How Do Property Management Companies Work?

Here’s an understatement: Owning, managing, and maintaining a rental property can be a lot of work. Maintenance, rent collection, accounting, regular inspections, and dealing with emergencies can feel impossible at times especially if you have more than one rental property. If you can’t or don’t want to manage your real estate investment by yourself, now  might be a good time to consider hiring a property management company to oversee the day-to-day operations of your rental.

In this article, you’ll discover: 

• What a property management company is
• The benefits of using a property management company
• The disadvantages of using a property management company
• How much a property management company costs 
• How to find a good property management company

What Is a Property Management Company? 

A property management company is a third-party service provider hired by a landlord or real estate investor to oversee the management of a rental property. Property management companies usually take care of every aspect of a rental property, including marketing vacant units, signing leases, collecting rent, and calling for repairs. Ultimately, the main role of a property manager is to complete tasks delegated to them by the owner to preserve the property’s value while generating income. 

Property management companies can specialize in a range of property types, from commercial, to industrial, to special-purpose, to residential. Residential property managers can be hired to manage: 

• Single-family rental homes
• Vacation rentals (also known as short-term rentals)
• Multi-family homes
• Townhouses
• Condominiums 
• Apartments 

Who Needs a Property Manager?

If you’re a landlord—especially one who owns multiple properties or isn’t located on or near your rental property—you might want to consider hiring a property management company to help with your rental properties. When deciding if a property management company is right for you and your real estate investment needs, consider the following:

• Geography—Any property you own that’s further than 50 miles away may be difficult to get to often. Also, it can be a challenge to visit your properties on a regular basis if you own multiple properties that aren’t close to each other.
• Number—The more units you own, the less likely you are to be able to manage them efficiently.
• Personal time—If you have a full-time job, are raising a family, or have other obligations, you might not have enough time to dedicate to managing your rental property. 

The Benefits of Using a Property Management Company 

You might think that managing your properties yourself gives you greater control, but it also requires more of your time, and can cause more than a few headaches.

Find Quality Tenants 

Finding and screening quality tenants is one of the most time-consuming aspects of owning and operating a rental property. If you don’t have time to vet each applicant carefully, a property management company can market your property, screen tenant applications, and help reduce the time between tenants.

Avoid Costly Lawsuits and Liabilities

If you aren’t familiar with all the local, state, and federal laws regarding rental property, you could become exposed to lawsuits. Different states, counties, and cities have widely varying rules around everything from fair housing, to security deposits, to tenant screening, to required regular maintenance. Violating any one of these rules can quickly become costly to fix. Since property management companies have a responsibility to understand landlord-tenant, property, and contract laws, they can help prevent any issues, and rectify potential problems as they arise to avoid the court system.  

Perform Timely Maintenance and Repairs

Keeping your property in good condition can help to reduce tenant turnover since maintenance issues are one of the most common reasons a tenant might not renew their lease. A property manager can perform routine and preventive maintenance to ensure that everything is running smoothly, and address any minor issues before they turn into larger problems. 

Collect Rent on Time

For your real estate investment to be lucrative, it’s important for tenants to pay their rent in full and on time.  A property management company can collect on your behalf, as well as act as a buffer in case there are issues with delinquency. Many property management companies utilize rent collection software to streamline payments, notify tenants of missing or late rent, and even track payment amounts across multiple tenants and properties.

Receive Less Expensive Maintenance Work

Maintenance vendors will often give property management companies preferred pricing in exchange for their business. Therefore, going through a property management company for repairs and maintenance could result in lower costs than what you might find on your own. In addition, your property can benefit from working with a property management company’s high-quality, trusted vendors.  

The Disadvantages of Using a Property Management Company

Property management companies can be an asset to you and your real estate investment. But, there are some disadvantages to consider when involving more parties in your rental property’s management. 

One-Time and Monthly Fees

Depending on where your rental property is located, the cost to hire a property manager typically ranges from 6% to 12% of the property’s monthly rent, in addition to any expenses related to repairs and replacement items. If you only have one or a few properties, a property management company could affect your rental cash flow, making your investment less profitable. 

Less Control Over Property Operations

Property management companies are typically responsible for tenant selection, setting the rent price, and upkeep. Therefore, if you like to be hands-on with your rental property, a property management company might not be the right fit for you. 

How Much Does a Property Management Company Cost? 

The following are two common ways a property management company will structure their fees:

1. Percentage of monthly rent: As noted earlier, many property management companies charge a fee between 6% and 12% of a property’s monthly rent. If a property is vacant, a property management company will typically charge the landlord either a fixed fee or a fee equivalent to the anticipated monthly rent once the property is leased to a new tenant.
2. Fixed property management fee: Some property management companies may choose to charge a fixed fee rather than collect on monthly rent payments. This fee is typically based on the property type, square footage, and services provided.

Whether a property management company charges based on a percentage or a flat fee, these prices might not be all-inclusive. A property management company might charge for additional services, such as:

• Contract setup fee: A one-time contract setup fee might cover: 

• Creating your account for bookkeeping purposes
• Opening a bank account in your name, if needed
• Assisting with applying for any required business or tax licenses
• Conducting an initial property inspection

• Overseeing vacant property: Even vacant properties need to be managed. The longer a property sits vacant, the greater the risk of break-ins or squatters. In addition, water leaks could occur or security lights could burn out since utilities need to remain on for showings. As such, vacant properties require weekly inspections to ensure the property remains in good condition. 
• Leasing vacant properties: If you are unavailable for showings, your property manager will need to show your vacant property to prospective tenants. Many property management companies will charge a leasing fee (typically one-half-to-one-month’s rent), and companies may also charge a fee when it’s time for lease renewals.
• Late payment service charges: As a landlord, you can charge your tenant a fee if they pay the rent late. Some property management companies will take 25% to 50% of the late fee for helping hunt down the rent payment. 
• Evictions and collections: If you need to evict a tenant for not paying rent, disrupting the neighborhood, or destroying your property, a property management company can assist, but will typically charge a fixed eviction fee of around $500 plus any applicable legal fees. 

How to Find a Good Property Management Company

If you’re interested in finding a property management company, you should:

• Ask for referrals. Family, friends, co-workers, and other real estate professionals are a great way to find a property management company that’s right for you. Be sure to ask about specific strengths and weaknesses of potential candidates since experiences may vary. 
• Do online research. A simple online search can be a great place to start when looking for a property management company. Reviews on Facebook and Google can also help you find the right fit. 
• Visit properties. A property manager is responsible for the upkeep of their buildings and grounds. So, if a property looks shabby, it might be best to move onto the next candidate. 
• Interview managers. Before deciding on a property manager, ask about their experience, education, fee structure, and services. You should also ask them to explain their knowledge of laws and regulations. 

Wrapping Up

The right property management company can help keep your rental property occupied, take property upkeep off your plate, and give you more time to focus on growing your real estate portfolio. If you’re trying to find a property management company that’s right for you and your rental property, our Essential First-Time Landlord Checklist can help. This resource includes a section on property management and can help you decide which tasks you want to handle and which you want to delegate to your property management company.  

In addition to finding the right property management company, it’s important that you have the right coverage in place to protect you and your rental property. Be sure to check out the following resources:

• The Essential Guide to Landlord Insurance
• How Much Landlord Insurance You Need: A Clear and Simple Guide
• What Does Landlord Insurance Cover? A Quick Guide For Investors

If you’re ready to get the right coverage for you, take the next step by getting an instant quote from Obie.