If you buy an investment property, you have two basic choices when it comes to how to generate rental income: You can choose to manage the property yourself -- finding tenants, collecting rent, etc. -- or you can hire a property manager.
But what exactly does a property manager do? We'll discuss the basic duties of a property manager, how much you should expect to pay for these services, and whether you should hire a property manager to oversee your rentals or choose the DIY route.
What does a property manager do?
The most obvious function of a property manager is to find tenants for your rental property. The property manager will handle showings to interested renters, perform credit checks and reference checks on applicants, and coordinate the move-in process.
However, that's not all that's included in the property manager job description. Here are just some of the most important tasks an experienced property manager will do for you:
- Marketing: This goes hand in hand with finding tenants but is worth mentioning separately, simply because a property manager likely has marketing resources and knowledge you don't. For example, many property managers have their own websites, can take out newspaper ads, and more. And they'll also know the appropriate amount of rent to ask from a prospective tenant so the property fills quickly without sacrificing cash flow.
- Handling money: Property managers are responsible for rent collection from tenants on behalf of the property owner and will also handle each tenant's security deposit and distribute money where it needs to go. For example, my property manager pays the water and sewer charges for one of my properties out of collected rent payments -- I never even see the bills.
- Dealing with tenant issues and tenant complaints: If a tenant has a problem, like a leaky faucet or a pest control issue, they'll call your property manager instead of you.
- Repairs and maintenance: A large property management firm has its own maintenance workers, but all professional property managers will coordinate any needed repairs and/or maintenance. And many have great relationships with reputable contractors and can get jobs done quicker than you'd be able to on your own.
- Dealing with problem tenants: Do you really want to have to knock on doors when tenants are late with their rent? Or confront tenants when other residents have noise complaints? And if it becomes necessary to evict a tenant, do you really want to go through the process on your own?
This isn't necessarily an exhaustive list, but the point is, a professional property manager will do much more for a real estate investor than simply getting a tenant in place and collecting the rent. It can turn your real estate investments from a part-time job into a truly passive investment activity.
What does a property manager cost?
While property managers set their own pricing structure, you can expect to pay between 8% and 12% of collected rent for property management services, and 10% is generally considered to be the industry standard property management fee in most U.S. markets. So if your rental property brings in $1,500 in monthly rent, your property manager will take $150 of this as their management fee.
In addition, there's often an initial charge to establish service. This can either be a flat fee (say, $250 or so) or based on the property's rental rate (half of the first month's rent is quite common).
Should you hire a property manager?
A property manager isn't necessarily cheap, but given the list of services they provide and time they can save you, it can certainly be a worthwhile expense. One of my rental properties brings in $1,200 per month, and my property manager likely saves me more than $120 worth of my time each month by taking all of the management responsibilities off my hands -- making the fee well worth paying.
It's completely possible to self-manage and act as the property's landlord if you have the time and want to squeeze every possible dollar of profit out of your rental properties. But before you decide to go this route, ask yourself if you really want to do all of the jobs on the list.