Should You Hire a Property Manager or a Management Company?

Investing in rental property can be both exciting and stressful. It's tempting to collect passive income, but with it comes a long list of added responsibilities. You could always manage the property yourself, but it takes effort to screen tenants, create leases, enforce policies, maintain the grounds, and fill every vacancy all on your own. Instead, many property owners choose to lessen their load with the help of a property management company. It's a tough decision that warrants careful consideration to determine what works best for your circumstances.

Property Manager Vs. Property Management Company

• A property manager is a person that handles the day-to-day operations for one or more properties in lieu of the landlord.
• A property management company handles a lot of the same time of operational duties but is more appropriate for properties with many units, landlords with multiple properties, or a mix of properties.
• The usual responsibilities for managing a property include filling vacancies/screening tenants, collecting rent, responding to maintenance costs, prepping apartments for move-in.
• Both property managers and management companies also put together annual budgets as well as financial statements for landlords.
• While it's possible to work out a salary or hourly rate for a property manager, property management companies usually come with a myriad of additional fees on top of the percentage they collect.

What is a Property Manager?

A property manager is a person who handles the daily operations of a real estate or commercial building when the owner is unwilling or unable to personally take care of the details themself.

The manager deals with the owner/landlord directly, with the expectation that the landlord’s wants and needs come before that of the property management company.

The manager deals with prospective and existing tenants, creating a budget, collecting rent, and making sure that invoices and bills are promptly paid.

The manager is also the liaison between owner and tenant, making sure that both parties are satisfied while making sure that the lease is being upheld.

The responsibilities of the property manager may vary from landlord to landlord as the owner ultimately has the final say.

For example, if there is a property that is occupied for half or part of the year, such as a beach house, the manager may be required to occasionally visit the property or hire additional security while the unit is unoccupied.

What is a Property Management Company?

A property management company is a third party company hired by the landlord and has the responsibility of maintaining the property.

They provide a property manager to look after the property as well as a network of vendors, employees, and resources.

When multiple rental properties are owned, the responsibilities of managing these buildings may add stress and eventually may be impossible for one person to handle alone.

Similarly, extra help may be needed if the business is growing and expanding.

A management company can help take some of the edge off by dealing directly with tenants and also handle operating the building.

A management company also brings experience and a network of professionals who can help with the hiring of employees, taking care of repairs, marketing vacant units, and much more.

If it can be afforded, hiring the help of a property manager or company may be beneficial.

However, keep in mind that the rate of these companies usually involves a cut of 5%-12% of what would be normally collected in rent revenue.

When is a Property Management Company Needed?

Landlords and real estate investors should consider a property management company if:

• Multiple rental properties are owned
• Business is growing and extra help is needed
• The cost can be afforded
• They don’t live in proximity to the rental property
• The property is part of an affordable housing program

What are the Responsibilities of a Property Manager/Management Company?

While each landlord is different and their expectations may vary, the property manager is generally expected to help fill vacant space, screen tenants, collect rent, make sure the building’s temperature is being regulated, etc.

They are constantly communicating with the landlord to advise of any serious issues or complaints that a tenant may have, or if a tenant is breaking the lease.

Filling Vacant Units

The property manager is generally in charge of making sure that the property is being consistently rented, including filling any vacant units.

Unless the property manager already has someone to move in once the lease is up, chances are that they will be responsible for marketing the property to get prospective tenants.

Once a tenant has been found, the property manager will need to run both credit and background checks and may call the prospective tenant’s rental references.

Property management companies generally have a written set of rules and guidelines for almost every situation.

This can be a huge help for an inexperienced landlord, especially since screening tenants can be complicated and could even lead to a Fair Housing violation claim.

Having a template not only reduces the landlord’s chances of receiving a violation, but it also removes their stress and responsibilities and places them on the management company.

An individual property manager may not be familiar with marketing strategies and how to find potential tenants, while property management companies usually have a whole leasing/marketing department who knows the ins and outs of successfully advertising units.

Once a tenant has been chosen, the manager will draft the lease based on a standard template either provided by the management company or written by the individual property manager.

They can also add provisions and disclosures on issues such as: bed bugs, COVID, pets, etc.

Responses to Maintenance Requests

Most landlords understand the importance of tenants, especially when they have a request or complaint.

However, these requests may be tedious and time-consuming, such as having to deal with a building-wide bed bug issue or an off-hours emergency.

Property managers make sure that each tenant’s request is dealt with in a timely manner and will call the correct vendor to get the job done.

In order for requests to be handled, the manager needs to make sure that an efficient system is in place in order for them to receive and respond to tenant concerns in a timely fashion.

Most management companies use a web-based portal such as Appfolio or Building Engines (for commercial buildings).

This allows tenants to easily communicate when they have a leak at 3 am or any other type of emergency.

The property manager is also responsible for keeping track of work orders and making sure that any additional charges (repairs, hanging pictures, painting, etc.) get added on to the rent statement.

Collecting Rent

While some management companies may have a property accountant, most will rely on the property manager when it comes to collecting the rent and security deposits.

They will need to make sure that every tenant pays rent on time and will also make sure that additional late fees are being paid. If rent is not being paid, the property manager is also in charge of evicting a tenant.

Property management companies usually have an accountant or admin to collect the rent and keep track of who has paid and who hasn’t, which saves time for the property manager.

Which Type of Management is Right for Your Property?

Individual property managers and management companies both have their pros and cons depending on what you are looking for.

One offers personable one on one attention while the other offers professional and knowledgeable experience.

Individual Property Managers

When hiring a property manager, you may be hiring one individual person or it may actually be a very small property management company.

