What is Rental Property Management and How Can it Help Investors?

by Alyssa Adams  7/30/2021
What is Rental Property Management and How Can it Help Investors?

What is Rental Property Management and How Can it Help Investors?

Owning rental property is a worth wild investment for many owners but managing income property is a lot of work. While many owners choose to go it alone, professional property management opens a world of opportunities. Most investors are familiar with the concept of third-party management, but what is rental property management, and what does it really offer to investors? Join us below as we break down the roles of a property manager and help you discover the true value you get for your management fees.

What Is Rental Property Management?

Rental property management is a third party that, for a fee, oversees daily operations for a portfolio of residential or commercial real estate investments. One of the main goals of professional management is to ensure tenant satisfaction and retention while maintaining a healthy profit margin. This allows owners to take a step back from the daily stresses and focus on their lives or other investment ventures.

The Responsibilities of Property Managers

Property managers taking over daily operations encompasses a lot of responsibilities. However, these are all tasks that can free up a ton of time and alleviate headaches for property owners. Let’s review the most common responsibilities of property managers below –

The Responsibilities of Property Managers

  • Targeted Marketing
  • Legal Leasing Documents
  • Property Tours and Lead Follow-up
  • Thorough Screening of Potential Tenants
  • Collecting Rent
  • Basic Accounting Functions
  • Processing Lease Renewals
  • Managing Maintenance and Repairs
  • Property Inspections

This is not a comprehensive list, but it gives owners a good overview of what value professional rental managers can provide. However, finding the best company for your portfolio can prove challenging with all of the options out there. Not every company will provide the same services for the same rates. Therefore, be sure to ask the right questions to find the best fit. Check out some of our suggestions below –

  1. What types of services do you offer?
  2. What are the monthly fees, and what services do they cover?
  3. Is the company lead by a real estate broker?
  4. Can I review the owner contract and lease agreement in advance?
  5. Describe some of the marketing techniques used and how you work to limit vacancies?
  6. What factors influence the rental rate?
  7. Describe the tenant screening process, and what are the standard qualifications for applicants?
  8. How many property managers does the company have, and how many properties does each property manager oversee?
  9. Is there a penalty to cancel my contract early? If so, what are the terms?
  10. Can I speak to any current owner references?

What are the Typical Property Management Fees?

Understanding a property management company’s fees is crucial to making the best choice for your business. That said, it is important to find a professional firm with upfront costs and no hidden fees that can cut into profits. So, carefully review each company’s fee structure before finalizing a contract. Below are some of the typical property management fees to look out for.

  1. Monthly Management Fees
  2. Early Cancellation Penalties
  3. Leasing Commission Fees
  4. Repairs and Maintenance
  5. Property Inspection Fees
  6. Late Payments and Evictions Processing
  7. Miscellaneous Management Fees

Monthly Management Fees

Monthly fees are an important part of the property management contract. Typically, these fees are charged as a percentage of the monthly rent. Industrywide, the average monthly management fee is around 8% to 12% but can vary widely depending on many factors.

That said, the company may charge based on “rent due” or “rent collected.” While these may seem the same, it is vital to make the distinction. Check out the slight difference in wording below that can add up to a lot of extra fees for owners if you are not careful.

  • Rent Due – The property management firm charges based on the amount a tenant owes. So, some owners may even have to pay a management fee even if the property is vacant. Therefore, be sure to clarify this with the company, so you are not wasting money.
  • Rent Collected – This means owners pay based on the actual rental income collected. Typically, if the property is vacant and not generating income, there are no monthly management fees.

Based on the definitions above, owners tend to favor contracts based on “rent collected.” However, on occasion, a property management company may charge a set monthly fee instead of a percentage for several reasons. For example, instead of charging 8% on an $800 per month property, they may require a $100 minimum management fee. So, make sure you read this section of your contract carefully.

Early Cancellation Penalties

Most contracts address early termination, and property management agreements are no different. Therefore, if you should break the contract before term, owners may face cancellation fees up to and including all management fees per the agreement. In some cases, the fee could be as little as a few hundred dollars, while some landlords take it a step further and sue for breach of contract.

Typically, the contract will have these fees unless the agreement was broken “for cause.” That said, each company may define “cause” slightly differently. However, most often, it relates to the manager not fulfilling all or some of their responsibilities. So, owners must understand their rights and obligations before entering a contract, especially with a newer or untested firm.

Leasing Commission Fees

Also referred to as a tenant placement fee, leasing charges are something the owner pays for the property manager to fill the unit. This covers the administrative cost of drafting lease documents, providing property tours, lead-follow-up, and applicant screening. While these fees vary, expect to pay the equivalent of around 1 months’ rent.

Repairs and Maintenance

Property management means having someone on hand to handle after-hours maintenance calls or regular repair requests. Reputable property management firms come equipped with a trusted list of vendors that owners can benefit from. Along with fielding calls, these landlords will organize repairs, get estimates, and follow up with tenants.

That said, some companies add additional fees for large jobs or send out in-house technicians for estimates. In a contract, look for a reference to a “project management fee” as this may tack on up to 10% for large renovation projects.

Property Inspection Fees

Over the course of a contract term, the property will require several inspections. Some of these inspections are for specific purposes, such as move out, while others are meant to inspect the property more frequently. For example, some landlords use these inspections to discover maintenance issues before becoming a major issue. Some of the most common rental inspections include –

  • Initial Inspection – Completed to evaluate the property’s potential before signing a property management agreement.
  • Move-In Inspection – Detailed checklist with photographs to document the property condition upon move-in.
  • Semi-Annual Inspections – Some companies perform an inspection every 6 months to check overall lease compliance, perform preventative maintenance, and identify any issues.
  • Move-Out Inspection – When compared to the move-in report, the move-out inspections help identify tenant damage. From there, landlords can choose how much, if any, of the tenant’s deposit to withhold.

