As an engineering firm, we work with property management firms all the time. We see the in’s and out’s of what they do and the value they bring to their customers. Many of our own customers ask us “what exactly is property management and is it right for me?”
Well, property management firms are extremely sought after because they take care of all the logistics that come with being a landlord.
In definition, property management is the management of real estate by a third party. The responsibilities of a property management firm typically involve the day-to-day operations including marketing rentals, screening tenants, setting competitive rental rates, coordinating necessary maintenance and repairs, collecting rent, managing budgets, and complying with all rental laws and regulations.
Many property owners are happy to delegate the time-consuming duties of landlordship to a third-party property management firm.
If you are interested in-
- what a property management firm can do for you
- what the roles and responsibilities of a property management firm are
- Or how to choose the best property management firm
…..then this blog is for you!
Read on to learn more.
What are the roles of a property management firm-
Property management firms take on the sole responsibility of landlordship. This means their list of responsibilities is vast.
Let’s jump in.
1) Setting competitive rental fees-
Property management firm really knows and understand the market and the areas they work in. This is why setting rent is one of their main responsibilities. In fact, most firms will perform an annual survey of similar properties in the area.This allows them to ensure the rates they set attract tenants. Property owners trust that the property management firm will price their units or houses competitively, therefore attracting tenants.
2) Collecting rent-
Just as property management firm’s set rental rates, they are also responsible for collecting rent. Most firms implement a user-friendly system for tenants to make their monthly payments via an electronic platform.
The property management firm could use an online site such as ERentPayment, RentMatic,or RentMerchant. These websites offer various options to tenants such as recurring or one-time payments and also allow tenants without access to a computer to pay their rent directly out of their bank account or via a mobile phone.
On a more basic level, some property management firms may simply use PayPal or Venmo. Many tenants find this to be an easy solution. However, larger property management firms will probably steer away from this option because it is not quite as streamlined as other options.
A platform known as Zelle is also becoming a popular way for tenants to make payments. As long as tenants have a U.S. bank account they can send money from their bank directly to a property management firm.
Lastly, some tenants simply prefer the old-fashioned method of sending or personally delivering a check to the property management office. It’s only fair that property management firms allow this to accommodate those without access to electronics.
3) Finding tenants-
This task alone is one of the many reasons landlords will hire property management firms. Finding tenants requires some form of marketing and marketing requires a lot of research, time and strategy which some prefer to delegate out. Luckily, this skill is often central to a property management team.
They know and understand their market’s needs and can create a strategy around this. For example, in an up-and-coming area, the property management firm may create edgy video content that highlights their client’s property. This content could be released on social media.
Or, perhaps their client’s property caters to an older population. They may utilize the local newspaper ads or local businesses bulletin boards.
All and all many property management firms know what works or does not work in the world of attracting tenants. This skill set removes a lot of stress off of the property owner.
4) Screening tenants-
Once a property management firm generates a flow of potential tenants, these individuals must be screened to ensure they are stand-up citizens who will pay their rent in a timely manner and respect the premises. Screening tenants typically involves a meet and greet and potentially a background screen and/or credit score check. Property management firms have the tools and resources to make this happen.
5) Managing daily complaints-
It’s bound to happen, every tenant will have complaints at some point. A good property management firm will have the know-how to deal with these complaints in a timely and fair manner. Property owners have the benefit of avoiding the headache that can come with sorting out disputes.
6) Arranging tenant move in or out dates as well as evictions-
Simply managing who is coming and going can be a full-time job. Hence, why this duty falls into the category of property management. A property management firm will arrange both move-in and move-out dates and ensure that these dates comply with any signed contracts in place. This also means they are responsible for acquiring security deposits, as well as returning those deposits upon an exit clearance. On top of this, they will facilitate evictions in a legal and fairway.
7) Property maintenance-
Property maintenance is an essential part of a property management firm’s responsibilities. Not only must the building and property be up to legal building regulations set by each city, but it must also (in many cases) be enrolled in a long-term maintenance plan.
Side note- In theory, getting the property up to code, so it’s safe for tenants to move in, falls into the property owner’s responsibilities. They should work with their city’s building department to ensure the current structure is sound and in compliance with any building requirements. If not, a tenant could report the landlord resulting in legal or other serious fines.
This process should happen whether you plan to remodel or leave the current structure intact. If you are making no changes, the city may require an inspection.
If you plan to renovate or remodel, your contractor should work with the building department to ensure your changes are following regulations.
