When buying a property that is home to several tenants, such as an apartment complex, you will have an enormous job ahead of you: property management.
How do you manage a property of this size? What's the best way to manage an investment property? It's crucial that you keep your tenant happy, so they will rent the property for a long time.
The job of managing a property is at times extraordinarily complex and involves so many responsibilities that it is not uncommon for investors to hire a property management company. Here’s a list of duties involved, but by no means is this list complete of what often entails managing an investment property:
- Financial operations – Collecting rent; preparing budgets; making sure all taxes, mortgages, payroll, insurance premiums, and maintenance bills are paid.
- Services – Establishing and negotiating services, such as janitors, security, landscaping, grounds keeping, and trash disposal.
- Government regulations – Understanding and agreeing to conditions provided by legislation, such as the Americans with Disabilities Act, in addition to local laws. Building must comply with all state, federal, and local building codes.
- Day-to-day operations – Must operate and maintain an office or office building, as well as monitor the property, checking for damages, suspicious behavior, areas where improvements need to be made, and so on.
- Advertisement – Producing and spreading advertisements, whether it be television or radio commercials, newspaper ads, or whatever else.
- General public – Handling complaints, requests for repair/work orders, meeting specific needs, answering phones, etc.
- Recordkeeping – Maintaining accurate and updated information regarding operating expenses, income levels, and bills.
- New tenants – Applicants must be shown the property; welcome packets need to be made; receptions could be held; background checks must be performed; create a credit policy; applicant screening.
- Lease – Terms must be negotiated, aided with the assistance of an attorney.
You see, in order to make money with your property you have to keep your tenants happy. (You’ll be surprised at how many applicants you’ll get because of referrals from current tenants.) So if you’re not prepared to handle all these duties, along with countless more, you will have to hire a property management company to take on this responsibility 365 days a year.
FLYING SOLO: If you’ve decided to manage the property yourself, here’s an important tip: If a tenant is late on a payment, don’t let him/her slide—you have to be tough if people are to take you seriously. Set a standard and require rental payments on time, and charge late fees if you feel it is necessary. This will make your job much easier. For example, if you’re busy with an urgent matter, do you really want to pause and return to the office just to collect a late payment? Also, late payments make your accounting even more difficult due to the extra fees assessed and varying times of payments. This hassle can be prevented, at least in part, by running background checks. You don’t want to take any chances. A bad tenant can not only cause individual problems but disrupt the whole property’s environment, making others want to leave.
We’re not trying to discourage you from managing the property yourself. Rather, we’re just letting you know of the responsibilities involved with this endeavor. Management is not for everyone, and if it’s not for you, then you should take advantage of the companies and individuals who can relieve you of this stress.
Finding the Right Property Management Company
Selecting the right property management company is not always easy. There are so many responsibilities and risks associated with managing a property, and you have your own set of values, expectations, and modes of operation. Therefore, you’ll want a company that best fits your goals and needs.
First, you’ll need to find them. So here are a few pointers on how to go about doing that:
- Word of mouth – If a company has built a good reputation, you can easily find them through simple word of mouth. Talk to locals or other property owners. Chances are good that they’ll be more than happy to recommend a specific company.
- Visibility in the market – How easily can you find this company in a local phone book? Also, you should see how many units they manage, if the company has physical offices, and if they advertise in travel guides and other local publications.
- Technology – Does the company have an Internet site? And if so, are there plenty of photos that display the various properties (such as resorts, apartments, cabins, etc.) they manage?
Once you find a company (or a few) that interests you, it’s wise to ask them some questions. After all, they’ll be managing both your property and its occupants, so you’ll need to make sure this company is the one.
- How much are fees? Fees can vary nationwide, depending on type of property.
- How and when will fees be collected? Will you be billed monthly or quarterly, or will the money be deducted directly?
- Are there any extra costs beyond legal fees, such as additional charges to conduct evictions?
- What other properties does the company manage? Make sure the company manages properties that are similar to yours. Also, drive by or visit these properties to see how they’re managed.
- Who will actually manage the property? It’s best to have one person manage the property all the time. Ask for experience too and exact name of the manager.
- How will the company advertise your rentals, and what are your costs?
- How much time is needed to clean a unit when vacant, and how much will it cost you? When will the unit be ready for rental?
- Accounting – what reports do they file, and how are accounts maintained?
- What demands owner approval? For example, what transactions or dollar amounts need your authorization?
- What are the business hours of the company? This includes weekend hours, in addition to availability of clients to answer questions and help with emergency situations.
Of course, there will be more questions to ask, many of which will stem from personal experience, common sense, or just out of the blue. If you ask everything upfront and right away, you can minimize the chances of misunderstandings and problems in the future. This will make everyone’s life much easier and will save you a tremendous amount of stress.