When Should a Landlord Hire a Property Management Company?

Hiring a property management company can be great for your business, or not.

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One of the biggest decisions you'll make as a landlord is whether you should hire a property management company. Many landlords manage properties on their own or with the help of an employee, such as a resident manager. But sometimes landlords need more help, and that's when a property management company might make sense.

If you are hiring an individual resident manager, protect your rental property and the manager by using Nolo's Residential Rental Property Manager Agreement.

Property management companies can be a huge asset to your business, but they don't come cheap. And there are other reasons why you might not want or need one. Carefully review the factors discussed below to determine if hiring a property management company is the right move for your business.

What Does a Property Management Company Do?

Management companies deal directly with prospects and tenants, saving you time and worry over marketing your rentals, collecting rent, handling maintenance and repair issues, responding to tenant complaints, and even pursuing evictions. Plus, a good management company brings its know-how and experience to your property, giving you the peace of mind that comes with knowing your investment is in good hands. Finally, a management company is an independent contractor, so you avoid the hassles of being an employer.

When Should You Hire a Property Management Company?

Although hiring a property management company has many advantages, using one can be expensive. And, even apart from the cost, relying on a property management company is not for everyone. Consider the following factors to determine if hiring a property management company would be a good decision for your business.

You should consider hiring a property management company if:

You have lots of properties or rental units. The more rental properties you own and the more units they contain, the more you're likely to benefit from a management company.

You don't live near your rental property. If your rental property is located far from where you live, hiring a property management company can be invaluable in dealing with the many issues that you will not be able to handle from afar.

You're not interested in hands-on management. Many landlords look forward to the challenge of finding good tenants and the rewards of maintaining a safe and attractive property on their own. But if you view rental property ownership strictly as an investment and want little or nothing to do with the day-to-day management of your properties, consider hiring help to manage your property.

Your time is limited. Even if you enjoy hands-on management, you may not have much time to devote to your business, especially if landlording isn't your day job. And if you prefer to spend your time growing your business, including searching for new properties, arranging financing for renovations, or changing your business structure, then a management company may be a good way to spend your money.

You can afford the cost. Hiring a property management company is an attractive option if you can afford the fees. When interviewing companies, expect to hear quotes ranging between 5% and 10% of what you collect in rent revenue. If it's a down market and you're able to manage things yourself (or with the help of a resident manager or other employees), you may want to keep doing so until the market turns around.

You're suddenly inundated with management tasks. If your business is growing, at some point you may find that you need a substrantial amount of help to manage everything properly. At that point, it might make sense to hire a management company.

You don't want to be an employer. If you hire a resident manager or other employees to help with your property, you become an employer. You'll have to handle payroll and deal with a host of other legal requirements and considerations. But, because a property management company isn't your employee (it's an independent contractor), and neither are the people who work for the company, by using one you avoid the hassles of being an employer.

Your property is part of an affordable housing program. If you participate in an affordable housing program, things can get complicated. Usually, in these programs the landlord receives financial assistance, which may be in the form of a grant, low-interest loan, or tax credits, in return for agreeing to rent at least part of the property to tenants earning below a certain income level. In order to continue receiving the assistance, the landlord must comply with a complicated set of rules. With so much at stake, it's often worth hiring a property management company that has expertise and experience with the particular housing program in question.

How to Find a Good Property Management Company

If you decide to hire a property management company, use caution in selecting one. Here's how:

  • Get recommendations from colleagues and your local apartment association.
  • Search professional directories on the Internet. Visit the website of the Institute of Real Estate Management (IREM) at www.irem.org and click "Find a Professional." Or visit the National Association of Residential Property Managers' (NARPM) website at www.narpm.org and click ┬áto search for property managers."
  • Interview companies to get all your questions answered before handing over the reins.

To learn more about protecting yourself when hiring a management company and to get help with other risks facing landlords, read Every Landlord's Property Protection Guide: 10 Steps to Cut Your Risk Now, by Ron Leshnower (Nolo).

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