Some individual property managers may have a very small property management team consisting of the property manager, admin, handyman/cleaner, or even an accountant.

While he or she may have a small team, they are still considered an individual manager.

Pros of Hiring an Individual Property Manager

One perk of working with an individual property manager or a small team is communication, which benefits both landlords and tenants alike.

The property manager is usually only a phone call away and can quickly respond to any questions or emergencies.

An individual manager usually handles only one or a few properties (usually not more than 30), which means they can offer more of their undivided attention to renters.

This allows tenants to build a good relationship with the manager, where the manager may or may not let certain things slide.

A property management company usually has to stick to certain guidelines and has less wiggle room to budge.

When it comes to negotiating rent, those who rent directly through the landlord/property manager may be more successful than renters dealing with a large property management company.

Since the property management company is a third party, they need to consult with the landlord first before making the final decision, whereas the individual property manager is usually also the owner and is more willing to work out a deal.

Cons of Hiring an Individual Property Manager

If an individual property manager has a small team, it does not always mean there are systems in place.

Some may have a web-based portal for tenants, templates for memos, etc. while others may be more mom and pop, posting handmade messages and having their tenants call on the phone for any complaints or concerns.

Without a system in place, there is no way for your requests to be tracked, so you may find yourself calling the manager a few times to remind them of your request if they get sidetracked or are forgetful.

Close communication to your property manager could be great if you get along, or disastrous if you don’t.

Since the manager is your only means of fixing a problem, it could be awkward calling them for a favor if your relationship has turned sour.

Your relationship with the manager could also be a determining factor in how quickly your concerns get addressed.

Since most individual property managers usually deal with only a handful of properties, they may not have all of the resources that a larger third party organization can offer.

This means that if you have an emergency or a difficult to address concern arises, it may take longer and may cost more since the property manager may not be familiar with how to solve it at first and may have to look for a specific vendor to handle the situation.

Vendors usually will offer price cuts to large property management companies n exchange for consistent work, but with an individual property manager, work doesn’t come as freely for the vendors, so there is usually no discount to the renter.

Property Management Companies

Management companies take the stress off of the landlord by communicating directly with tenants, handling maintenance requests, collecting rent, and more.

Third-party management companies are considered to be an independent contractor, which removes the responsibility off of the landlord from being the employer.

The Benefits of Using a Property Management Company

Hiring a property management company is similar to having an insurance policy; they remove the onus from the landlord and take care of pretty much everything so that the owner can focus on other responsibilities such as acquiring more property.

Property management companies have the experience and knowledge needed to ween out tenants and help fill the property with higher quality tenants that will pay rent on time, cause minimal damage to their unit, possibly renew their lease, and be less of a headache overall.

Landlords who hire a property management company generally escape rental scams and lawsuits dealing with discrimination, because the property management company can quickly spot red flags and provide a thorough tenant screening process.

Excessive turnover not only damages the reputation of the property but also includes a costly and time-consuming process of painting walls, installing new carpeting if needed, marketing the unit, changing the locks, etc.

Reputable property management companies know how frustrating this process can be for the landlord, which is why they rely on their set of implemented guidelines to keep tenants happy and renting longer.

If a tenant does move out, it is the management company’s responsibility to handle any cosmetic improvements in order to help the unit get rented, come up with the best rent rate possible, and market the landlord’s property so that it rents quickly.

Property management companies usually have an online tenant portal where they can pay rent, submit and track concerns, and can have a written report of what was done to correct any issues such as bed bugs, leaks, etc.

The Drawbacks of Using a Property Management Company

Since property management companies or often large to keep up with the numerous properties that they handle, tenants may experience a longer wait time when an issue arises and may feel more like a number rather than building a close relationship with the manager.

There is less room for negotiating the cost of rent as management companies have pre-set prices as long as a standardized template advising how much tenants should be charged.

Property management companies are basically an investment as they can be pretty costly.

New York City management companies typically charge a monthly percentage of about 8-12%of the month’s rent.

There may be additional costs associated as well, which is why it is important to do your research. Some of these additional costs may include leasing fees, cancellation fees, renewal fees, extra maintenance fees, and so on.

Property Management Costs

While management fees can be intimidating at first, they’re actually easy to navigate as long as you have a good understanding of what to expect.

It is important to ask as many questions as it takes for you to feel comfortable with your choice so that you aren’t left being charged for every nuance or are unsure of what is covered and what isn’t.

Management fee

While costs may vary when it comes to commercial and residential properties, the average management fee is about 8-12% of the monthly rent.

Costs depend on the condition of the property, the number of properties being managed, location, the total amount of units in each property, and which services are covered.

Leasing Fees

Leasing fees are put in place to help pay for the time, work, and cost that goes into getting a new tenant.

Although this is a common cost to expect, cost-savvy managers sometimes request to have this cost built into their management fee in order to encourage the management company to find more permanent tenants.

The leasing fee is typically 50% of the first month’s rent but can vary anywhere between 25-100%

Eviction Fees

Used to cover attorney fees, serving legal documents, court appearances, etc. these fees help take care of handling evictions. Hourly rates can range from $25-$50 while a flat rate fee can vary between $500-$600, not including court costs.

In some cases, the property management company may use an attorney, so it is important to inquire and if so, it is important to find out how much their billing rate is.

Conclusion

Choosing between an individual manager vs. a property management company vastly depends on how many properties need to be managed and which management style you prefer.

Should you find yourself stuck in the middle, try to figure out what it is you are looking to get out of the property.

If communication is important to you, an individual manager can offer that one on one attention and quick response time.

However, if the experience is what you crave, then a property management company will make you feel more self-assured as they come suited with knowledge, guidelines, and templates for almost any situation.