Management Companies?
Hello,
I have not yet purchased a rental property, but my goal is to aquire my first in March. However, I don't have any real interest in being a daily landlord, therefore, I would like to hire a management company.
Are they reasonbly priced and can anyone breakdown their pricing structure?
Thanks, just performing some due dilligence. I will be contacting several in my area, just thought I could get some input from TCI first.
be very careful, i've seen numerous reports of management companies stealing money from investors and charging exhuberent fees.....ask around with local investors to se who has the good word of mouth
thanks for the heads up, way_motivated.
Hello Furiousinc, I have been doing my own management on the 8 units that I have. It was an eye opening experience starting out. But I have learned a lot and I made a few mistakes along the way. However, your tax laws does have room in it for the short of management skills for those in my position. No one is perfect at selecting the right tenants. Even the rental management companies pick a few losers.
The cost of rental management is tax deductable. You also can bargain with the management company to set your rates as you would do with any one. The average cost is 10% of gross rent.
Cool Vern, thanks for the info.
It is comforting to know that the management cost are tax deductible. Also, hearing that the average cost is 10% of total rent is great. I had a much higher number in mind.
Sounds like you approve of highering managment companies, right?
To everyone:
Would you recommend using a management company? Y or N
Thanks in advance
furiousinc,
Since you have not yet acquired a rental property, I am glad that you are making a survey of property management companies part of your due diligence. Suggest you call three management companies that you might consider hiring and ask what their fees are. Ask for a copy of their management agreement and a blank copy of a lease agreement.
Property management fee structures depend on the prevailing practice in your rental area.
In Maryland I pay anywhere from 7% to 9% in monthly management fees, plus anywhere from 25% to 96% of the first month's rent as a leasing commission, plus a 10% supervisory fee for the cost of repairs and maintenance. Advertising and postage (for certified mail) are also owner expenses. Rents collected by the 8th of the month are distributed on or before the 12th of the month.
In Ohio, I paid a flat 10% monthly management fee with no extras for advertising, leasing commissions, or maintenance supervision. Collected rents are paid one month in arrears. This gives the property manager a maintenance escrow account until the next month's rent is collected.
In SC, I will pay 12% in monthly management fees, and a 50% leasing fee. Collected rents will also be distributed one month in arrears. Maintenance supervisory fee will run about 15%.
My point is, you may not get the entire fee structure unless you ask for a copy of the property management agreement that you will have to sign. You may also discover that the management company will require a certain minimum liability insurance coverage and require maintenance escrows. Also, ask if you will get a discount on the management fees for additional properties you place under management with that company.
Would I recommend a property management company? Yes, because the management company knows the landlord tenant laws, knows the eviction procedures, knows how to serve notice to tenants, knows the building trades contractors in the area, and may have established working relationships with some for discounted services. The property managment company will deal with the tenants, screen rental applications, run credit checks, perform maintenance and safety inspections, and change the locks when a tenant vacates. Management companies are more in tune with the prevailing rents and may get you a higher rent that you were expecting.
Generally, a management company frees up your time for other pursuits. Since you do not seem enthralled with self management, outsourcing property management makes the headaches of property management someone else's challenge.
Not to say that you will not have a bad experience. I did. Once I had a property manager embezzle rents, escrows, and security deposits. Since property management companies in that area were required to be bonded, all I had to do was file a claim with the bonding insurance company to recover my losses.
Good luck.
[ Edited by DaveT on Date 01/05/2003 ]
Thanks DaveT,
That was one great piece of advice. I have taken notes and will ask the questions you suggested. I really appreciate the help.
One last question to you though, DaveT. Does it make a difference that we plan to only rent to Sect. 8 tenents.
Quote: Does it make a difference that we plan to only rent to Sect. 8 tenents.
Does it make a difference in what? Are you asking if the landlording task is easier with Section 8 tenants?
Section 8 is just a potential tenant pool. The landlord tenant laws will still be the same, plus your property will have to pass a mandatory health and safety inspection conducted by a Section 8 inspector. You will still have rent collections to manage, security deposit escrows to maintain, and you still have to deal with tenant issues and maintain tenant relations. At the end of the Section 8 tenancy, there is a mountain of paperwork that has to be completed as well. Rents and rent increases have to be approved by the Section 8 program administrator.
In my opinion, a property management company is an even more valuable asset when you have Section 8 tenants. I know Joel likes to do his own property management and also has Section 8 tenants, so he may give you a different perspective. Because you already indicated that you are not looking forward to doing your own property management, property management will eventually become an onerous chore for you. If your cash flow analysis will support property management expenses, I strongly recommend it, especially for the brand new rental property owner.
Just my opinion. [ Edited by DaveT on Date 01/05/2003 ]
Great, thanks DaveT, you pretty much nailed my section 8 question even though I didn't articulate it very well.
This week I will begin to review management companies, however, we will not be buying until March.
Thanks again.
Please, feel free to donate any more information. I sure would appreciate it.
Happy to oblige. Just come back to the forum and post your questions.
DaveT,
Great response! I was just ready to post the same questions. Thanks for your knowledge!
Repoman
Just to show the other side of the coin...
Like everything in life, there are good management companies and bad management companies. There are some that justify their fees and some that waste your time and money. With that said, I feel that unless you have a significant number of rental properties (and that would be in the double digits) a management company is a waste of your money.
First, nothing will help your learn and understand your business better than being up to your arms in your business. You will learn more about the business of renting houses and the people that rent houses in three months of being a landlord, then in reading about it for three years. That information is nearly priceless.
Second, a 10% management fee and a leasing fee of half to one month's rent may not sound like a lot of money, but it is!! That is 10% of your revenue, not your profit. So say you have a house renting at $1,000 a month, with PITI of $600, you would be paying 25% of YOUR profits to the management company. Plus their leasing fee. So call that $750 or another 15% of your profits in the first year. That is a huge 40%. Now that number may go down the second year because there may not be a leasing fee, but there is no guarantee the tenant will stay. This does not take in to consideration any maintenance fees.
Third, with one or two or even five houses, a management company will not save you that much time. If you have only a few houses, you should not get that many phone calls or that many problems. If you are, then there is something wrong with the houses or the tenants and that needs to be corrected. So for example, if each month tenants are not paying the rent on time, you need to review your screening process. So, if each month you have to spend two hours per house (which is way too much time), the managment company is making $50 an hour. And that is money that you should be making.
Lastly, renting houses is a not an easy business, regardless if you use a managment company or not. There are just too many ways to make money in real estate, to waste your time on something you do not enjoy.