Sometimes, the city may require a structural engineering inspection. If this is the case, simply call up a local structural engineering firm and provide them with the instructions from the building department.
This is more common than you may think. Any time you alter the “bones” of a building, such as removing a load-bearing wall, a structural engineer is required.
Some common reasons to call a structural engineer:
- Removing a load bearing wall
- Assessing a foundation’s integrity
- Adding a floor or multiple floors to a structure
- Garage conversions
- Noticing a cut or broken roof rafter or joist
- Increasing a floor’s structural load requirements such as when installing a dance floor, hot tub, fish tank, or piano
- Implementing a long term maintenance plan
- Dealing with groundwater management issues
- Permanent ice dam remediation
It’s also good to note that not all structural engineer’s are created the same. For example, some structural engineer’s only perform load bearing wall analysis.
They may not understand the fundamentals of ground water management (preventing SERIOUS foundation failure) or how open bypasses in the attic can lead to ice dams (think serious wall damage or health issues from mold).
Be sure to ask for a referral or at least know the right questions to ask the engineering firm prior to hiring.
Now that we’ve covered some back story, let’s return to the role of property management firms in all this.
Again, their role is to help facilitate routine maintenance as well as long term planning.
So, anytime something fails physically on the building, such as a leaky faucet or a tree falling on the property, the property management firm will help facilitate the repairs.
Sometimes they have their own in-house vendors, but if not, they definitely have preferred vendors. This is very beneficial to the property owner; they have peace of mind knowing that the vendors working on their property have been vetted and tried.
Common short term maintenance requests from tenants-
- Appliance malfunction
- Plumbing issues
- Leak repair
- Pest or rodent removal
- Cleaning gutters
Property management firms develop loyalty from tenants when they are THERE to help them with their maintenance needs. This includes emergency repairs which can happen at any time.
A good property management firm will also help facilitate long term building maintenance plans. This would entail larger projects such as budgeting and planning for a new roof or parking lot. Property management firms will include professional opinions from structural engineers and construction teams.
Common long term maintenance items-
- Foundation repair
- Attic insulation
- Ice dam mitigation
- Driveway repair
- Parking garage repair
- Window and door repair
Anytime work is done, be sure that your contractors are working through the city’s building department. They will be your guide on what the requirements are in regards to inspections, structural engineer requirements, etc.
8) Managing the Budget
This is a HUGE ticket item on the list of responsibilities of property management firms. As an agent of the property owner, the property management firm must be well versed in comprehensive budgeting. Once a budget is established, it can be used to set various quarterly goals. In this way, income and costs can be monitored closely enough to make quick strategy changes if the existing systems are failing.
Costs that are commonly factored into the budget-
- Marketing & advertising
- Maintenance (short and long term)
- Daily operation costs
- Applicable utilities
Below is a very simple example of what a budget could include.
Many property management companies use financial software to help manage the intricacies of the budget. This ensures that no costs get lost in the shuffle and that projected income is realized or on target. To learn more about this topic, check out this blog by Assets America.
How to choose a property management company-
Choosing a property management company may be the single most important factor when determining if your real estate investment will be a success.
It can be extremely challenging to sift through the various companies out there especially when they all claim to provide similar levels of service. So, how do you see through the smoke and make a solid choice?
Well, it helps to start with the basics.
Do not move forward with a property management company if they cannot provide you with these 3 things:
- Proof of licensure- Each state in the U.S. has their own requirements for property managers. To see the criteria in your state click here.
- Types of properties managed- This question will provide you with some solid background on what the property management firm’s experience is. Perhaps they typically manage single family homes, but your property is a 40 unit condo. You may ask if the property management firm has the resources and know-how to take you on as a client.
- A list of references- References are priceless when deciding whether to trust a property management firm with your real estate investment. The experiences of other individuals can tell you a TON about what to expect when working with that specific company.
Next, you can ask more specific questions relating to the section above on “property management firm responsibilities” such as:
- What is your strategy for setting rent?
- What platform do you use to collect rent?
- How will you ensure my property is well maintained now and in the future?
- How do you plan to balance the budget and meet quarterly income projections?
- What methods do you use for tenant screening?
The questions above are simply suggestions. You may have your own list of important questions that apply more specifically to your real estate investment. It’s important that you feel comfortable with the answers you receive.
If the property management firm has answered your questions satisfactorily thus far, it’s time to look at the numbers.
- Property management firm fees
- Property management firm contracts
Looking over these numbers and contracts in detail is essential to making your final decision. It’s always a good idea to speak with multiple property management firms to really see what your options are before signing the dotted line.
