Why You Should Not Hire a Property Management Company

During my daily activities driving around town looking at properties, I see many For Rent By Owner signs on lawns of vacant rental property. As I see these signs, I find it interesting that the owners have not asked themselves, is it really worth it?

I wonder to myself if the property owners have actually asked themselves some key questions:

Am I actually saving money doing it myself?
Am I prepared for the responsibility?
Do I have all the tools I need such as Applications, credit and background checks, leases, eviction forms, notices, repair and cleaning resources?
Will the cost of doing it myself actually save me money or will it cost more?
As a full time professional property manager, I know from experience how difficult and costly it is to manage rental property.

How do I know this?

Because I do it for a living, I have unique insight into the activities and costs associated with managing income properties. My time is valuable! Why would you as an income property owner want to invest the aggravation, effort and time it takes to make a few extra dollars a year renting a property yourself, when you can hire a reputable company to do it!

It’s a no brainer to me. Isn’t your time worth more then $10.00 per hour or $33.58 per month or $403.00 a year for one property! What am I talking about? Let’s take a look at how I arrive at these figures… Before we begin to look at the costs associated with property management, let’s set a few ground rules and identify and define some terms.

Fees

Property management companies charge anywhere from 5-35% for their services based on:

The rental term – Short, mid or long term
Services offered – Concierge, housekeeping etc
Repair services – On staff or hired as needed
Local market – Some areas receive higher management fees then others. Example: Los Angeles California may charge 20-30% fees for long term rentals where my market area charges much less.
Other factors
Property Management services in my area for mid and long term rentals run approximately 10% of each month’s rent. Sometimes, an additional first month’s rent fee is charged to cover initial setup costs.

Lease Terms

I classify lease terms as:

Short term rentals – Less then 1 month
Mid term rentals – 1 to 6 months
Long term rentals – 7 months to 1 year
Variables for renting in my market area depend on several factors:

The season – Being a primarily tourist oriented area; we go through several tourist oriented seasons where our residency swells.
Transfer in and out of Military personnel and families
Construction increases
The Seasons
Let’s break down the type of renters by season so we can estimate and gauge the types of renters we will typically have in a given season:

Winter – During this season we get several types of renters which include “snowbirds”. “Snowbirds” tend towards mid term rentals. They come to our area during the winter months and their primary residences are often the northern United States and Canada.
Spring – The spring season brings short term renters in the form of “spring breakers” as well as families taking advantage of breaks during the school year. An interesting aspect to spring is the semi annual transfer of military families to one or more of our local military bases.
Summer – This season consists primarily of short term renters and midterm renters. Visitors from all over the world travel to our area during summer and stay anywhere from 2-3 days to 1-2 months. While visitors from the United States tend towards short term, European visitors lean more towards 2 weeks or more.
Fall – This is an interesting season and often the time of year local residents change residences. It is also part of the semi annual transfer of military families to one or more of our local military bases.
Vacancy ratio
An important factor to consider in estimating the costs to run an income property is the Vacancy Ratio. Vacancy ratio is defined as the amount of time a rental property is vacant compared to the amount of time it is not.

Vacancy ratio is governed by not only the seasons as mentioned above, but also:

The price of the unit
Amenities – Pool, spa, allow pets, etc.
The local economy
Marketing
Availability of the unit
Other factors defined by the area
In my area we typically see on average a vacancy ratio of 2-4% for small multi-family long term rentals (duplexes and triplexes). However, during difficult economic times we could expect to see ratios as high as 6-7%! I’ve recently seen vacancy ratios as high 10-12% for several areas.

For ease of calculation, we will use a 5% vacancy ratio since it is in the middle of the vacancy ratios we expect to see in my market area. These may or may not reflect the ratios other areas experience. It is advisable to seek the assistance of a qualified property management company in the local area for accurate data.

Let’s get to it…

Now that we have a few guidelines to work with, we can mak

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Make Finding a Property Management Co Easier on Yourself by Asking the Right Questions, Part 1 of 4

This is a four part series where we have outlined important questions to ask a property management company before hiring them.

