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Property Management Companies: The Ultimate Guide
Property management is part of the holy trinity of real estate. Most often, the property is rented at this stage, whether in a residential or commercial context. Having an excellent property management company behind you can be the difference between a smooth rental transaction and a real estate nightmare. This post will explain the question: What does a property management company do?
What is a property management company?
A property management company is a group or individual responsible for carrying out the day-to-day operations of a property. They control the guidelines for tenants and provide maintenance services while overseeing the rental and use of the property itself. Some property management companies specialize in only one type of property, but many handle all three: residential, commercial, and land.
What does a property management company do?
A property management company is responsible for finding quality tenants for rentals through applications and screening processes that vary from one property to another. Once a tenant has been selected, the property management company handles the move-in process and collects rent and any associated fees. They also manage the move-out process when a lease has expired or been terminated.
Providing property maintenance also falls within the purview of the property management company. Taking care of leaking roofs, running toilets, and broken windows means keeping tenants happy and paying rent on time. Managing rent and responding to issues with tenants or properties are the primary responsibility of management companies for rental properties. Ensuring that everyone goes home happy, understanding their rights and responsibilities, makes taking on this massive task much easier.
How do property management companies work?
They earn their income by charging a percentage of the gross rent for managing the property and all their operations. They field calls from tenants, from leasing agents, and prospective tenants. They also coordinate repairs of the property as needed, in some cases they can oversee a full renovation. Some will do evictions for owners and back charge them for it.
Section 8 housing presents a challenge when it comes to finding good property management companies. Not all property management companies handle Section 8. Section 8 is government-subsidized housing provided to qualifying tenants through a voucher to cover some or all of their rent, and not all landlords accept these vouchers. If you plan to incorporate Section 8 in your property management, be sure to ask the property management company if they handle Section 8 vouchers.
Additionally, commercial property management companies are not a good fit for residential rental properties, such as single-family homes and fourplexes. Their processes are much different than residential property management companies. They typically deal with more sophisticated leasing and require a higher level of professionalism from tenants and landlords alike.
Are property management companies worth it?
The pros and cons of hiring a property management company vary based on your goals, skills, and how much time you have to dedicate to running the day-to-day operations of your rental properties. This is especially important for special types of property, such as Section 8 housing or commercial real estate.
If you are excellent at setting up operations, procedures, and bookkeeping; you are very organized; and you can handle difficult people then perhaps it’s not worth it for you to hire a property management company for your properties. You may want to see our advice on starting a property management company below.
If you don’t have time to manage your property because you have a full-time job, run a business, or you have multiple properties and you prefer not to manage them yourself for any reason, then a property management company like PropertyCareHouston can take the stress off you; and that’s always worth it.
If cost is a concern, you may be tempted to find the cheapest property management company around but remember that cheapest is not always best. Cheap property management could result in poor tenant quality, property damage, or tangles with law enforcement. They might also skimp on marketing, leading to difficulty in filling vacant rentals.
Selling is a popular alternative to hiring management for a property that has become more trouble than it’s worth. For property in Houston, TX; Fink Buys Houses can make a cash offer on your property as-is. Selling to a cash buyer is one of the cheapest and fastest ways to get out from under a property, often omitting expenses like inspection, appraisals and realtor commissions from the process entirely.
The Pros and Cons of Property Management
- Managerial and maintenance tasks are no longer your responsibility
- Indirect contact with tenants improves lease adherence and enforcement
- No maintenance or emergency calls at odd hours
- Less control over tenant selection
- Requires a level of trust in the property management company
- Increased operational expense of roughly 8% to 12%
How to Find a Local Property Management Company
There are usually several options available for local property management. If you’re an investor or landlord in Houston, get in touch with other local property owners and ask which Houston property management companies they use and if they’re happy with them. The best property management companies in Houston are bound to have numerous glowing references.
You can also search for property management company names online, as this will give you a good idea of who does and doesn’t focus on their marketing. Be wary of paid results, as these tend to be national companies instead of local property management companies.
Go to local real estate networking groups (REIAs) and speak with the organizer. Organizers for REIAs typically deal with many different property management companies through their real estate businesses and the businesses of other members of the REIA. Additionally, property management companies are often vendors at these events and it will give you a chance to meet with them in person.