Some companies have these inspections built into their existing fee structure, while others charge individually. So, ask plenty of questions to determine what is included.

Late Payments and Evictions Processing

Even with every precaution, some tenants fall behind on rent. Therefore, late fees are built into the lease and are assessed after the grace period expires. That said, these fees do not automatically go to the owner. In fact, most management companies keep between 25% and 100% of any late charges.

Typically, property managers can follow up with tenants, and they get caught up. However, sometimes eviction is the only answer. When that is the case, your property management company will serve notices, assist in court proceedings and coordinate a physical eviction if needed. Fees for handling an eviction will vary from company to company.

Miscellaneous Rental Property Management Fees

In addition to the standard fees above, investors may come across some added costs in the property management process. Depending on your own needs, choosing a management company that includes the services below may be worth paying a higher monthly rate. ON the other hand, some owners choose to pay “a la carte” for certain services – the choice is yours. That said, let’s review some of the additional charges owners may encounter below.

  • Start-up Fee – Most management companies charge a flat fee to onboard a property and set up your new account. This can range from as little as $99 to a few hundred.
  • Special Advertising – All companies will actively market a vacant property. That said, some may charge an added fee for special services such as virtual tour videos or listing on paid websites such as Zillow.
  • Lease Renewal Fee – Lease renewal refers to the administrative efforts to negotiate renewal terms with tenants and process new lease documents. Typically, this fee can range from $99 to $300, depending on the services offered.

Are All Types of Real Estate Managers the Same?

Throughout the rental industry, there are several names used for someone who oversees investment property. But are they all the same? No.

Depending on the title, the manager you choose may have different responsibilities and levels of involvement in the daily operations of your rental. In some cases, property owners are still expected to play an active role. So, if you are looking to be hands-off, make sure you choose the right management fit for you. So, with that in mind, let’s quickly review some of the most common terms and how their responsibilities vary.

Property Management Companies

Property management firms manage every aspect of a rental investment. Their staff oversees your property in various ways, and when done efficiently, they help facilitate positive cash flow. Some of their primary responsibilities include –

  • Tenant Screening
  • Lease Agreement Drafting
  • Rent Collection
  • Help with Legal Services
  • Rental Property Registration and Compliance
  • Collect Fees
  • Monthly and Yearly Financial Reports
  • Routine Inspections
  • Move-in and Move out Reports
  • Handle Tenant Complaints
  • Coordinate Contractors and Repairs
  • Schedule Routine Maintenance
  • Property Showings
  • Marketing

Site Management

Like property managers, site managers oversee the efficiency and prosperity of a rental property. Therefore, this term is often associated with multi-family complexes in which the on-site manager helps promote profitability by –

  • Managing Day-to-day Communications with Tenants
  • Marketing and Leasing Vacant Units
  • Collecting Rent
  • Overseeing Property Turnover and Maintenance
  • Perform Inspections
  • Maintain Basic Accounting Reports (related to rent collection or unit vacancy)
  • Identify, Recommend, and Implement Major Projects

In addition to the term “site manager,” this role is commonly referred to as a community manager, business manager, or resident manager.

Maintenance CoordinatorsMaintenance Coordinators

Maintenance is an inevitable part of rental property ownership. Almost every management company handles receiving repair requests from your tenants. However, that is where some company’s responsibility ends. Thus, a maintenance coordinator specifically handles the upkeep of the property to include –

  • Emergency Repairs
  • Repairing Significant Tenant Damage
  • Lawn and Yard Maintenance
  • Snow Removal
  • Lock Out Requests
  • Organizing Contractors for Plumbing, Electrical, or HVAC Maintenance

Often, the maintenance coordinator and property managers are the same for some rental property management companies. That said, larger firms may divide these responsibilities and potentially charge additional fees. Ideally, the company you choose will have a maintenance crew or trusted vendor available 24/7 in case of emergencies.

Asset Managers

Asset managers see real estate as just that – an asset. Therefore, their focus is on what decisions will benefit the property’s financial performance. So, typically, operations, maintenance, and other caretaker tasks are left to a separate property manager. That said, the asset manager often assists owners in finding a suitable property management company and everyone works together toward the same goal of profitability.

Asset Managers

As far as responsibilities go, this will vary widely depending on the company and your specific portfolio needs. So, just do your research carefully if you intend on enlisting the help of an asset manager. That said, some of the most common asset manager tasks include –

  • Using Market Knowledge to Set Leasing Rates
  • Evaluate Economic Factors that Affect Vacancy Rates
  • Suggest Financing Opportunities
  • Determine the Best Use for the Property
  • Analyze Potential Markets and Properties for Future Investment

Reach Your Potential with Bay Property Management GroupReach Your Potential with Bay Property Management Group

Whether you are buying your first property or are a seasoned investor, the benefits of professional management add up quickly. However, finding the right company that offers expert service at a competitive rate is sometimes easier said than done.

That is where Professional Property Management of Northern Virginia comes in. Our team of dedicated managers, accounting staff, leasing agents, maintenance techs, and marketing professionals ensure every aspect of your property is taken care of. So, if you are interested in more information on how full-service rental property management can benefit you, give us a call today.

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