Pros and Cons of Using Property Management Companies

As a real instate investor or rental property owner, you have two options when it comes to managing the day-to-day operations of your property. You can choose to self-manage the property, meaning you oversee maintenance, repairs, tenant contracts, rent collections, and all aspects of the tenant-landlord relationship. You can also choose to hire a third-party professional to look after the property for you. Which is what I choose in my pursuit of building PASSIVE INCOME.

Although there is no right or wrong answer for everyone, there could be a right or wrong answer for your lifestyle. Your individual circumstances may make self-management seem impossible, and we are here to help you understand the benefits and risks of using a property management company to oversee the daily operations of your property. Before you decide, consider these pros and cons.

The Disadvantages

The only disadvantage to retaining a property management company is its effect on your profit margin. The average company will require the first month’s rent as its first payment and then 8% to 10% of each month’s rent after that. This first month’s payment requirement covers their expense for any advertising, showing the property, processing an applicant, credit administrative costs, and other general expenses that come with setting up a new account. If your goal is to have the tenant pay your mortgage with the rent, you will need to factor in the costs of the management company to determine feasibility.

Another risk associated with hiring a property management team is ensuring you hire the right property management team. Similar to any other business, not all hires are good hires. When handing the day-to-day operations of your property over to a third party, you are entrusting that third party to make the right decisions every day on your behalf. From marketing the property effectively to collecting and maintaining payment records ethically, it is important to do your homework to avoid the risk of hiring a bad apple to oversee one of your most valuable assets.

The Advantages

The advantages of using a management company far outweigh the disadvantages. Even if the numbers don’t quite work and you determine you may be supplementing costs to the management company to keep your rental property, it is still a great value.

Property managers are up to date on state and federal rules and regulations with respect to tenant/landlord requirements and responsibilities. You won’t risk a “violation” putting your property and finances at risk by not knowing these requirements.

Property managers will establish the current market rental rate for your property. The rental market is a fluid market. Rates can change from month to month and though you will have a set contract usually for the first year, the company will be able to assess the rents at the end of each contract to ensure you are getting the highest rent possible based on real estate markers

Property managers will do all the communication for you with the tenant. That includes the interview process and managing any complaints or emergencies that may arise day or night. There is nothing worse than having to respond to a tenant at 3:00 a.m.

Property management companies will find the best tenants. It’s not only frustrating but financial suicide to allow an irresponsible tenant into a unit. A quality company has developed a process of screening out risky tenants to ensure a steady monthly income on your property as expected.

Property management companies have connections. If your property has written in maintenance agreements, such as lawn care and gutter cleaning, management companies can refer service companies at discounted prices. Due to the volume of these service providers as they work in connection with the company, they can pass on some savings to you. Their reputation and dependability has already been tested through the management company so you can rest easy knowing they will get the job down without your supervision.

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