what is a property management company

What Is A Property Management Company And Do You Need One?

Managing a rental property is no easy feat. Landlords stand a better chance at making a profit if they outsource the job to a property management company. But, what is a property management company anyway?

What Is a Property Management Company?

Property management requires a lot of time and work. For many landlords, it just isn’t worth the effort. All the stress that comes with managing a rental property is what drives most owners to sell. Fortunately, there is a way owners can keep their property and earn a profit without doing any of the hands-on work.

To put it simply, a property management company is a company that performs property management on behalf of rental property owners or landlords. Property management is the act of managing properties, be it residential, commercial, or mixed-use developments. This includes single-family homes, apartments, condos, and even shopping centers.

 

How Does a Property Management Company Work?

A property management company works by providing services to landlords in return for a fee. Property management companies usually employ a team of property managers, assigning one to each client or property owner. These companies also maintain a staff of workers who help property managers do their work behind the scenes. Workers can include accountants and lawyers, too.

Sometimes, property management companies will have in-house maintenance crews who can perform maintenance and repair work. Companies that don’t have maintenance personnel usually outsource property maintenance jobs to a separate but trusted provider. Property management companies also have a network of vetted and insured vendors who can perform various tasks for them.

 

What Does a Property Management Company Do?

Some landlords have a hard time understanding what a property management company is without knowing what services they provide. So, what do property management companies do?

The extent and nature of services can vary from one company to another. Some companies only offer a handful of services, while others offer all the services a landlord might be looking for. In general, though, landlords can expect a property management company to provide the following services:

  • Rental property advertising
  • Tenant screening and selection
  • Lease agreement preparation
  • Rent setting
  • Rent collection
  • Property maintenance and repairs
  • Tenant management
  • Property inspections (move-in, move-out, and routine)
  • Tenant and owner fund management
  • Vendor coordination
  • Accounting and bookkeeping
  • Financial reporting
  • Evictions
  • Legal compliance
  • Tax assistance

 

How Much Does a Property Management Company Charge?

Owners have to consider all aspects of professional property management before coming to a decision. For a lot of owners, the cost can make or break a deal. Monthly property management fees come in two forms: flat fee property management and percentage-of-rent property management.

 

Flat Fee Property Management

For this fee structure, companies will charge a fixed monthly rate to manage the rental unit. This can range from $100 to a few hundred dollars for a single-family home. Factors that can influence this fee include the type of property (commercial or residential), the location of the property, the size of the property, and what services are included.

 

Percentage-of-Rent Property Management

On the other hand, most companies will collect a percentage of the monthly rent as their monthly management fee. On average, property management companies will charge 8% to 12% of the rent. Owners should make sure companies charge their fees based on rent collected instead of rent due. This way, landlords don’t lose out should tenants fail to pay their rent.

 

Other Property Management Fees to Watch Out For

Apart from the monthly management fee, there are other fees that a property management company may charge. These include but are not limited to:

  1. Initial setup fee – The initial setup fee covers the cost of setting up a new account with the company. This includes the cost of opening a bank account, initial property inspections, and license renewal/registration. It also covers other administrative expenses associated with creating a new account.
  2. Tenant placement fee – Some companies include tenant placement as part of their monthly management fee, but others have it separate. The tenant placement fee covers the cost of advertising the property, screening tenants, showing the property, preparing the lease agreement, and performing move-in inspections.
  3. Vacant unit fee – Contrary to popular belief, managing a vacant unit also costs money. In fact, one can argue that it costs more money than an occupied unit. This fee typically covers the cost of maintenance and repairs as well as regular property inspections to ensure no squatters or trespassers are inside.
  4. Lease renewal fee – When a tenant renews their lease, some companies charge a fee. This is usually to cover the cost of lease adjustments as well as a market research analysis to determine whether a rent increase is appropriate.
  5. Eviction fee – If a landlord wants the property management company to evict a tenant, it normally comes with an eviction fee. Landlords have to pay this in addition to any court costs for the eviction.
  6. Early termination fee – Terminating a management contract before it’s due to expire typically comes with an early termination fee. This can be a fixed rate or the management fees for the remaining months on the contract combined.

 

Should I Use a Property Management Company?

It is easy to brush off the need for a property management company when other landlords seem to be doing fine without one. But, not all landlords are made equal. In general, it is a good idea to hire a property management company if an owner falls into one or more of the following situations:

  • property management companyThe rental property is not located close to the owner’s home.
  • There are several rental properties under the owner’s name.
  • The owner lacks the time to manage the rental property or properties.
  • The owner lacks the experience to manage the rental property or properties.
  • Hands-on property management is not something the owner wants to do.
  • The owner does not want to deal with consistent tenant concerns and calls.
  • The rental property has a high vacancy rate that only professional management can address.

