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Many people like the idea of investing in real estate, but they don’t relish the role of landlord. Whether it’s a rented-out vacation home, a small apartment complex or an office building, owning property comes with maintenance tasks and financial responsibilities that can be a lot to handle. That’s especially true if the property is located out-of-state or if you’ve another, full-time job.
Hiring an outside property manager might be a good solution. Here’s everything you need to know about how property managers work, and how to work with one.
What is a property manager?
A property manager is a person or company hired to handle the administration, operation and maintenance of a piece of real estate on the owner’s behalf. Usually, these professionals work with income-producing properties. But they can be in charge of any sort of real estate, including individual residences or residential compounds.
While a property manager can include a person who fulfills a groundskeeper-type role, most are much more than a real-life Hagrid. If anything, they’re closer to a Dumbledore: Headmaster-like, they handle the day-to-day operations of properties like apartment and office buildings that have rent- or lease-paying tenants.
What does a property manager do?
Individual property manager duties will depend on the type of property they’re managing and the duties you hire them to complete. Responsibilities can include:
- Collect rents
- Advertise and represent the property
- Screen tenants
- Manage tenant turnover
- Sign leases, approve subleases
- Check for lease compliance, track tenant deposits
- Coordinate housekeeping for common areas
- Perform building upkeep and repairs (or hire a third party to do it)
- Manage exterior maintenance like landscaping and snow removal
- Manage the books: property income/expense accounting, tax reporting
- Process evictions
- Manage guest communications and booking for vacation rentals
What are the types of property managers?
There are many types of property managers.
- Commercial property managers handle office space, industrial facilities and retail businesses (malls, shopping centers, etc.).
- Multi-family property managers deal with residential real estate: apartment high-rises, a condo development, housing projects, etc.
- Single-family property managers are the ones who handle individual homes or estates. They typically work with several landlords at once, many of whom are remote or have numerous properties.
- If you live in a resort town or vacation destination, many property managers will focus on short-term rentals — getting guests for your home for the high seasons. In addition to handling your rental’s booking, they’ll also oversee furnishing, cleaning, repairs and even supplies-stocking, and their management fees will be higher to match.
How are they compensated?
Compensation for property managers varies based on the geographic region, their exact services (the more they do, the more they charge), and the nature of the property: its type (commercial, multi-family, etc.), size, age and location.
Usually, it’s a monthly fee, a percentage of the lease income, rather than a fixed salary. According to the National Association of Residential Property Managers’ “Financial Benchmarks Guide,” most management fees average between 5-10 percent of the gross monthly rent per unit, but of course it can depend a lot on the area. For example, “in Philadelphia, property managers will charge monthly fees that range between 8-12 percent of the rent,” says Alex Capozzolo, co-founder of Brotherly Love Real Estate based in Philadelphia.
While it’s typically a percentage of the rent collected, “other forms of compensation can include a flat fee per unit managed, and in some cases, property managers may also receive a monthly bonus or commission for meeting certain performance goals,” says Boris Dorfman, fund manager at LBC Capital Income Fund, a private money lender for real estate investors based in Los Angeles.
In some areas, property managers get perks — a reduced or outright free rent — to live on the property and manage day-to-day maintenance issues. These folks are known as property managers in residence, aka the “super.”
When to hire a property manager
A property manager is a good idea whenever you’re overwhelmed by managing your properties yourself or can’t do it properly. “For investors with a larger portfolio, a property manager can be an invaluable asset in terms of keeping track of repairs, rent collection and tenant relations,” says Dorfman. “Large properties such as multi-family housing require a high level of maintenance and upkeep that is not possible to manage individually,” adds Capozzolo.
Even property owners without an extensive portfolio may find a property manager helpful, especially if they’re out of state or too busy managing their work and family lives, or understandably unskilled at corporate finance. Owning an income-producing property is in effect owning a business, and correctly filing taxes, maintaining the books, and staying on top of local regulations often amounts to a job in itself.
Conversely, a property manager may not be a good idea when you can easily manage the property yourself, both financially and literally (no, you don’t mind finding a plumber at 3 AM to fix a tenant’s burst water pipe). Or if your situation is a relatively simple one: a bungalow, cottage or other simple single-family home, or a duplex that you occupy one half of.
It might also be hard to justify a property manager if your profit margins are razor-thin as it is. Paying 8 or 10 percent of your rental income may not sound like much, but you may not be able to afford it if you’re barely making more than mortgage and maintenance expenses on the property already.
How to hire a property manager
Ideally, you want to find a property manager located as close to your property as possible so they can quickly deal with emergencies and inspect the property regularly.
In larger burgs, there may be prominent property management companies you can hire — a preferred option if your property is a sizable apartment or office building — but in smaller towns hiring an individual to manage your property may be your best bet. If you have the space, you may want to hire a qualified tenant or keep a unit available for an on-site property manager in exchange for reduced rent.
Finding a property manager is like finding any sort of professional: referrals, referrals, referrals. Real estate brokers, agents and Realtors might know (in fact, some property managers belong to the National Association of Realtors). If you belong to a local real estate investors group, reach out to your network and ask for names of reputable property managers in your area.