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You're moving out of state – is it worth hiring a property management company?

As a landlord you will have to grapple with a lot of unexpected problems: will tenants pay their rent on time? What steps should you take if they cause damage to your property? What happens if you can’t respond to a tenant’s emergency call in the middle of the night? Being a landlord can be very rewarding financially, but it also requires a significant commitment of your time and resources.

And then, there are the unknowns of life.

Let’s assume you have taken the plunge and now own a rental property. Overall, things are going well. Then your boss tells you that your company is consolidating and you will have to move out of state if you want to keep your job. After thinking it over, you decide to hang onto your rental property as part of your long-term investment strategy.

Managing a rental property can difficult even when it’s only twenty miles away from your primary residence, trying to do it on your own across state lines takes that difficulty level from a three to a six overnight. It might make sense to hire a property management company, but before you do, here’s a list of things to help you understand the business relationship between you and a property manager.

PROPERTY MANAGERS’ RESPONSIBILITIES

A property manager serves as the intermediary between you and your tenants. They are the first point of communication for prospective tenants and residents. They’ll help market and advertise your rental if you need to find new tenants. They’ll manage the entire application process, from screening prospective tenants to getting leases signed and security deposits collected.

Property managers also handle routine maintenance. Some will do the maintenance for you (e.g. mowing the lawn, snow and garbage removal, servicing HVAC units). Some will oversee contracts you have with others to make sure maintenance is properly completed. Whenever a tenant has a problem that needs your attention, the property manager will be the first person they call. The property manager will only come to you when necessary, saving you from the day-to-day minutia.

THE COST OF HIRING A PROPERTY MANAGER

As with so many things, the answer is “it depends”. Property management fees can vary widely depending on the scope of work you need.You may only want to delegate certain tasks and functions to a property manager (e.g. routine maintenance), being hands-on in other areas (e.g. screening tenants and collecting rents). Alternatively, you may want to be hands-off entirely.

Fees also vary by location, the type of property, and the estimated man-hours involved in providing property management services.

Generally speaking, you should plan to spend anywhere from 5% to 10% of gross monthly rents on a property manager, plus expenses. For instance, if you collect $1,800/month in rent, you should expect your property manager to charge anywhere from $90 to $180/month as a baseline fee. Any expenses incurred by the property manager will then be charged back to you as the landlord. Most people set a threshold in advance – say, $500 – that the property manager can spend on routine maintenance and service calls without having to request permission. That way, if a major expense or repair is needed, you can weigh in before the property manager incurs that cost.

Some property managers will offer a discount when the property is unoccupied. This motivates the property manager to find a qualified tenant for your rental property sooner rather than later, so he can increase his monthly fees accordingly. Conversely, some property managers charge a “new tenant placement fee” – similar to the fees charged by rental agents and is typically equivalent to half or one full month’s rent.

All of these fees are negotiable, and again, they depend on your needs as a landlord. If you are moving out of state, you might want a more comprehensive package.

WHEN TO HIRE A PROPERTY MANAGER

Distance

As a general rule of thumb, we recommend hiring a property manager if you live more than 50 miles or 1 hour away from your rental property. This rule is especially true if you own several rental properties (see below).

Number of Units

If you only own one or two units, it might be possible to manage from afar, particularly if you have friends and family nearby who can check on the property for you as needed. However, if you are a long-distance landlord who owns more than a few units, you should really consider hiring a local property manager. The day-to-day responsibilities associated with managing several units and tenants from a distance can be daunting.

Tenant Turnover

We recommend hiring a property manager if you anticipate needing to find new tenants in the near future, or if your property is located in a market that experiences high tenant turnover (e.g. a college town). It is very difficult to show an apartment if you do not live nearby, and most prospective renters will want to see the apartment as soon as possible. Unless you are prepared to travel every weekend to host open houses, you are better off hiring a local property manager to show the apartment.

 

Service Provider Network

Finally, unless you have a strong network of local service providers, we recommend hiring a property manager. You need to be prepared for anything that might come up, and this means having a list of reliable vendors handy at all times. If you are new to being a landlord, or if your rentals have not required many service calls in the past, you may not know whom to call on short notice. Vendors may take advantage of your inexperience, particularly if they know you are an out-of-state landlord in a bind. Property managers can usually deal with most repairs in-house, and they have a robust network of plumbers, carpenters, HVAC professionals, appliance repairmen and others to call on if need be.

Hiring a property management company can be invaluable when dealing with the many issues that will be difficult to handle from a distance.

QUESTIONS TO ASK WHEN HIRING A PROPERTY MANAGER

Not all property managers are created equally. Landlords should thoroughly vet prospective management companies before entering into a contract. Ask a number of questions, including:

  • How long have you been in the property management business?
  • How many properties and what kind of properties do you manage?
  • Where are your offices located, and what territory do you cover?
  • How do you structure your fees?
  • Am I required to sign a long-term contract? Would you consider a month-to-month agreement with 30 days’ notice before canceling?
  • What strategies do you use to market properties to tenants?
  • What does your tenant screening process entail?
  • Do you have any experience managing tenant evictions?
  • Describe your most challenging tenant experience. How did you overcome the problem?
  • Do you manage repairs and maintenance in-house? What services are out-sourced, if any?
  • How do you prefer to communicate with landlords, and how often?

Hundreds of property management companies operate in Texas, so you will have plenty of options from which to choose. Do not be afraid to ask for recommendations. If any of your friends or family own rental property, be sure to ask for their advice. Most would be happy to share their experiences.

Conclusion

Remember, just because you CAN manage your property from a distance doesn’t necessarily mean you SHOULD. Hiring a property manager will relieve you from the day-to-day responsibilities of being a landlord, and will give you peace of mind when owning real estate from a distance. A good property management company is worth its weight in gold and will help preserve the value of your investment.

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