How to screen potential property management partners
Once you find a few prospective companies that may meet your needs, you’ll want to screen them by interviewing them on their processes. Ask how they screen tenants and what criteria they use so you know if their selection process is close to your own. Ask how they market properties to get a sense of how effective they will be at getting your property in front of the eyes of potential tenants. Ask how they handle repair calls, whether they have a team of maintenance individuals on staff, or if they outsource to local contractors. Find out which contractors they use and how they find them if it varies. Ask how they handle move-outs, cleaning, and security deposit return.
How do they handle evictions? Do they cover the costs with their fees, charge you after the fact, or refuse to handle them at all? Speaking of fees, you’ll need to know how much they charge, whether they charge you when the property is empty, and the cost and purpose of any other fees that they require. If they do charge for a vacant property, you’ll want to know how fast they turn vacant properties around to get an idea of how much it will cost you to do business with them.
Questions to consider when screening property management companies include:
- What type of reporting do they provide?
- How often will they report to you and what will those reports include?
- Can they provide books for your property including Profit/Loss statements?
- Who do they have on their team?
- How qualified is each team member for their respective positions?
- How many properties do they have under management?
- How long have they been in business?
After you conduct your interviews, check the company’s reviews and their website. Do they seem knowledgeable and trustworthy? Does it seem like they put real effort into creating a user-friendly experience that is informative and helpful, or does the site seem slapped together with a few templates? Check for contact information and legal disclaimers to make sure they know to dot their I’s and cross their T’s.
How to start a property management company
To start your own property management company, you’ll need to become an expert in state and local housing laws. Research local, state, and federal governance and determine which apply to the types of properties you plan to handle so you can stay within the letter of the law in all of your dealings. It’s very important to avoid lawsuits, not just from a financial perspective, but also because it affects the trust of the community, which is your tenant pool, and of prospective clients. No one wants to work with someone that could get them in trouble with the law.
If you’re in Texas, you’ll need to either get your Real Estate license or bring on someone that’s licensed to conduct real estate transactions. Once your credentials are in order, it’s time to approach investors and show why you’d be a valuable manager. Research is your friend at this stage, too. Learn the lingo so you can keep up with the conversation and reassure investors that you know what you’re doing, even if you’re just starting. Lay out your plans and knowledge so that property owners see your value and skills.
You want to develop and implement procedures and processes for maximum efficiency. The last thing you want is a slow process or faulty procedure that takes up your time and your clients’ time without producing quality results. This includes screening tenants, marketing, and bookkeeping procedures. Determine what kinds of background checks you need to run for tenants and contractors, find the most efficient marketing flows for real estate portfolios like yours, and create a workflow for bookkeeping to make sure nothing falls through the cracks.
You’ll need to find reliable contractors and handymen, whether you plan to keep an in-house team on call or outsource to local contractors. Talk with electricians, plumbers, and construction companies to find the best fit for your needs and interview independent contractors if you plan to keep an in-house crew to determine if they are the right people for the job and discuss rates. Be conscious of union standards for skilled work and whether your prospective hires are members of trade unions.
You’ll need to learn how to use property management software services like Buildium or AppFolio. These are designed to make showcasing real estate portfolios easier and to help managers stay on track. Keep in mind that the cost of these services will contribute to your overhead, but they’re worth investing in.
The next step is to implement good bookkeeping with software such as QuickBooks or Xero, but the property management software services will have built-in bookkeeping as well. It’s up to you to weigh the pros and cons of using a separate bookkeeping software with additional features versus sticking with the integrations in the property management software. It’s worth noting that this step can be made easier with the help of a licensed accountant.
After you’ve decided on a business model and your software integrations it’s time to get your property management business on the web. Get a website domain from one of the popular domain services and set up your hosting company. Marketing your website means generating a lot of excellent marketing copy along with all of the content for your site and learning the ins and outs of digital marketing techniques and search engine optimization. You can outsource this to a marketing agency, but that’s an additional operational expense and will cut into your profits.
If you’re managing for others, try to get as many doors as possible in the beginning. This will give you the most income to cover the associated costs of running the property management business and make it a profitable venture. Make sure you understand what these clients are looking for in a property management company and that your processes and procedure will work in favor of everyone involved. These first clients will form your first reviews, and those reviews will be crucial in expanding your business and getting more doors later on.
Are you tired of managing your property?
If managing your property has worn you out to the point of seeking property management, consider freeing yourself of the responsibility entirely. Selling your property gets you a large sum of money as opposed to small lease payments paid out over several years and possibly decads.
Fink Buys Houses can make you an offer on your Houston property even if you’re still stuck in an existing lease or dealing with a problem tenant. We buy as-is with cash, so you’ll never have to worry about a drawn-out sale, inspection, or mortgage rejection.