They're way worth the cost purely from a peace-of-mind standpoint and will make your life 10X easier and less stressful.
What do property managers do?
Determine rent - Property managers help you determine what rents to charge. They do this by looking at what comparable rental properties are leasing for in your area.
Marketing your property -Property managers help to market your property to tenants. They post your property on platforms like Craigslist and generate leads through social media. They'll also do advertising and post your property to the MLS so real estate agents can show your property to their buyer clients.
Screen tenants - Finding great tenants is one of the most overlooked aspects of owning a property. It's beyond important. Property managers will screen potential tenants to make sure they're of the highest quality. This includes running credit checks, background checks, verifying income & employment, and talking to past landlords.
Handle emergency repairs - Most property managers retain a small amount of cash from the landlord for emergency repairs. This includes anything from a broken fridge or leaky washer. This money is typically held in what’s called a maintenance reserve fund, which generally ranges from $500 to $1,000.
Protection from lawsuits - Solid PM's stay up to date on the latest landlord-tenant laws, rules, and regulations, which can vary by city and state. This protects you from housing discrimination claims.
Create monthly income/expenditure reports - PM's create reports to help you track your income and expenses.
Provide important tax filing documents - Property managers typically send out 1099s to rental owners so that they can report their rental income and expenses.
Property inspections - Most property managers do quarterly or biannual property inspections to check for smoke and carbon monoxide detectors.
Manages move-outs and evictions - When a tenant moves out, the PM handles the whole process. They assess potential issues, deduct repairs from the security deposit, and even clean the property in preparation for the next tenant. They also handle evictions based on the eviction policy they set in the rental agreement.
Should you hire a property manager?
Having a property manager isn't mandatory, but it sure does help.
Plenty of investors have tried to do everything themselves, mainly because they don't want to pay the fees required to hire a full time property manager. Of those investors, I'd be willing to bet that the vast majority hired a property manager the second time around.
You should seriously consider hiring a property manager if:
You own multiple rental properties. As you start to own more properties, the more essential a property management firm becomes.
You own properties out-of-state. If your rental properties are far away from where you live, it’s generally a good idea to hire a property manager near your property in case of repairs or emergencies.
You don’t want to actively manage the property. If you view the property as a source of passive income, you’ll need a property manager to take care of routine maintenance and daily operations.
You don’t want to be an employer. Hiring employees like a resident manager comes with several responsibilities such as payroll and legal requirements. A property management company is not your employee; they are independent contractors. Using one will save you the burden of becoming an employer.
You can afford the added cost. Property managers will charge a percentage of the rental fee, which is well worth it. The same fee can rid landlords of a lot of headaches and free up a lot of their time to invest in other places.
You have limited time. Even if you don’t mind managing your own property, you may not be able to actively work on the property every day. If you plan on focusing more on running your business, hiring a property management company may be your best course of action.
You can afford it. When choosing a property management company, you can expect quotes that range from 5% to 10% of your rent revenue. The exception to this would be in the case of a down market. In this case, it is wise to continue managing the property yourself or with the help of a resident manager.
You have a property in the affordable housing program. Usually, in programs like these, owners may receive grants, tax credits, or loans with low-interest rates in return for renting to those with low-income levels. With these benefits also come more complicated rules you must adhere to. Having a property management company that knows the ins and outs of these rules can help exponentially in the long run.
Types of property managers
Property managers can have different job descriptions depending on the asset they're managing.
Single-family home property managers, described above, work for real estate investors who hold their investments and rent them out for additional income.
Commercial property managers specialize in real-estate used for business purposes including industrial buildings and handle more nuanced administrative tasks.
Multi-family property managers manage properties with 5+ units, otherwise known as apartment complexes. Their tasks are essentially the same as single family home property managers, but they have to deal with hundreds of tenants in one building rather than multiple tenants spaced out living in different properties.
Having all of your tenants in one property has its benefits, mainly when repairs. As an example, if a furnace breaks, the property manager would only have to replace one furnace, rather than replacing multiple furnaces if managing multiple single family homes.
It also has its downsides. One example is the constant customer service and the not-so-rare occasions when they're forced to de-escalate situations that tend to happen in buildings with a very large number of residents.
Property management fees
Most property managers charge one month's rent to find and screen a tenant.
After that, they also charge you a percentage of the monthly rent as a management fee.
Fees are typically 5%-10% depending on the market, and you'll start to get more and more discounts if you use the property manager for multiple units.
Many property managers also charge a fee to prepare a new lease and other administrative fees. That can cost up to 50% of one month’s rent.
Although these costs may seem high, they don't compare to the money you'll spend if the above services are performed incorrectly.
Real estate asset managers are focused on the long-term, strategic big picture of maximizing the ROI of each rental property.
The goal of a real estate asset manager is to achieve the highest possible property value and return on investment for each asset and for the overall portfolio of the owner.
Think of a property manager like a contractor you'd hire for your company, whereas an asset manager is a full-time employee.
Contractors get in and get out, and are focused on the short term pay check. Full-time employees have a stake in the company, and have a vested interest to see it succeed in the long run.
If you're only buying a few residential properties (1-5 units) per year, you're probably not going to need an asset manager.
Asset managers are geared towards full-time investors and investment funds, because they typically manage an entire portfolio of properties.
What do asset managers do?
Maximize total ROI - Asset managers help you choose the best investment strategy for your properties. They also help to reduce your expenses, maximize rental income streams, and reduce potential risks and liabilities.
Hiring and working with key team members - Asset managers hire and work with property managers. They also hire and work with leasing agents and real estate agents.
Financial analysis and projections - Asset managers prepare long term financial forecasts and perform cash flow analysis. They also will compute the internal rate of return (IRR) in order to determine a property’s financial performance.
Market research and data analysis - Asset managers will do market research for each property before deciding whether it's a sound investment or not. They also look at data including demographics, employment growth, population growth, income growth, and more.
Manage cash flow - Asset managers manage cash flow from individual properties as well as the overall investment portfolio.
Allocating capital and resources - An asset manager in real estate will determine which properties within a portfolio should be improved to add value. They will then allocate a % of capital and resources to improving these specific properties for the sake of the entire portfolio.
Negotiate third party contracts - Because asset managers work with third parties including property managers, they are responsible for negotiating the contracts with these third parties.
Determine holding period - Asset managers determine how long an investor should be holding onto each property. To do this accurately, asset managers need to understand the market conditions and projected future appreciation for each property. They are heavily involved with the full life cycle of each property starting with acquisition, holding, and the eventual sale.
Asset management fees
Asset management fees can vary, but most expect to pay between 1-2% annually on all invested equity.
Some investors will also hire asset managers full time on salary.
The national average salary for a real estate asset manager is $62,489 in the United States.
If you're a small-time real estate investor with a couple properties, you're going to want a property manager, but not an asset manager.
Property managers handle the daily tasks and operations.
Asset managers are hired to maximize the value of each property and the total portfolio, and to generate the highest possible returns.
Real estate asset managers guide investors through the acquisition, managing and holding, and the eventual sale of the property.