business development and leasing at Nest DC, a boutique property management firm in Washington, DC.
> Protect you from lawsuits. Property managers stay up to date on the latest landlord-tenant laws, rules, and regulations, which can vary by city and state, Anderson says. This protects you from housing discrimination claims.
> Handle emergency repairs. Most property managers retain a small amount of cash from the landlord for emergency repairs such as a broken fridge or leaky washer. This money is typically held in whats called a maintenance reserve fund, which generally ranges from $500 to $1,000, Witko says.
> Create monthly income and expenditure reports. These reports help you track your money so that you know how much is coming in and going out every month.
> Provide important tax filing documents. Every year we send out 1099s to rental owners so that they can report their rental income and expenses to Uncle Sam, Witko says.
> Perform house visits. Most property managers do quarterly or biannual property inspections. The big things to check are furnace filters, smoke detectors, and carbon monoxide detectors, Lohmann says. Well also make sure the tenants arent damaging the unit.
How much do property managers charge?
Most property managers charge one month’s rent to procure a tenant and then charge a monthly management fee, either as a percentage of the rent or a flat fee per unit. Fees can vary widely depending on the housing market. In general, though, management fees are 5% to 10% of a month’s rent. However, “if a client is bringing us multiple rental units, we’ll often offer a discount of 1% less each month,” Witko says.
Many property managers also charge a lease renewal fee of up to 50% of one month’s rent to cover the paperwork of preparing a new lease and other administrative fees, Anderson says.
How to find the right property manager for you
To start, you want a property manager that aligns with your needs—in particular how involved you want to be.
“Some property managers are going to involve the owner with a lot of decisions and some aren’t,” Lohmann says. “You may want to be a more passive owner, or you may want to be involved in the decisions. It depends on what you’re looking for.”
You also want a property manager with experience managing the type of property you own. Renting out a condo is more complicated than renting out a house.
One way to narrow your pool is to search for property managers in your area through the National Association of Residential Property Managers. (Members have to complete a code of ethics training and abide by professional standards.)
Lohmann recommends contacting five property management companies before deciding which firm you want to use. How quickly you receive a reply is a good indicator of the company’s response time with tenants.
“Find a company that gets back to you within 24 hours,” Anderson suggests.
Unfortunately, scam artists abound. To find a property manager who's reputable, do your research by contacting several of the company's current clients for feedback and looking up its rating on the Better Business Bureau website. Don't just go with the cheapest option—you get what you pay for.
Questions to ask a prospective property manager
Aside from asking the basics—how much do you charge, what services do you provide—do your due diligence by asking potential property managers these questions:
> When theres an emergency from a tenant, how do you respond? Some will hire a third party to deal with these issues, others respond in-house (the latter is preferred).
> How many house visits do you perform every year? A lot of companies will say they do home visits periodically, but Ive found thats often not true, Anderson says. (Pro tip: Make sure the contract that you sign states how many home visits the company will perform annually.)
> Whats your occupancy rate? A lot of property managers arent going to know this number off the top of their head, but they should be able to pull it for you, Lohmann says. Generally, a property management company should have a 92% to 95% occupancy rate, adds Lohmann. The caveat? Occupancy rates are going to vary depending on the time of year, he says, with vacancy rates climbing in the winter. Nonetheless, if a company has an occupancy rate of below 90% during the summer, thats a red flag to me, Lohmann says.