What is Property Management?

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Definition:

Property management is the operation, oversight, and day to day management of a real estate property, usually by a third party.

🤔 Understanding Property Management

Many rental property owners hire property managers or property management companies to oversee the day to day management of their properties. Property managers are ideal for real estate investors who want to own rental properties, but who aren’t interested in the time investment required to manage them. Property managers will take care of tasks such as finding and screening tenants, collecting rent, handling complaints, seeing to repairs, and keeping the owner up to date on the goings-on of their properties. Some companies might hire a property manager to oversee all operations of their property, while others might hire someone to manage a particular task, such as maintenance or accounting.

Example

Let’s say Sarah is ready to expand her investment portfolio and decides to invest in real estate. Sarah buys a small apartment building with a handful of tenants. Even though the building is small, Sarah has a full-time job and doesn’t have time to manage the day-to-day tasks required to maintain the property. So, Sarah hires the task out to a property management company, which will handle all of those tasks for her.

Takeaway

A property manager is like a babysitter…

Many people want to have children, but they have full-time jobs that prevent them from taking care of their children at all times. So, they hire a babysitter to manage the day-to-day tasks of taking care of their kids. Similarly, not all property owners can manage the daily tasks associated with rental properties, so they hire someone to help out.

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What does a property manager do?

A property owner might hire a property manager to oversee all of the day-to-day operations of their property, or they might hire someone to take care of just one of the tasks. Or they may have an arrangement that fits somewhere in between. The specific responsibilities will vary with each contract, but there are some standard tasks that a property manager performs.

First, property managers are usually responsible for collecting rent. Tenants might pay online, via check, via bank deposit, etc. No matter how the tenants pay, property managers are responsible for making sure everyone pays their rent on time and placing late fees on those tenants who haven’t paid.

Property managers are also generally responsible for managing the tenants. First, this involves finding, screening, and signing new tenants to fill vacant units. Once the tenants are living there, property managers typically handle the daily tenant communications and complaints. If there’s an emergency or a maintenance request, the tenants usually contact the property manager. Finally, property managers handle move-outs or, on more rare occasions, evictions.

Next, property managers often oversee the maintenance of the building. This task will look different with each property manager. Some individual property managers might handle the maintenance and repairs themselves. Property management firms might have maintenance staff employed in their company. Finally, property managers might contract with an outside professional to handle the repairs.

Behind the scenes, property managers also often take care of the administrative tasks of running a rental property. This might include hiring and supervising other employees or contractors at the property. For example, the property manager might hire someone to handle concierge services or security at the property. They also take care of recordkeeping and budgeting. In many property management contracts, the owner will give the property manager the authority to make spending decisions without consulting with the owner first (depending on the amount they’re spending).

When a property owner is hiring someone to manage their rental property, they want to make sure they’re hiring someone who knows the ins and outs of being a landlord. This requires a thorough knowledge of state and federal laws regarding landlord-tenant relationships. There are laws regulating these relationships, and those laws could change — It’s up to the property manager to know when that happens. For example, different states have different laws on when a landlord may enter a tenant’s unit. Likewise, the laws regulating evictions vary from state to state.

How do property managers get paid?

The amount and the means by which property managers make money will vary from one property manager to another. Several different factors influence the fee that a company or individual will charge for property management services.

First, consider the type of property in question and the number of tenants. You might hire someone to manage apartment buildings, single-family homes, commercial properties, or even industrial properties. Generally speaking, you can expect the fee to go up as the number of tenants and the size of the rent go up. You’ll probably pay more for property management for a commercial building with a dozen units than you will for a multi-family home with four units.

The type of services you need will also be a factor in determining how much you’ll pay for property management. A property manager who oversees all property operations will probably charge more than someone you’ve hired for just a few tasks.

Here are a couple of specific fees you might pay a property manager:

  • Setup Fee: This is the fee you’ll pay to go into business with a property manager. Depending on the property management company, you might not pay a setup fee.
  • Monthly Management Fee: Most property managers will charge you a monthly fee to manage the property. The monthly fee could come in the form of a flat fee or a percentage of the rent.
  • Tenant Placement Fee: A property manager might charge a fee for placing a tenant in an open unit in the building. This fee is a result of the work it takes to advertise for, screen, and sign a new tenant.
  • Maintenance Fee: The monthly maintenance fee might be included in your monthly management fee or billed separately, depending on your contract. This fee usually doesn’t cover the actual cost of the repairs — you’ll have to have a separate fund for those.
  • Eviction Fee: A property manager might charge an extra fee to handle evictions.
  • Early Termination Fee: Most contracts require you to sign on for a minimum period of time. If you break the contract early, you might pay your property manager an early termination fee.

What are the reasons for hiring property management firms?

Many property owners hire property managers or property management companies to take care of the day-to-day tasks associated with having a rental property. It creates an added cost for the property owner but saves them a lot of time. Some people purchase rental properties intending to manage them as their full-time job, while others invest in real estate as a form of passive income, and they want to hire someone else to do the hands-on work. Here are some reasons a property owner might hire someone to manage their property:

  • They don’t have time. Many property owners have full-time jobs, and their rental properties provide some side income for them. In this case, the owner might not have the time to manage the property themselves.
  • They don’t want to take on employees. If an owner can’t or doesn’t want to manage the property themselves, they could hire someone to work for them. But many people don’t want to have employees. In this case, it makes more sense to contract with a different company.
  • Their time is better spent elsewhere. For many investors, real estate is just one part of their investment portfolio. They might also own their own business or partake in other money-making ventures. In this case, managing the property themselves would have an opportunity cost — They would be giving up the money they could be making by spending their time elsewhere. So, it may be more cost-effective to contract with someone else to do the job of managing the property.
  • They don’t know how to manage a property. Some people might invest in real estate without really knowing the ins and outs of running a rental property. For these individuals, it might make more sense to hire someone who knows what they’re doing.
  • They don’t want to manage the property. Some people might have the time and the ability to manage the property themselves — they just don’t want to.

What is the difference between a property manager and a real estate agent?

While both property managers and real estate agents work in the housing industry, they are far from the same profession. A property manager is someone you might hire to manage a rental property that you’ve already purchased. A real estate agent, on the other hand, is the person who might help you buy that rental property.

A real estate agent is someone you hire for a one-time event: buying or selling a property. You contract the agent to help you find the right property and close the sale, or find a buyer for the property you’re selling. Once the deal is final, the business relationship has ended.

In the case of a property manager, the relationship is ongoing. You contract with a property manager to oversee the operations of your rental property. Usually, there’s no finite end date to the business relationship (unless the contract specifies otherwise).

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