Great property management is a big part of a successful real estate investing career. Having to manage an investment property requires time, organization, social skills, and attention to details. Here lies a dilemma for real estate investors when they buy an investment property: Should they manage their investment property themselves or use the services of a professional property management company?
There are many professional property management companies (such as Pillow, for example) which are experienced in managing properties and providing a set of services to real estate investors. Some of the main services that a professional property management firm provides include marketing, financing, tenancy, and repairs and maintenance, among others. However, because of the many tasks they perform, professional property management companies are not cheap. This leads us to our main question: Are professional property management companies a key to a successful real estate investing career, or are they just a waste of money?
So, if you’re wondering whether or not you should hire a professional property management company to overlook your investment property, take a look at these pros and cons:
Advantages of Professional Property Management
Experience in the Real Estate Market
Compared to the average property investor, professional property management has supreme experience in the real estate market. Moreover, they are up-to-date on state and federal rules and regulations regarding landlord-tenant rights and responsibilities. Real estate investors and landlords who are new to the real estate market would most likely benefit and learn from the experience provided by professional property management companies the most.
When it comes to your investment property, making mistakes can be costly. A professional property management company will keep you in check regarding all the legalities and the regulatory framework of the real estate market, meaning you’ll be less likley to make silly mistakes or unknowingly violate any laws and regulations compared to a property investor who is managing his/her rental property him/herself. As a result, hiring a professional property management company means that your rental property will be more competitive.
Taking Care of Tenancy and Eviction
One of the best advantages of hiring a professional property management company is that they rid real estate investors of some of the toughest tasks, like finding appropriate tenants. Real estate investors can simply list their rental property and get tens of applications. However, that doesn’t mean they can tell the bad tenants from the good ones. Bad tenants can result in negative cash flow from unpaid rent and causing damage to the rental property. This is why finding the best tenants requires a thorough tenant screening process, which can be a pain for the average property investor.
Professional property management companies deal with this issue without any difficulties. A professional property management will create the application, interview applicants, and choose the best tenant. This includes studying a tenant’s financials, recommendations, and legal situation.
In addition, a professional property management company will deal with any issues tenants may have after they move into the rental property. They receive their calls, listen to their suggestions and complaints, ensure that tenants stick to the rules of the lease agreement, and handle emergency repairs and maintenance issues to make sure tenants are happy and satisfied.
Not only that, but professional property management also handles the undesirable tasks of evicting tenants from the rental property, in addition to the tenant turnover process. They receive the keys, inspect and clean the investment property, and handle the process of marketing it and finding new tenants again. Basically, they take away some responsibilities that real estate investors dread.
Improved Services and Response Time
Some real estate investors don’t have a flexible schedule for attending to tenants and the investment property’s needs. Thus, another key reason for hiring a professional property management is that they handle all maintenance and repair tasks related to the investment property. This includes regular check-ups, maintenance, cleaning, and repairing of any damages.
Moreover, professional property management companies typically have a solid network of plumbers, carpenters, electricians, and all other handymen. This means that they provide real estate investors with prompt services in case of any required repairs, which keeps the investment property in a good shape. After all, any damage will add up to your rental expenses, and eventually will affect your rental income and the overall rate of return on investment. On the other hand, a professional property management company will most likely notice and fix damages in short order.
This advantage includes a number of aspects. First, thanks to professional property management’s experience in the real estate market, they have a good idea on how to set the right rent for the investment property that will generate a positive cash flow and maintain a good occupancy rate. Moreover, it will take care of collecting rent and ensure tenants are paying on time.
Not only have that, but professional property management companies also help in setting a budget in order to ensure you stay on track of your expenses. They also keep records of all the financial aspects related to the rental property and ensure you’ll have access to these records when needed.
Disadvantages of Professional Property Management
It Is Not Cheap
The main reason many enter the real estate investing business is to make money through rental income. When hiring a professional property management company, you have to pay a significant percentage of the rental income (typically 4%-12%) for their services. This will definitely affect your profit margin as you’ll lose some of your revenues, which goes against saving earnings. Real estate investors who depend on their rental income to pay off their mortgages have to take this into consideration before hiring a professional property management.
Aside from the monthly fees that professional property management requires, a property investor will also pay for various additional expenses when needed, such as costs advertising and finding and screening tenants. This ultimately affects your cash on cash return; the higher your rental expenses are, the lower your cash on cash return becomes!
Mashvisor’s investment property calculator helps you calculate cash on cash return (in addition to other metrics like the cap rate and cash flow) to ensure you’re getting the best return on investment when determining whether or not a professional property management is really needed.
Less Control = Less Knowledge
As mentioned earlier, one of the reasons why a property investor would consider hiring a professional property management is not having to deal with issues like tenant screening, handling repairs and maintenance, collecting rent, tenant turnover, eviction process, etc. However, going through these processes yourself and interacting with tenants allows you to gain the needed knowledge of real estate investing.
Therefore, giving a professional property management company the full control over a rental property will create a challenge of building relationships with tenants and leave the property investor feeling lost in the real estate market – simply because you can’t understand something that you have no experience with.
When Do You Really Need a Professional Property Management?
If You’re a Part-Time Property Investor
If you’re in the real estate investing business only as a part-time property investor while having another full-time job to worry about, this requires the services of a professional property management company. Managing investment properties is a demanding task which takes up a good amount of time and effort. If you’re working for 8 hours per day, you’ll find it hard to keep up with the demands of the real estate market and still focus on your full-time job.
If You’re Investing in Multiple Properties
Real estate investors owning one investment property don’t have any trouble managing it themselves. Owning and managing multiple investment properties, however, is much more challenging and requires much more time and energy. In this case, hiring a professional property management to assist you is worth it to ensure a successful real estate investing career.
If You’re Investing in a Property in a Different City
Real estate investors who have purchased a rental property in a different city (or even out of state) don’t have another option but hiring a professional property management company. Due to the long distances, managing and maintaining a rental property out of your local real estate market is almost impossible. So, in this case, using the services of a professional property management is definitely worth the money.
Click here to start searching for and to find the best real estate investment properties in the US!
If You’re Investing in Airbnb Rentals
Airbnb rentals can be quite exhausting, especially when there is high demand, and guests are frequently coming in (which is ideally what Airbnb rentals owners want). For real estate investors with multiple Airbnb rentals in different locations, professional property management is an absolute must!
Nowadays, with the growing popularity of Airbnb rentals, you can find professional property management companies which deal exclusively with Airbnb rentals. They handle the process of tenant turnover, cleaning, taking care of amenities, and other services that guarantee the success of Airbnb rentals.
Professional Property Management: Yes or No?
The answer really depends on you and your investment. Professional property management companies provide great services and perform all the tasks that would keep a property investor up at night. If you’re in the real estate market as a part-time investor, own multiple investment properties, and invest in a different location or Airbnb rentals, then the answer is YES.
However, keep in mind that hiring a professional property management company instead of managing your rental property yourself comes at a price. As a property investor, you should analyze your rental income and decide whether or not hiring a professional property management is worth the money.
Even though using professional help to manage a rental property isn’t cheap, the list of services provided by a professional property management company makes the amount paid irrelevant for some real estate investors as it ensures success for their real estate investing careers.
Check out Mashvisor for the latest news and guides related to real estate investing, and make sure to sign up to access the best real estate investing tools to help make the best real estate investment decision.