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Self-Management vs Hiring a Property Management Firm

By Mike Wheatley | December 13, 2016

Real estate has for long been perceived as one of the most stable investments not only in the US, but also the rest of the world. Almost everything about it is simple and straightforward. For rentals, it’s all about self management, acquiring a couple of properties and renting them out.

The hardest part, unfortunately, is rental management. While a couple of property owners choose to handle this themselves, hiring property management firms is progressively becoming the preferred option among the bulk of property owners.

Of course managing your own properties is less expensive than hiring a property management firm, but is it actually worth the stress? Does your business stand to benefit more from a professional property manager?

To separate the truths from the myths, we’ll critically assess both management scenarios, and subsequently establish the safest and most convenient option:

Tenant Screening

Tenant screening is undoubtedly one of the fundamental stages of property turnover. While it may seem like a simple undertaking at first, a comprehensive one is actually complicated, involving quite a number of processes. After preliminary questioning (most probably on phone), prospective tenants should be invited over for additional assessment, before ultimately conducting background checks.

Property owners can comfortably handle the first stage, particularly if they are dealing with only a couple of callers. After all, asking just a couple of questions, and making judgments shouldn’t be too hard, right?

Well, unfortunately, despite qualifying only a fraction of the callers, the process begins to get complicated as you proceed through the subsequent stages. For instance, conducting background checks requires one to handle it on a case-by-case basis, requesting information from all the respective agencies, like credit report companies. Of course handling this alone is strenuous, cumbersome, and consequently increases error margin.

And that’s precisely where property management firms come in. They know just how to leverage critical resources, like property management software, to conduct successful tenant screening processes with the slimmest error margins.

Legal Issues

Imagine reading through all the volumes of federal and state law affecting real estate in just the US alone. It would probably take a couple of years to acquaint yourself to a level that you can confidently draft tenancy agreements, and respond to any legal concerns. While some property owners argue that they can afford to alternatively hire lawyers, only a fraction of advocates are experts at real estate law- and most of them, ironically, work for property management firms.

Hiring a property management firm, on the other hand, grants you the benefit of professional legal and management services, at only a fraction of the cost of a lawyer. Professional property managers not only experienced at drafting tenancy agreements aligned to all relevant laws, but also offering legal advice in case of any disputes.

Vacancy Cycles

Returns on rental units largely depend on how you manage vacancy cycles. The faster you fill your vacancies, and the more your tenants extend their contracts, the more you stand to make off your investment.

While a property owner would only advertise rental units on social media without adequate market analysis, property managers are extensively experienced in market segmentation and subsequent property marketing. They know just where to advertise vacant properties to target a large pool of prospects, consequently attracting high response rates. And since they also understand the concept of pricing, professional property managers can set an optimal base rent rate that is not too high or low. Otherwise, a wrongly priced rental unit could either be vacant for ages if the rent is too high, or generate low ROI if rent is too low.

Tenant Retention

Although lost income is perceived as the primary result of poor tenant retention, there are many other equally serious problems associated with high tenant turnover rates. Switching between tenants means changing locks, repainting property, conducting repairs and re-customizing units, not to mention remarketing, rescreening and settling new tenants. Of course this is not only time consuming and strenuous, but also resource-demanding, especially if it applies to multiple units.

To minimize this, reliable property management firms employ time-tested tenant retention policies that keep tenants happy and satisfied. While self-managed properties rely on untried systems, property managed units employ consistent and systematic approaches that are guaranteed to generate good results.

Rent Collection

Your approach in collecting rent makes a huge difference between success and failure as a real estate investor. While it’s widely perceived that tenants understand that it’s their obligation to pay rent on time, it’s a different game altogether when you start collecting. Failing to enforce rent collection measures as stipulated in your tenancy agreement could result in unsuccessful rent collection, consequently choking cash-flow.

While a good landlord-tenant relationship is strongly encouraged, your tenants will walk all over you if you let them. They have to be trained to follow all rent collection guidelines as stipulated in their respective contracts. And since maintaining such a balance could be a difficult affair, it’s advisable to hire property managers to act as buffers between you and the tenants.

In most cases, property managers act as the bad guys. They chase down rent, follow up on payments, keep records, and evict tenants who fail to honor rent payments. Evicting tenants is particularly difficult, going by the strict federal and state tenancy laws. But since property managers comprehend them, they can handle the process more professionally, ensuring fairness to all parties concerned, without breaking any law.

Evidently, hiring a property management firm wins over self-management. Although you stand to lose only a couple of bucks as payment for property management services, it comes with many benefits, which collectively bring in good returns- consequently making it a worthwhile engagement. As you begin the process of seeking a property management firm, remember to settle for a reliable one, which knows just how to leverage critical management tools to produce excellent results.

Co-Author:  Davis Porter is a professional writer for Property Matrix, a property management software.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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