In this guide we’ll discuss:
- What does a residential property management company do
- Comparing property management companies
- Pitfalls of managing your own rental properties
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What Does a Residential Property Management Company Do?
It all seems so simple. Put up a For Rent sign in the yard and potential tenants immediately blow up your phone to rent it. Then you just sit back and collect the rent checks, right? Not so fast. A lot more goes into managing rental properties. You may have strong feelings about wanting to do everything yourself as a hands-on landlord. But many rental home owners choose to hire a property management company to do some or all of the work.
But what does a property manager actually do? In short: they can perform necessary tasks on your behalf, giving you back time and energy. They can also boost the bottom line by getting you a better return on investment.
Examples of property manager services
A property manager should help owners generate steady income while preserving or increasing the value of their investment property. The following 11 items aren’t intended to be a comprehensive list of property management services. But should give you a fair idea of the scope of a property management company’s activities.
Property managers evaluate your property and determine an accurate rental rate.
- They provide detailed documentation of the interior and exterior, including photos.
- They offer recommendations on repairs and cosmetic improvements that maximize monthly rent while providing good ROI.
- They gather data on rental rates in the area and work with owners to determine the optimal rental rate. Rent research will vary, but it should include looking at recently rented comparables according to size and type.
- They discuss the pros and cons of different policies, such as accepting pets, lawn care and pool care (if applicable).
- They install a lock box.
Property managers market your property for rent.
- They prepare your home to attract tenants.
- They create ads tailored to the property and advertising medium. Some commonly used mediums include MLS, Zillow, Trulia, HotPads, Realtor.com and Rent.com.
- They work with other Realtors® and leasing agents to find tenants.
- They provide a 24-hour hotline where prospective tenants can listen to detailed information about the property.
- They field calls from prospects for questions and viewings.
- They meet prospective tenants for showings throughout the week and weekend.
- They provide prospective tenants with rental applications that are legally compliant with fair housing laws.
- They collect applications and application fees.
Property managers perform tenant screening and selection.
- They perform a background check to verify identity, income, credit history, rental history, etc.
- They grade renters according to predefined tenant criteria.
- They inform prospective tenants who are turned down.
Property managers help tenants move in.
- They draw up leasing agreements.
- They confirm move-in dates with tenants.
- They review lease guidelines with tenants regarding items including rental payment terms and required property maintenance.
- They ensure that all agreements have been properly executed.
- They perform detailed move-in inspections with tenants and have them sign a report verifying the condition of the property prior to move-in.
- They collect the first month’s rent and security deposit.
Property managers collect the rent.
- They take in payments and turn them around to you.
- They hunt down late payments.
- They send out 3-Day Notices.
- They enforce late fees.
- They issue 7-Day Notices to cure the violation of, or immediately terminate, the lease.
Property managers handle evictions.
- They file relevant paperwork to initiate and complete an unlawful detainer action.
- They represent owners in court.
- They coordinate with law enforcement to remove tenants and their possessions from your property.
Property managers handle many legal matters.
- They advise in the event of a legal dispute or litigation.
- They refer owners to a qualified attorney when necessary.
- They make sure that you understand and abide by the latest local, state and federal legislation regarding renting and maintaining rental properties.
Property managers handle property inspections.
- They perform periodic inspections (inside and outside) on a predefined schedule, looking for needed repairs, safety hazards, code violations, lease violations, etc.
- They send owners periodic reports on the condition of their property.
Property managers provide financial services.
- They provide accounting property management services.
- They make payments on behalf of the owner (like HOA dues, if applicable.)
- They provide detailed documentation of expenses via invoices and receipts.
- They maintain all historical records (paid invoices, leases, inspection reports, warranties, etc.).
- They provide annual reporting, structured for tax purposes, as well as required tax documents, including a 1099 form.
- They advise owners on relevant tax deductions related to their rental property.
- They provide easy-to-read monthly cash-flow statements that offer a detailed breakdown of income and itemized expenses.
Property managers handle maintenance, repairs, and remodeling.
- They provide and oversee an in-house maintenance crew.
- They establish a preventative maintenance policy to identify and deal with repair needs.
- They provide a network of licensed, bonded and fully insured contractors who have been vetted for good pricing and good work that’s up to code.
- They assign jobs to different parties (in-house employees, handyman and professional contractors) based on who will do the best job for the best price.
- They maintain outdoor areas.
- They maintain and monitor a 24-hour emergency repair hotline.
- They handle larger renovation or rehab projects.
Property managers handle tenant move outs.
