Buying and managing rental property is one of the most common and reliable ways to build wealth long-term. In a well-suited neighborhood, you can collect more in rental income than you pay in ongoing expenses, resulting in a monthly profit, and eventually, you’ll be able to sell your property for more than you paid for it, thanks to property appreciation.
However, one of the downsides is the effort that goes into managing a property, from finding new tenants to collecting rent. That’s why many property owners eventually hire a property management company to help them handle these responsibilities. But is this a move worth making?
As you might imagine, there are pros and cons to consider.
These are some of the biggest advantages of hiring a property management firm:
· Better tenant screening. As a property investor, you already know the importance of tenant screening. Tenant screening helps you find perfect candidates for your property—people who will pay rent on time, every time, and remain in the property for as long as possible. But this can be time-consuming and stressful if you do it on your own—especially if you’re not familiar with anti-discrimination laws. A property management company can handle all tenant screening on your behalf, lowering your vacancy rate and taking this task off your plate.
· Less tenant interaction. Allowing a property management firm to step in also allows you to minimize, or even eliminate tenant interactions. You won’t have to respond to urgent requests in the middle of the night, nor will you have to step into personal disputes.
· Hands-free management. Overall, working with a property management company means you’ll spend far less time managing the property. The services offered by property management companies vary depending on the firm, but for the most part, your involvement is reduced to the bare minimum. This is ideal if you want your rental property to be a truly passive investment.
· Professional maintenance. Many new landlords and property investors decide to conduct maintenance and apply repairs to their properties on their own, especially if they have DIY experience. But unless you’re a professional contractor, or you have a lot of experience in this area, it’s easy to make mistakes. By working with a property management company, you’ll get access to much more professional maintenance and repairs.
· Legal resolution. Nobody likes to think about the possibility of eviction, or filing suit against a tenant, but in some cases, it may be necessary. Legal battles can be expensive, time-consuming, and stressful—but with the right property management company, you’ll have support throughout this process. They’ll work with you to handle the process and ensure you end up on top.
· Professional advice. One of the often-overlooked benefits of working with a property management company is the potential to get professional advice on your investment decisions. If you’re inexperienced with buying and managing properties, they can help you evaluate different neighborhoods in your area, and may even help you find the right properties to buy. Once you hold them, they’ll give you professional management advice that can help you maximize your investment return.
However, there are also some disadvantages to consider:
· Lower profitability. Obviously, property management companies aren’t going to do all this work for free. Most companies will charge you a monthly rate proportional to the rental income generated by the property. In many cases, you’ll still be turning a monthly profit, but that profit may be smaller than if you did all the management work yourself. If you’re only interested in maximizing your return, working with a property management firm may not be advisable.
· Less direct control. While most people see this as a benefit, some property owners don’t like the idea of forfeiting control of their property to other people. Your role in things like tenant selection and property upkeep will be reduced to a passive state, which means you’ll have less direct influence over how it’s developed. This may be disadvantageous in some situations.
· Individual property manager considerations. Finally, understand that not all property management companies are the same. While one company may be massively beneficial, saving you time and money while improving your property, another may be irresponsible, ultimately driving tenants away and reducing your return. It’s important to research your property management options carefully before making a final decision.
It’s ultimately up to you whether hiring a property management company is in line with your long-term and short-term goals. If it seems like an interesting option, consider getting a quote from a property management company in your area and having a conversation about your needs; this is the perfect opportunity to learn more.