What is a Management Company?
A property management company is responsible for taking care of your investment properties on your behalf. They act as the buffer between you and the tenants in your properties and provide services like receiving complaints from the tenants, ensuring necessary repairs are done, handling tenant conflicts, and collecting rent. The scope of responsibilities may be expanded or shrunk based on your needs and the size of your portfolio.
A management company may cut into the profit of a landlord/real estate investor, but they can also reduce the workload and responsibilities of a landlord to a manageable level. If they havel a comprehensive range of services, a management company can make property management virtually hands-off for a landlord. This is why choosing the right management company is so crucial for a landlord.
Factors Affecting The Choice of A Management Company
As a landlord, the primary factors that should influence your choice of a management company are:
You become a landlord with just one rental property in your portfolio, but hiring a management company for a single property, especially if you are living in the same city, may not be financially feasible. There is no definite portfolio size when hiring a management company becomes financially feasible. But if you have trouble handling all the issues arising in your property, it may be time to hire a management company. That said, it’s important to remember that there are management companies that offer a complete suite of services for single condos and townhouses, and if you are satisfied with the price they are charging, they can take the responsibility off your hands.
The type of properties you have in your portfolio may also have an impact on this decision. Two 3-family brownstones (six housing units) may be more demanding than twelve co-op apartments because, in the former, you would be responsible for the entire structure, whereas, in the co-op apartments, your responsibilities will be limited within the apartment walls. Issues like plumbing and electrical may be taken care of at the building level.
It impacts your choice of a management company because you should look for a company that’s the right size for your portfolio. A relatively small company may not have adequate resources to cater to your property management needs if your portfolio is extensive. Alternatively, not all property management giants may be interested in a modest-sized portfolio.
Scope of Work and Needs
When hiring a property management company, it’s important that you have clarity on the scope of work you need them to do on your behalf. You may want them to take on only some of the responsibility and take care of the rest. What would that responsibility entail, and how much time and resources it would consume will influence your cost.
The scope of work can also be influenced by your arrangement with the tenants. If they are responsible for some of the things on the premises and you trust them to get the necessary repairs and deduct the expenses from the rent, hiring a management company may be redundant. Similarly, if you own a townhouse and have a live-in super, you may not need the full services of a management company.
Once you have clarity on the scope of responsibilities you wish to transfer to the property management company, you may short-list the right options. These would be the companies that offer all the services you need, so you don’t have to make multiple arrangements when it comes to your property management.
The cost of property management will differ from company to company and will significantly be influenced by the scope of services you need and the size of your portfolio. Make sure you don’t compromise quality for quantity, and don’t hire the company that offers the most services for the lowest price.
When evaluating different options from a cost perspective, make sure you realize that the performance of the management company can impact your turnover rates, tenant satisfaction, and, by extension, your rental income.
However, you should also look for a company that can offer you a reasonable quote for the management services you need instead of a standard, cookie-cutter package in which you may be paying for services you won’t need.
Familiarity With the Area
Many management companies are extensive and operate on a national level, but if they have great local teams that have adequate vendor connections and a healthy management approach, your property may be well managed.
However, sometimes, even local management companies may not have the right knowledge and resources to manage your property. For example, they may specialize in townhouses, and if you have condos in your portfolio, there might be a learning curve where the company learns how to deal with the problems condo tenants face. This can spoil the tenant experience. So make sure the management company you are hiring knows the area and has experience dealing with the types of properties you have in your portfolio.
It’s important to look into a company’s reputation via multiple channels, including their online reviews, professional references they offer, and word-of-mouth. If you like their services and price and are worried about their reputation, you may consider interviewing their representative and give them a chance to tell you their end of the story that earned them a negative reputation. This can help you make an informed decision.
Good Practices for Vetting A Management Company
- Get referencesfrom other landlords, ideally, the ones that have worked with the same management company for a long time.
- Run an online search for the management companies that provide services in the areas you have properties in and deal with the property types you have in your portfolio.
- Based on the best service and area overlap and the reputation (online reviews if there is nothing else) of the companies, short-list a few names.
- Reach out to them with an overview of your portfolio and the property management services you may need.
- How they respond to you can easily help you shorten your list further. Some may send you generic quotes, while others might direct you to the pre-packaged service set that best suits your needs. But there will be others who may reach out to you and discuss your requirements in detail. Their knowledge and approach to project management can help you choose the right management company.
We would recommend that you also vet and interview the property manager(s)/managing agent(s) assigned to your portfolio or property in detail and make sure they reflect the same knowledge and attitude that encouraged you to choose the property management company they worked with in the first place.