- They inspect the unit and fill out a report on the property’s condition when the client moves out.
- They provide tenants with a copy, as well as estimated damages.
- They return the balance of the security deposit to the tenant.
- They forward any part of the owner’s portion of the tenant deposit to the owner, or hold it in owner reserves for repairs.
- They clean the unit and perform any needed repairs or upgrades.
- They re-key the locks.
- They put the property back on the market for rent.
When meeting with a prospective property management company, consider asking:
- What services do you offer clients?
- Will you support additional services or help me find someone who can?
- What if I want to do some of these activities myself or know someone I want to use instead?
Structures of property management company support
Some property managers work as a single standalone support person, but typically work under the umbrella of a larger company. That company will pool resources to offer a variety of services to investment property owners. The services a particular property management company offers vary widely. Some will only advertise on realtor websites.
Some residential property management companies will take care of rent management, maintenance and emergency calls, and contractor oversight. They can offer one level of care, tiers of services, or a cafeteria-style menu that lets you pick and choose. Some will tell you what you need. Others will ask. Look for one who actually listens to your needs and can provide a variety of packages to address them.
Ask:
- How long has your company been in business?
- What typical service packages do you offer?
- How do your services differ from other companies?
If I have multiple properties, can you bundle services or offer different levels of support for each one?
Licenses and certifications needed for property management
Under Florida real estate licensing laws, property managers in the state of Florida must hold a real estate broker’s license. Anyone who receives compensation for renting or leasing real property for another person must have a license through the Florida Department of Business and Professional Regulation. Property owners can verify a property manager’s license through the DBPR website.
Some companies offer access to a full-service licensed real estate sales broker. They can offer support to clients with real estate buying and selling at any point in the partnership. From listing, receiving offers, negotiating, inspections, and closing, experienced brokers help clients through the entire lifecycle of property investment.
Reputable property managers also adhere to the Code of Ethics for the National Association of Residential Property Managers. The Association promotes a high standard of business ethics, professionalism, and fair housing practices. As a member of NARPM, property managers operate with a level of professionalism that protects the public against fraud, misrepresentation, and unethical practices in property management.
NARPM also offers a variety of additional certifications, such as:
- Managers who complete their initial training and vetting process receive the Residential Management Professional (RMP) designation.
- After taking additional classes, more experienced managers can attain the demanding Master Property Manager (MPM) designation.
- Companies that have demonstrated the highest levels of professionalism may also apply for the Preferred Residential Management Company designation (CRMC).
A property manager and their company can hold many additional certifications and professional affiliations. These lend further credence to their dedication to their profession and, in turn, to their clients.
Ask:
- Do you hold an active broker license in Florida?
- What other professional certifications do you hold?
- Have you taken additional training?
- What credentials does your property management company hold?
Comparing Property Management Companies
A good property management company can easily become one of your greatest assets as the owner of investment property. You’ve probably heard horror stories from owners of rental homes who didn’t do their homework before hiring a property management company. With literally hundreds of companies listed on Google, Yelp, and BBB reviews, it can seem daunting to sift through options. A property management company should provide owners peace of mind. So how do you pick a good one?
How much does property management cost in central Florida?
While property management fees are important, they must be viewed in light of what other firms charge, the scope of services provided, and the quality of those services. You should conduct a close inspection of the property management agreement to confirm if the company offers everything you want. In the end, this is far more important than initial cost discussions.
The company you hire will steward one of your biggest assets, so the last thing you want to do is make your decision based solely (or even primarily) on who charges the lowest fees.
A lower price may reflect either an acknowledgment that a property manager doesn’t provide top-tier service, or that they’re trying to gain business by undercutting the competition. Unfortunately, undercutting the competition leads to slim margins for the firm, which lowers the ceiling on the quantity and quality of service it can provide. If a firm underprices its services across the board, they may try to make up for it by overloading their managers with as many properties as they can (or can’t) handle.
Truthfully, price should fall to one of the last things to consider, but not because of its lack of importance. Rather, you should only factor price when hiring a property management company after you’ve determined they can provide high-quality services you need. What good are low fees if the management company does a poor job?
To make a true “apples to apples” cost comparison between companies, identify ALL potential fees for property management. A lot of expensive back-end charges can easily wipe out seemingly lower management fees.
Remember that all fees are negotiable. So before you make your final decision, you should try to negotiate the best rate possible from your preferred firm.
Ask:
- How much will property management truly cost?
- Can you share a breakdown of all your plan levels and additional fees?
- If none of these plans fit my exact needs, will you develop a plan for me that does?