 

What to Look for in a Property Management Company

Property management companies come in all shapes and sizes. With so many available options, it can be difficult for owners to make a decision. But, there are some key traits that make the best of the best truly stand out.

Here are the things owners should look for in a property management company:

 

1. The Right Credentials

Setting up a property management company is not something just anybody can do. In most states, a property management license or real estate broker’s license is necessary to operate. It also helps if a property management company has been certified by one or more of the following trade organizations:

 

2. Good Reviews

Owners should also look for reviews and testimonials of a property management company online. A quick Google search should turn up many results. Of course, big-name property management companies have a reputation, but owners should not discount smaller firms either. Larger companies may have tons of clients that an owner with only a few units won’t be prioritized.

A good way to look for a property management company with a proven track record is to ask for referrals from friends and family. Those that come highly recommended are lauded for a reason.

 

3. Real-Life Examples

A lot of property management companies sing their own praises but have nothing to show for it. One way owners can evaluate a candidate is by visiting properties they currently manage. Owners can check with their own eyes how well (or bad) each property is doing. If the property screams unmaintained, then that should be a huge red flag.

While owners are at it, they can talk to the tenants during property visits, too. This way, owners can get a feel of the management company’s performance. Tenants usually have nothing at stake in the situation, so they will likely be honest and tell owners how they truly feel.

 

4. Affordability

Cost is important to most landlords, so much so that it can influence their final decision. As such, owners should look for a company that fits their budget and addresses their needs at the same time.

Keep in mind that it is not always best to go with the cheapest option there is. A lot of companies charge low monthly management fees only to surprise owners with high hidden costs. Low rates also tend to mean below-average services.

 

5. Fair Management Contracts

Before signing anything, owners should carefully review the management contract with a lawyer to make sure it is not unreasonable. Because owners typically don’t have a lot of legal knowledge, it is easy to fall into a trap. If a lawyer spots something amiss, then owners should probably back out of the deal and look for a different firm. After all, a company that tries to swindle its client is not worth a second chance.

 

6. A Good Fit

Finally, it is important that owners find a company whose values and beliefs line up with theirs. A good way to gauge this is to interview the company and the property manager they intend to assign. Owners and managers have to get along and see eye-to-eye. Otherwise, there is a world of disputes and disagreements in store for both parties. This will eventually lead the owner to either not renew the contract or terminate it early.

 

What Does a Property Management Agreement Cover?

The property management contract serves as proof that both parties have an obligation to each other. As such, it should contain all pertinent information. In addition to a liability and indemnification clause, otherwise known as a hold harmless clause, the management agreement should, at the very least, consist of the following parts:

 

1. Scope of Work

Every contract should detail the scope of work. What is a property management company responsible for? This section should specify what services the company must provide on a monthly basis, what the screening process entails, how maintenance and repairs will be carried out, how rent payments (including late rent) will be collected, and the financial reports the company must provide the owner.

 

2. Owner Responsibilities

Unlike what some might believe, owners also have responsibilities in a property management deal. The contract should clearly state what owners must and can’t do. Some of the more common obligations include purchasing and maintaining proper insurance coverage and creating and maintaining a reserve fund for repairs and emergencies. Some of the things owners can’t do include entering the unit without permission and interfering with the tenant selection process.

 

3. Property Management Fees

Specifying the property management fees, including any extra ones, in the contract will prevent the company from blindsiding owners with surprise costs.

 

4. Contract Duration and Renewal

The property management contract should also have a clear start and end date. This way, both parties know when services should begin and when they should expire. In addition to this, the contract must also outline renewal terms, such as what owners must do to renew the contract and if there are associated fees that come with it.

 

5. Termination Clause

Lastly, the contract must indicate terms for cancellation. This clause should detail how much notice owners must give before terminating the contract and the company’s obligations upon termination. Owners would also be smart to find a contract that does not require a reason to terminate. Because terminations can come at great expense for the company, owners should expect to pay an early termination fee, too.

 

What Is a Property Management Company? Answered!

Clearly, hiring a property management company poses plenty of benefits for rental property owners. But, before diving into a decision, it is important to understand these companies from every side of the die.

If you need a property management company, allow Rental Choice to help. Search for the best company in your area today using our comprehensive online directory.

 

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