Series 1 Company’s credentials
Series 2 Property management services
Series 3 Property management fees
Series 4 Tenant screening process

Property management companies come in all sizes, capabilities and expertise. Just because one works for one investor doesn’t necessarily mean they will work for you. Below we have outlined some important questions to ask a company during your initial interview process. Their answers to these questions will provide insight into their business capabilities, credentials and areas of expertise,and can provide you with an understanding of the type of services they offer which are important to you.

Series 1 – Credentials

Years in the business – Years in the business can equate to experience and stability within a company. Of course things such as changes in key personnel or senior management can jeopardize this. But generally this is a good indicator of a company with a solid foundation. Chances are they have solid processes and procedures in place to streamline the management of possibly hundreds of properties all at the same time. Make sure these “years in the business” are related to property management and not sales only. Just because they have 30 years running a real estate sale department does not make them an expert in property management or tenant relations.

Done business under another name – You should do your due diligence and contact the Better Business Bureau or other reliable service such as Dun & Bradstreet to see if the company your interested in has a good track record or any consumer complaints filed against them. The Better Business Bureau assigns grades from A to F with pluses and minuses. A+ is the highest grade and F is the lowest. The grade represents BBB’s degree of confidence that the business is operating in a trustworthy manner and will make a good faith effort to resolve any customer concerns. If the company your interested in has done business under another name you will want to check the track record of this business entity also.

Property Management Only or Sales also – Some investors will only hire companies that deal strictly in property management when it comes time to managing their rentals. These companies are focused on every aspect of property management since this is all they do, and they will not be influenced in trying to get you to sell and making a sales commission.

Other investors may find security in knowing they have a management company that is well verse in sales. A company that offers both sales and property management can be very useful if you plan on buying multiple properties and want to work exclusively with one company for buying and managing all these properties. These companies typically will have a good grasp of the overall market condition whether buying, selling for owner occupied or investment.

Real Estate or Brokers License – In order to practice business as a property manager some states require they process a Real estate or Broker’s license. To receive a license requires extensive education as well as passing the state’s licensing exam. In order to keep their license current they must also participate in ongoing courses. These courses and license designations cost money and show they have a commitment to their trade. Other states may only require a certificate, which consists of basic classes and passing a class exam.

Staff personnel – Some management company may employ hundreds of employees, while others may be run by a sole proprietor. What you want to find out here is the ratio between their portfolio of rental properties and managers they employ. In other words, if they manage several hundred properties yet only have two staff managers, they may be overworked and unable to give you the service you expect.

Type of properties you manage – Some property management companies manage all types of properties while others specialize in one type, such as residential. If you have a single-family house that needs managing, a company with 90% of its properties being commercial property may not be a good fit. Typically commercial and community association management is the most profitable for a property management company. And some residential property management company may prefer to manage only multi-unit apartment buildings of a certain size and not manage single family houses at all.

Associations/Affiliates – They are many local and national associations that are tailored for the property management community. These associations are full of valuable information, and are a great way to network amongst others in their industry. Once a member of these associations you have numerous channels of educational classes and seminars all geared toward enhancing their skills as property managers. Upon completing class requirements many are given professional designations to promote them as a professional in their field. Some popular associations are “National Association of Realtors®” (NAR), “National Association of Residential Property Managers®” (NARPM®), “Institute of Real Estate Management®” (IREM®), “Community Associations Institute” (CAI), “Building Owners and Managers Association” (BOMA) and the “National Apartment Association” (NAA).

Coming soon: Part 2 of 4 “Make finding a property management company easier on yourself by asking the right questions”- Property management services

Karen McDaniel
Principal/CEO
Property Management Profile LLC

Property Management Profile offers the most up-to-date listing of full-service property management companies nationwide. We have become a wealth of information and resource for the first-time landlord as well as the seasoned investors. We should know what we’re talking about, as owner and creator of Property Management Profile, Karen McDaniel, has owned and managed many of her own properties. Today, all are managed by professional property management companies, so she now has more time to continue her work educating and helping others make better choices when it comes to finding a qualified property management company.

For any property management company that is looking to gain nation

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