- Do you offer protection programs over and above regular property management fees?
Investment income and property protection
Some residential property management companies will offer protection programs over and above their regular plans. These optional plans cover common rental home issues, such as: eviction, rent loss, and property protection.
If a property manager must evict a tenant, they usually will not cover legal fees or file paperwork for you. Evictions also involve lost rent and property damage that can set a property owner back thousands of dollars (or more). Investment protection programs offset the risk of these events like an additional insurance policy.
Ask:
- Do you offer income and property protection programs?
- How quickly will you cover these unexpected events?
Avoid These 7 Traps of Florida Property Management
Oddly, not unlike dating, you’ve got to watch out for the smooth operator who’s all talk but no substance. Consider these seven traps to avoid when deciding which company best fits your needs to manage your investment property.
1. Property Management Pick-Up Lines
After an initial conversation with a property management company, it can feel a little like a courtship: frequent emails, texts and offers to meet in person. If you reach out, you’ll get a quick response and they’ll woo you with sweet talk. Once a prospect becomes a client, many complain that all that communication halts (and becomes a big reason that owners leave their existing company).
Many owners say they don’t feel informed about the status of their property. They want more visibility into the physical and financial condition of their investment. Reasonable requests, right? A property management company shouldn’t just talk the talk at the beginning, but walk the walk throughout the business relationship.
2. Low Monthly Management Fees
If a company quotes you massively lower rates than competitors, you need to wonder why. It might seem like a good deal, but every business needs to make money to stay in business. Are you a loss leader for a new business? Will other fees offset that initial lower fee? Will the quality of the management commensurate with the fees? Ask lots of questions! Never go with a property management company based solely on a low monthly maintenance fee. You run the risk of getting what you paid for. A company that cares about your investment will typically offer you fee options that will fit best for you.
3. The Attractive Mask
A property management company should be transparent about their rates, fees and services provided at various levels of management. As a client, you should know exactly what you get for your money. Unclear contracts or vague answers should serve as red flags about a property management company. You deserve full and accurate answers to your questions in a timely manner.
4. Poor Process Pit
When you interview a property management company, ask about their processes, policies, and procedures. With a rocket scientist at our helm, we know a thing or two about following procedures. Property management companies should have documented – and easily accessible – processes for each possible scenario in property management. A company without clear policies leaves too much to chance and plenty of room for chaos. And that chaos can impact YOUR investment property.
5. Maintenance Maneuvers
Do the property managers outsource maintenance or “know a guy” to refer you to? Bet they also charge you an additional fee for overseeing any work their vendors do. If the company offers to manage an outside vendor’s work, will they guarantee the best rates, quality, and timelines? Some property management companies use their own in-house maintenance team, but they should work with any other contractors you choose.
6. The One-Trick Pony Problem
Hearing that a property management company only does property management isn’t necessarily a bad thing. But that means they can only offer limited services. At some point, you may want an Florida real estate company to buy or sell a property for you. Or you may need a major rehab of an existing property. Sure, a property management company may offer a few referrals to outside vendors. However, that may require you to spend time interviewing them, pay a finder fee, and continue a three-way communication.
7. Golden Handcuffs
Too many companies make it incredibly easy to sign with them, but next to impossible to dip out. Before you sign anything, read management agreements (getting out your magnifying glass for that fine print). If they want to charge an exit fee to release you from their management, proceed with caution. Exit fees could indicate a variety of other problems, too.
Good property managers provide good communications throughout the entire business relationship. You want someone who keeps you in the loop on your home. Property managers should be organized, detail oriented, truthful, calm, and passionate about what they do. Finding a property manager with all of these great qualities may take time, but they do exist. It might take some trial and error, but it starts with asking the right questions.
Ask:
- How long has your company been in business?
- What miscellaneous fees do you charge for managing my rental home?
- Under what conditions can I cancel my contract?
Pitfalls of Managing Your Own Rental Properties
Some property owners still feel like they will lose money by paying someone else to do their work. Owners can serve as hands-on landlords to their rentals, but should understand the pitfalls of managing their own rental properties.
Below we list many of the common activities that come with owning residential rental property. Each activity requires at least cursory knowledge or a professional connection to supplement.
From a financial standpoint, managing your property as a landlord may not be the best use of your time. Ultimately, the decision whether to hire a property management company should hinge on your lifestyle and financial implications. Individual investors will have to assess the opportunity costs of both options based on their unique circumstances.