What are property management fees-
Property management fees are typically competitively priced. If you see a management firm with much lower prices than everyone else, it could raise a red flag. This could mean their services are subpar or that they are undercutting their competition which could lead to a slim unrealistic budget and ultimately unhappy tenants. Do your research and see what management firms are charging and what services they are providing in your area.
If you are looking for actual numbers, by rule of thumb, management fees can range between 4-12% of monthly rent.
Keep in mind that fees will vary based on several factors such as:
- Residential vs. commercial properties
- The number of properties the client needs managed
- The number of units on each property
- The location of the property or properties
- The condition of the property or properties
- The services included for the given fee
It can also be noted that not all property management firms charge by a percentage; some use flat fees or hybrid models.
What license is required to start a property management firm?
As discussed earlier, each U.S. state has their own laws when it comes to licensure for property managers. Some states require a property management license while most require a real estate broker license.
In order to obtain a real estate broker license, there are several steps that vary depending upon the state you live in. In general, the process typically goes as follows: The individual must be at least 18 years old (21 years old in some scenarios). Each state requires a certain amount of classroom hours to first obtain their real estate license. Then, the person must work as a real estate agent for a certain time period (varies depending upon the state). Next, an individual may have to undergo more classroom hours (which may vary from 10-100 hours depending upon the state) in order to prepare for their broker’s exam which does include questions about property management. Lastly, pass the broker’s exam.
If the state you live in does not require a real estate broker’s license, you may decide to obtain a property manager license. The steps are: pre-licensing coursework, passing a property manager’s exam, and of course, ongoing educational courses.
Note- Each state has their own regulations and landlord-tenant laws which property managers must follow or risk losing licensure.
What is the difference between a leasing agent and a property management firm?
There is often some confusion about the difference between a leasing agent and a property management firm/manager.
Let’s try to clear this up.
You can think of leasing agents as the person who shows prospect tenants the property. Their ultimate goal is to get a possible tenant to sign a lease as quickly as possible. They are typically paid on commission.
Property managers are the people who step in once a lease has been signed.They want to ensure the tenant has a great experience and continues to re-up their lease for years to go.
Now, here is where things get confusing. A property manager can also be a leasing agent, but a leasing agent cannot be a property manager.
Think of it this way, property managers could show properties if they wanted, but they may be spreading themselves too thin. It’s essential that they keep their current tenants happy along with fulfilling the long list of other responsibilities that comes with property management.
Therefore, many property managers hire leasing agents onto their staff. This is beneficial to both parties. For one, leasing agents would have a steady flow of incoming tenants and would not need to find their own business. It also frees up the property manager to attend to their other duties.
How to know if you need a property management company-
Hiring a property management firm is not for everyone. However, there are several scenarios when hiring a property management firm is the smartest option for optimizing your real estate investments.
Let’s run through some of these scenarios.
Scenario 1- One of the most obvious reasons to hire a property management company is if you do not live near your property. In order to maintain the integrity of the property, it’s important to have someone qualified caring for it.
Scenario 2- If you own or plan to own multiple properties, it may be in your best interest to hire a third party.
Scenario 3- Your real estate assets are a source of passive income. If this is the case, you may not want to handle the day-to-day that goes into managing your property.
Scenario 4- You have no interest in being an employer. If you do not want to manage a team of employees as you grow, hiring a property management firm may be the solution you need.
Scenario 5- If you want to spend your time growing your business, you may need some backup to run the daily operations. If you can spare the cost, hiring a property management firm will free up some brainspace for you to focus on expansion.
Scenario 6- If you are invested in the affordable housing program, hiring a property management firm may be the best option for staying up to date on any program requirements.
All in all, there are many circumstances when hiring a property management company is the best strategy to grow your business. Many view it, not as additional costs, but rather as an investment.
Let’s briefly recap what we went over. We discussed what exactly property management is and the roles and responsibilities of a property management firm including: setting rates, collecting rent, finding and screening for tenants, managing daily complaints, arranging move-in dates and evictions, property maintenance, and budgeting. We also covered how to choose a property management firm, the associated fees, licensing, the difference between a leasing agent and a property manager, and finally whether or not a property management firm is right for you.
We hope that this blog has provided you with the basics of property management. As a structural engineering firm, we have the pleasure of working with property management companies on a consistent basis and respect the role they fulfill in the housing industry. We’d love to help you with any of your engineering needs. For questions please call 763-544-3355.