While owning a rental property is a smart business plan and a fantastic source of passive income, it isn’t just a matter of kicking your feet up and collecting rent. A lot of work goes into DIY rental property management, from maintenance and repairs to dealing with difficult residents, and it can be pretty overwhelming to manage it all by yourself.
On the other hand, hiring a property manager to handle your property can be a financial strain, and may or may not be the right choice for your unique situation. Here are some important factors to consider before making that all-important decision, so you can maximize the returns on your investment property.
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What is DIY property management & is it possible?
As the old saying goes: if you want something done right, do it yourself. If you’re a DIY landlord by choice, this sentiment is the ultimate foundation for the way you approach the job. Managing your property individually comes with many responsibilities that require a surprising amount of time, effort, and knowledge on your part. These include:
Setting the rental amount: Figuring out how to maximize your rental yield takes a fair amount of research and insight into market rates. Ensuring a steady rental income flow is a balancing act between charging too little, which leaves money on the table, and charging too much, which risks a drop in interest from prospective residents.
Finding residents (and losing them): The ability to pay the rent on time isn’t the only metric to judge a good resident. Finding the right residents for you is a difficult task, and missing any crucial red flags can result in a lot of headaches down the line, including risking damage to your property and navigating the awkward chore of evicting your residents.
Collecting rent: Even if you find a system that works well for both you and your residents, changes in financial circumstances are very common — and so are missed payments. Chasing up on any arrears is an uncomfortable process, and could result in more effort than a long email thread.
Organizing maintenance and repairs: Being a DIY handyman, plumber, and gardener may get the job done in your own home, but may not be appropriate for your rental property. Staying on top of any issues that pop up and coordinating with your residents and tradespeople can get chaotic and expensive.
Conducting routine inspections: Ensuring your property remains in good condition keeps your residents happy and maintains the value of your investment. But finding the time to check in on a regular basis isn’t always realistic.
Staying on top of admin: Everything from paying utility bills to maintaining records and doing taxes takes a fair amount of time and organization, and the day-to-day administrative tasks tend to pile up.
Despite the endless list of responsibilities, DIY property management is certainly possible for the right kind of person. If you have a substantial amount of time to spare, are highly organized and strive to do things properly, have great people skills, and value having full control over your investment property, then your chances of success could be quite high.
What does a rental property manager do?
If, however, you find that you are unable to commit enough time and effort to everything that DIY rental property management requires — the benefits of hiring a professional property manager are numerous. Using their expert knowledge and tried-and-tested methods of cutting down on time-consuming processes, property managers take care of everything relating to your rental property while keeping you updated every step of the way.
But what do the pros have that you don’t?
All the relevant licenses and working knowledge of best practices in the industry
Insider knowledge of everything from market trends to relevant laws and legal compliance
A trusted network of tradespeople
A thorough resident screening process
Real estate marketing and advertising skills
Ability to maintain regular communication with the residents
Pros & cons of hiring a property management company
The demand for property management services is steadily increasing, with more property owners trusting professional property managers with the all-important task of managing their investment properties and maximizing their return on investment.
Some of the advantages of this include:
Finding residents is easier and more reliable: With solid resident screening processes in place and a working knowledge of what makes a good resident, property managers are experts at finding the right resident for your property.
Leasing made easy: Starting with a comprehensive rental appraisal and solid lease agreement, the process of leasing your property out is made easier with experts handling all the finer details and lengthy documentation.
The go-between for owners and residents: You don’t have to handle the unpleasant tasks of settling disputes, chasing up arrears, or handing out eviction notices anymore.
Tax-deductible: You may not have to worry about losing out on rental income. Depending on local tax laws, property management fees can often be claimed as a tax-deductible expense.
Less stress, more free time: With a professional looking after your property, you only need to get involved when it’s important or when it suits you. This leaves you plenty of time to focus on what matters most to you or even gives you the freedom to expand your investment portfolio.
However, there are also downsides to handing over one of your most valuable assets to an outside party:
It might be expensive: Depending on the company’s fee structure, you could be looking at a significant reduction in your rental income on a weekly or monthly basis.
Maintenance could cost more: Because property management companies have a preferred list of tradespeople and businesses that they work with, you may end up paying more for a job that could have been sourced locally or through cheaper alternatives.
More clients, less focus on you: While a large client base is a good indicator of quality, it could also result in missed communication or delays in responding to urgent requests if the team is unable to grow at scale.
Out-of-touch practices: While keeping up-to-date with industry trends and developments is expected, certain agencies can become set in their ways in some aspects, such as using outdated marketing platforms.
Less control: Property owners who prefer to be more hands-on with their investments may find it difficult to see eye-to-eye with a property management professional.
Costs of hiring a property management company
For many property owners, the number one concern when hiring a property manager is the financial aspect: what additional costs they will incur, and how will it affect the overall rental income? For the benefits to outweigh the costs, it’s important to understand the breakdown of property management fees and what you can expect to pay.
Property management fees typically follow two models:
Percentage-based fees: Companies using this model charge a set percentage plus GST based on the weekly rent amount for your property as well as its location. This percentage is often negotiable, especially for owners with more than one property under management.
Flat fees: Companies charge a set amount monthly, regardless of factors like location or weekly rent.
While both fee structures have their own pros and cons, property owners doing their research should make sure they’re aware of any additional fees they might incur down the line. These can include:
Leasing fees for processing applications, negotiating lease terms, and contracts.
Marketing fees such as professional photography, signboards, online advertising, etc.
Tribunal/legal fees for getting together any supporting documents.
Administrative fees can include anything from generating annual statements and documents to key collection.
Inspection fees are sometimes billed extra, for the cost of travel and other relevant expenses.
While additional fees for services like leasing and marketing are one-offs, and admin fees are generally charged annually, property owners should be aware of these costs before they come in to avoid any unpleasant financial surprises.
Does hiring a property management company make sense for your situation?
If you have plenty of time to spare, live close to the rental property, or generally prefer to know the ins and outs of your major investments, going the DIY route may be the best option for you.
For owners with full-time jobs or family commitments, who live far away from their investment property or don’t have the capacity to look after it as closely as they would like, professional rental property management is a clear winner.
Spencer is the VP of Marketing at Evernest. He wakes up with Google and Facebook on his mind. Having bought and sold over 150 homes in Birmingham, Spencer gets a kick out of helping new and seasoned investors navigate the mistakes he made as an investor. Spencer is also passionate about his love for Michael Jordan and does his best to explain to the Millennials (who never saw him play live) how much better he was than LeBron. He loves to hang out with his wife, kids, and the world’s best black lab, Jett.