Why you should consider hiring a property manager
13 May 2014

Why you should consider hiring a property manager

“Is it worthwhile to hire a property manager if I’m only renting out 1 house?” This is one of the most frequently asked questions we’ve heard from beginner real estate investors.

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Ask most property managers, and you’ll get a resounding “YES,” but before you jump to the conclusion that they’re just trying to hit their sales quota, understand that the true value of a property manager may be much more complex than you think.

Despite common misconception, you aren’t paying property managers to collect rent checks and fix broken microwaves. The value of their service is in risk mitigation which should also be your highest priority when it comes to renting out your property.

This is surprising to a lot of newly coined landlords. How about rent revenues?

Isn’t the money I make the primary reason I decided to rent?

Truthfully, reducing your liability is the best way to maximize your revenue because when it comes to landlord-tenant relationships, poorly-handled legislative conflicts and property damages are the biggest expenses and can easily drive property owners into bankruptcy.

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Property managers reduce the liability for owners by using highly efficient systems. These 3 systems keep the property managers informed and ready for emergencies so that you’re protected.

1. Day-to-day tasks

Since property management firms handle multiple properties simultaneously, they’ve developed efficient frameworks for each stage of the rental process. Thus, inspections and payments are always promptly processed.

There’s a steep learning curve for novice landlords managing their own properties. Just to give you an idea, responsibilities may include (but not limited to):

  • Finding a tenant.

  • How and where to advertise a rental property.

  • How to optimize an open house or showing.

  • Screening the tenant.

  • How to get credit reports and background checks on a potential tenant.

  • How to verify current and past residency.

  • Signing the lease.

  • How to draft a legal lease that will hold in court.

  • Finding what sorts of evidence you collect at the beginning of the lease to protect yourself against future damages.

  • What sort of disclosure documents are you required, by law, to provide.

  • How much deposit can you collect in relations to rent.

  • Maintaining the property.

  • What amenities are legally required for the property to be inhabitable.

  • What to do if a tenant doesn’t pay rent.

  • How to properly evict a tenant, without violating tenants’ rights.

  • What to do if the rent check bounces.

After a good amount of time on the internet, a landlord can probably find answers to most of the questions above, but it’s incredibly time-consuming and difficult to verify the information unless you consult a legal professional, whose fees add up quickly.

Perhaps more significantly, it only takes one violation of tenant’s rights for the landlord to end up in deep waters. Every state is different, but California, for instance, is very pro-tenant, which makes it easy for a novice landlord to accidentally break a rule. This brings us to the next, and arguably, most important system property managers have in place.

2. Staying informed about legislation changes

As you can probably tell by now, the best thing property managers can do for you is preventing legal conflicts. This is especially valuable because real estate legislatures are constantly evolving; every court case can set a new precedent and change the rules of the game.

In fact, property management licensing often require managers to attend courses on fair housing legislature twice a year, since that’s how quickly the rules evolve in this industry.

To give you an idea of the time commitment, according to Lyle Hass at Colorado Realty & Management, all his employees are required to attend continued education classes to ensure they always know which laws are in place and which might come into effect soon.

He also has a panel of attorneys with which he meets 1-2 times every week to learn the latest landlord/tenant laws and attends numerous NARPM (National Association of Real Estate Property Managers) conventions and chapter meetings to network and exchange information.

While a new landlord can probably slowly learn his/her day-to-day tasks over time, it’s impossible for anyone to stay current to the ubiquitous legislative changes without spending upwards of 10 hours per week. And this doesn’t’ even account for unpredicted emergencies.

3. Emergency responses

Unpredicted events that cause serious property damage are particularly problematic because they are expensive and require immediate assistance. A landlord might not have cash available on hand, or struggle to find a contractor who can be deployed immediately.

One such scenario is natural disasters. For instance, during the Colorado flooding in the last week of October last year, many of the properties Colorado Realty & Management managed were badly damaged.

In the aftermath of the disaster, every Colorado resident tried to get a contractor to his/her property, but because Lyle Hass already had a close business relationship with a contracting company in the area, he was able to surpass the 200+ person waiting list and receive assistance on his properties immediately.

As unfair as it might seem, individual landlords simply do not have the influence of a property management firm that will continue to supply a contracting company with business.

For liability purposes, property management firms also usually save some cash for each of their properties in case of emergencies. Even if the expenses are higher than the preserved amount, the firm has collected enough rent from other properties that it is able to cover the costs for the interim.

An individual landlord does not have that luxury.

If he/she cannot afford to repair the property immediately after a flooding, the unit becomes uninhabitable and the tenant is forced to move out. The landlord now feels pressure to borrow money quickly in order to perform repairs before further damage to the property, in addition to the lost in rent revenue.

Aside from knowing that professional property management firms can save you time and minimize your liability as a property owner in quantifiable ways, there are also more qualitative benefits. For one, it’s one less burden to bear!

Managing a property is in itself a part-time job, not to mention an incredibly stressful one even if you’re unfamiliar with the industry. Letting the professionals deal with the rent chasing, midnight maintenance requests and other sorts of nitty gritty issues will give you peace of mind.

This also applies to family members or friends moving into your property. It’s much easier to let the property manager be the “bad guy” who’s requesting background checks and on-time rent to ensure you’re financially protected, rather than doing so yourself and potentially straining your relationships. Given the horror stories we’ve heard of friends and families falling apart due to rental disputes, I would say a property manager is money very well-spent.

Rand is the Director of Marketing at Happy Inspector and has been investing in real estate for nearly 5 years. Prior to working for Happy Inspector, he started and ran several small businesses.

Photo by: Davor Sunjara.