Owning rental properties can be a very good investment. Rental properties are a great way to diversify your investment portfolio and can return an average of 4 to 10% per year. You receive a monthly payment with a rental property. That’s money in your pocket. The property also appreciates over time.
Rental properties, however, aren’t a passive investment. They aren’t like mutual funds where you buy them and then quietly watch them increase in value. A property must be managed. Like any home, a rental property requires maintenance. Things break. Furthermore, tenants move out, and you have to rent the unit. This can happen frequently, plus tenants can stay for a long period of time, you’ll never know. A rental property requires active participation.
As a property owner, you need to decide if you want to rent the property yourself or if you want to hire a property management company. There’s no right or wrong answer. Each person has different circumstances and can make a different decision. When deciding how the property will be managed, there are several factors you might need to consider.
Do You Live Near the Property?
Location. Location. Location. These are the three keys to being successful in real estate. They also apply to property management. How close you are located to the property can play a role in whether you decide to hire a property management company. Many people purchase properties close to their primary resident, and others purchase ones in a market that’s more conducive to rentals. While it’s not impossible, it can be more challenging to manage an out-of-town property. You aren’t able to visit the unit and inspect the property. Coordination with contractors and other vendors can be difficult. A property manager might be the right choice if you believe the investment could be managed better by a professional person.
How Many Properties Do You Own? Is It a Side Hustle or a Full-Job?
Rental properties have many different types of investors. Some are professionals who own hundreds of properties and have an in-house staff to manage the units. For others, a single unit is a side job, and not their primary occupation. The size of your rental portfolio can be an important factor when deciding on whether to hire a property management company. You might have a portfolio that you can easily manage yourself or it might be too large and require someone to manage it.
How Much Can You Pay for a Property Manager?
Property management companies cost money. You will need to calculate the cost of property management into your rental property and decide whether it makes financial sense. Property management companies often charge a set-up fee and a monthly fee based on the amount of the rent. The monthly management fee is usually average around 10%. So if you charge $1,200 a month in rent, you will be charged $120 a month by the property management company. Most property management companies don’t charge for maintenance. They invoice you for the work, but don’t make any money over what the company was charged.
Do You Want to Evict a Bad Tenant? Collect Rent?
Sometimes, as the landlord, you have to be the bad guy. Not all tenants pay rent on time, and some are noisy and not good renters. In those cases, you might have to evict a tenant. You must decide if that is within your personality to throw somebody out of a unit. You might have no problem. Others, however, will want to avoid conflict and cannot bring themselves to evict a tenant. In those cases a property management company might be a good idea. You are separated from the eviction and don’t have any contact with the tenants.
What is Your Background?
Everyone brings different skills to the table. Your background can play an important role in determining whether to hire a property management company. Someone who has a background in real estate will have a better understanding of the fair market value of rental property. A person with a construction background can perform many of the repairs. A property management company could help you compensate for some of the deficiencies your background brings to the table, but you can also hire people to help you.
How Much Time Can You Dedicate?
Managing a property takes time. You will need to dedicate time to making the repairs at a property or have the time to coordinate with a contractor or handyman. This could be challenging if you work long hours or travel a lot for work. If something major breaks, tenants are going to expect that it be fixed quickly. Tenants have rights, and you have an obligation to fix heating units, stoves and so forth.
Are You Willing to Learn How to Become a Landlord?
You might not have all the skills you need to become a successful landlord, but many of the skills can be learned. Are you willing to dedicate the time and energy required to be a quality landlord? You need to understand the laws and the rental market in your region. You need to learn how to successfully screen potential renters. Often, these skills come through trial and error, but it also takes effort on your part. You need to lean to be a landlord.
Tips If You Decide to Hire a Property Management Company:
- Do your research and check qualifications.
- Interview multiple companies.
- Ask a lot of hard and difficult questions.
- Be clear about your expectations.
- Understand the screening process for tenants.
- Talk about how they handle evictions.
- Get the fee structure in writing.
- Get references.
- Don’t be afraid to fire a bad property management company.
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