Ordinance requirements
Before you can even consider renting out a property, it must adhere to all applicable government ordinances for livability. Without a property manager, rental home owners need to know all applicable local, state, and federal guidelines and ordinances. These include the Department for Housing and Urban Development (HUD), Florida Landlord and Tenant Statutes. The ordinances for building, housing, and health codes cover plumbing, roofing, windows, floors, foundations, and exterior walls.
Knowing all of them and ensuring your property meets the minimum requirements is critical. Noncompliant and/or unsafe properties open owners up for fine for violations or lawsuits from tenants. To complicate matters for owners with more than one investment property , local codes vary.
Owners should be able to answer:
- Do I thoroughly understand Florida Landlord and Tenant Statutes?
- Do I have copies of all local ordinances that my property (or properties) would be subject to?
- Are there any applicable issues with my rental home that would need to be addressed before renting it out?
- How will I handle work on the property if a tenant reports a code violation?
Rehabbing and upgrading rental properties
An inspector can give you an assessment of any recommended repairs or required repairs to plan for in the future. Over and above any requirements, property owners will want to consider making upgrades that increase the value of the property. In turn, this can fetch higher rent rates. But owners should know which improvements the highest quality renters seek out. Because they face a point of diminishing returns where rent rates no longer compensate for “over upgrading.” In addition, when you can’t do everything at once, you’ll have to prioritize the work to get your property show ready.
Let’s assume the rental home complies with all the ordinances, applicable codes, and requirements. You’ve made a number of additional recommended upgrades. Now, you need to minimize rental downtime to get it making money for you STAT. Every day a rental unit stands vacant, it costs you money and eats into profit margins.
Owners should be able to answer:
- What’s the difference between required and recommended repairs?
- What upgrades will maximize the return on investment on my property?
- How much should I spend on each upgrade to my rental home?
Setting the right rent
How much rent you can charge varies based on neighborhoods, amenities, location, and demand for comparable rentals nearby. Set your rent rate too high and you risk pricing your property out of the market. Set rent too low and you leave money on the table… not to mention potentially attracting less-than-ideal renters. There’s a science to setting the right rent rate. You’ll want a target range that will attract quality tenants while keeping you competitive with other rental homes.
Owners should be able to answer:
- How do I know my rent rate is competitive for the market?
- What factors did I take into account before coming up with my target rent?
House rental ad prep
It’s finally time to let potential renters know you have their space waiting for them. Blurry snapshots and vague descriptions lure exactly zero quality tenants. To get the best results for your efforts, you have to do this right. You’ll need professional-grade photography to accurately depict your rental property, highlighting the details most desirable to area renters. Language crafted to market the rental home should use top keywords potential renters type into rental property search sites.
Owners should be able to answer:
- How should I prep my rental for photos?
- What are the best features of the rental home to highlight?
- Can I take photographs and write the advertisement copy myself or should I hire a professional?
Marketing your rental home
Now you need a comprehensive marketing plan that utilizes both online avenues and traditional platforms to reach all possible tenants. You also should know how far to cast your net. Should you target only local neighborhood outlets or regional ones, too? Are there any organizations in the area (think schools or hospitals) where I should also consider as target audiences? A word of caution: property owners should beware of posting on less-than-desirable platforms. For example, posting on the wrong sites, like Craigslist, can open you up for myriad scams.
Owners should be able to answer:
- What keywords should I use for my property to attract more attention online?
- What traditional and online platforms do I plan to market my rental home on?
- How long should I expect to wait until finding quality tenants?
Screening applicants
Ensuring placement of high-quality renters requires thorough tenant screening. Without the assistance of a property management company, owners will need to screen applicants on their own. Calling applicant’s references may not result in the most accurate information since they likely listed friends and relatives. Although an extra cost, hiring a professional to conduct a rigorous background check can weed out likely problem tenants. They have access to myriad databases that can assess credit reports, income verification, and rental histories. This can save owners money and untold headaches down the line.
Owners should be able to answer:
- How do I plan to screen applicants?
- If I only get one or two applicants, should I still bother screening them?
- If I already have someone interested in renting my home, should I still screen them or other applicants?
Lease agreements and legal considerations
Once you find someone you feel comfortable renting to, they’ll need to sign a rental agreement. As the only binding agreement between you and your tenants, your contract must have you covered legally. The lease should clearly outline your responsibilities as a property owner and their responsibilities as tenants. Your agreement should not contain ambiguous language or illegal clauses. An attorney who specializes in real estate agreements should review it and ensure it protects you and your assets.
Owners should be able to answer:
- Does my lease agreement cover me and my assets from litigation?
- Did a qualified attorney approve my contract language?
- Can this same attorney support me if there are any discrepancies with tenants?
Accounting and bookkeeping
The tenants signed the agreement. As a landlord, you should have a system for handling the accounting and recordkeeping for your investment property. From profit and loss statements to tax deductions, accounting should receive expert attention when setting up. Ideally an accountant or tax attorney should advise on appropriate processes and methods for recording necessary items. Some owners (especially those with a background in finance) will do just fine. Others may opt to hire a specialist to cover this portion of property management. Bear in mind that bookkeeping becomes increasingly burdensome for owners of larger portfolios of investment property.
Owners should be able to answer:
- What is my process for receiving and processing rent payments?
- Should I hire an expert to run the books for me or can I do this myself?
- Do I understand how to generate all necessary documentation for tax purposes?
Experience with maintenance and repairs
Maintenance and repairs are significant components of owning rental properties. You have a legal obligation to your tenants to ensure efficient and code-compliant work. If you can’t do it yourself, finding reliable handymen and contractors can take a while.
You cannot ignore emergencies at your property. Someone must be available to address issues 24/7/365. Your special event, important meeting, vacation, or personal crisis doesn’t relieve you of your responsibilities to your tenants. These emergencies don’t happen all the time, but when they do, you’re obligated to handle them immediately.
Owners should be able to answer:
- Should I ask tenants to call me directly for regular and emergency repairs?
- How will I handle emergency calls and resolve issues if I’m out of town?
- Will I do the actual work or do I have reliable contractors I can contact at any time?
Other dirty work of owning rental property
Unfortunately, at some point nearly every owner of residential rental property will have to confront someone about late payments. Occasionally they may need to evict deadbeat tenants from the property.
But there are a whole host of other unfortunate things that can happen, such as:
- Fight with other tenants or neighbors.
- Have domestic disputes.
- Conduct illegal business in the dwelling.
- Throw late-night parties or violate noise ordinances.
- Try to sneak extra people or animals into your home.
- Decide to sue you.
- Trash your property.
- Incite the wrath of your HOA because of repeated deed restriction violations.
- Refuse to pay the rent because – as a “professional tenant” – they know how to work the legal system for the maximum amount of free housing at your expense.
Many new owners dislike feeling like the “bad guy” in a landlord-tenant relationship. They go out of their way to make exceptions to the rules. The problem: This only invites additional abuses and excuses by tenants. Late payments must be dealt with immediately. Sometimes a landlord need only send a friendly reminder. Other times, it can turn into a very confrontational process that needs to end in eviction. Unlike running a charity, running a successful rental business means enforcing the rules.
Property managers take the stress out of dealing with these situations. They are used to operating like a business not a charity. By enforcing lease agreements or dealing with ongoing situations, a property manager should provide rental owners peace of mind.
Owners should be able to answer:
- What protection do I have in place against late or non-paying tenants?
- How do I plan to enforce lease agreements?
- Am I prepared to deal with the legal ramifications if tenants refuse to comply with the terms of the agreement they signed?
Distance from rental property
How far you live from your rental property and how frequently you can visit it are unanticipated factors. If you live nearby, you theoretically could make the regular visits required for maintenance, inspections, collections, etc.
The farther away you live, the longer your travel time and expenses become, making it more cumbersome to visit. The longer the distance, the greater temptation NOT keep a close eye on things, creating a recipe for disaster. Owners should plan on making frequent visits, and be prepared for those middle-of-the-night emergency calls that require your immediate attention.
Owners should be able to answer:
- If I can’t get there quickly, how will I address emergencies?
- Realistically, how often do I plan to visit my rental home?
- In the long run, is this a feasible plan for me?
Number of rental units you own
Managing multiple rental properties can become overwhelming, even for experienced investors. Something always requires attention, and things can quickly get out of hand. Large portfolios can limit an investor’s ability to consider purchasing new properties if they already feel maxed out with current holdings.
Owners should be able to answer:
- Can I still manage my properties effectively if I have a mixture of single family homes, townhouses, and condo units?
- Do I need help balancing a larger portfolio of investment properties?
- How can I grow my portfolio?
From a financial standpoint, managing your property as a landlord may not be the best use of your time. Ultimately, the decision whether to hire a property management company should hinge on your lifestyle and financial implications. Individual investors will have to assess the opportunity costs of both options based on their unique circumstances.
If you’ve still got questions about if, or how, to hire a property manager, The Realty Medics are here to help. Contact us anytime, or fill out a Free Rental Price Analysis to get started.
