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Are Property Management Companies Worth The Cost?

By Martin Dasko

Paying For Property ManagementAfter conducting hours of extensive research and weighing out the options, you’ve just purchased your first rental property. You’ve considered all the real estate tips out there, and you’re ready to start making money in the crazy world of real estate. There’s just one problem: you don’t want to deal with being a landlord. You are now considering a property management firm to deal with all of your landlord work. Before you jump in and sign the papers to have this firm manage your new rental property, please look over the following points to help you decide if a property management company is worth the cost:

The responsibility is still all yours.

There are many responsibilities that come with being a landlord that you simply may not want to deal with. You don’t want to hear every time that the dishwasher breaks. You don’t want to hear about the lighting problems. You especially don’t want any phone calls at five in the morning. In a sense, you relieve yourself of these responsibilities by hiring a property management firm. On the flip side, these are still your problems because it’s still your property. You must keep in mind that no matter how the management firm works, you can’t and shouldn’t just ignore your property. Nobody else will ever care about this property as much as you do. If you want to pawn off all the responsibilities, you may very well be unsatisfied with the outcome.

Dealing with paper work.

Some of us simply loathe paperwork. I personally don’t mind it in small doses, but I do see how paperwork can get annoying. A property management firm will alleviate all of your paperwork responsibilities. The company is usually responsible for screening tenants, finding tenants, putting together lease agreements, and billing the tenant. All you have to do is pay the property management fees. For some, the elimination of paperwork alone can be worth the fees. It all depends on how you value your time and how much you mind conducting paperwork.

How much will you pay?

From my own research, I found that the typical payment for a property management firm can be anywhere from $80-100 per month for a condo. I was told that the price can fluctuate depending on the size of the property and the amount of properties that you have. If you consider all your other expenses (mortgage payment, utility fees, maintenance fees, property taxes), the property management fees could really be the last straw and make you think twice about taking them on. These fees may also force you to charge a higher rent which may make it harder to find a tenant.

How old is the property?

A new property can be very easy to manage and very hands-off. From my personal experience, everything in my condo is under warranty for the first year. If something stops working, the solution is really simply: just call the company that provided the product to come check it out. For example, I just had my washer-dryer combo fixed the other day. It’s really not worth hiring a property management firm for such a simple process.

On the other hand, older properties may have more difficulties around the house. This will lead to more problems around the property. This in turn will lead to a more hands-on property management process. Are you willing to deal with this or would you like to delegate this whole process to a property management company?

Final Thoughts

At the end of the day, the decision to hire a property management firm to monitor your new rental property requires much consideration due to the responsibilities and fees involved. I hope that you consider all of the points mentioned in this article before making the decision. Also, I’m curious to hear where you guys stand on hiring a property management firm? Are you considering one? Have you ever dealt with a property management company?

(photo credit: theerin)

Martin Dasko
Martin is a 22 year old personal finance writer that attempts to make money talk fun. After taking many finance courses in college he realized that this stuff is completely boring and that nobody cares about complex calculations. He started his own personal finance blog in November of 2008 and has been passionate about making matters interesting ever since then. His goal is to show you how to get the most out of life, while still saving a buck or two.

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Comments

  • http://www.bucksomeboomer.com Kay Lynn @ Bucksome Boomer

    I’ve owned rental property in the past and the management fees have all been a percentage of the rental amount. One of the benefits of having a management company is that they find the tenant and do all the screening including credit checks.

  • http://change-is-possible.net Heather

    We had a rental property for a short time, and our manager was less than fabulous.

    He let the tenants paint a room that had been green. But they didn’t prime it or use two coats, so in some spots you could still see green. And where they had put furniture, they hadn’t bothered to paint at all.

    When things broke, he didn’t notify us. Our check would just be lower than it was supposed to be.

    He didn’t use the home warranty.

    Overall, he was not worth what we paid him. However, if he’d done what we thought he was going to do, it would have been excellent.

  • http://www.abodepropertymgmt.com zerovacancygal

    Ending up with the right property mgmt firm is as important as ending up with the right invesment/rental property.

    Either doesn’t come with guarantees except of course you seek the opinion and feedback of existing customers of the property mgmt firm. Asking for referalls shouldn’t be a problem for a firm worth their mgmt fee.

    Also, its important to ask questions, to clearly understand what “One” thing the firm stands for and how it stands against your fears and concerns as a landlord.

    Managiing with head and heart
    ZVG!!

  • jimmy.raider

    I own, manage and broker Mobile Home and RV Parks. However, the two parks I own and manage take a good amount of time. Current Management companies in my industry charge 4-8% of gross; which takes a big bite of most gross profit of most of the owners I talk with.; I am looking for advice –or investment partners– with plans on providing less than full management; in order to provide the owner with a cost savings. Most Mobile home and RV park owners live more than a 100 miles away from their parks; just providing an eyes and ears is a valuable service. Does anyone have advice on how to provide and start “mini-management company at fees from $200 to $1500 per month? instead of the large fees current management companies charge. Are there other types of real estate that provide “less than full” property management?

    • Todd Akers

      Jimmy… I’m a Real Estate Broker in Charlotte NC and looking to start a property management company. Your post makes a lot of sense and I thought about the idea you proposed with having a mini managment company. The problem with that is they have systems set up and it doesn’t really make sense to make it ala cart. It’s like asking for a mini root canal, mini physical or mini oil change. The management company still needs to hire and pay the same number of people. What does the management company that charges 8% do differently than the one charging 4%? Seems like a big difference? What services would you suggest a mini management company provide and where are your parks?

  • Bigdogloveone

    If you want good property management service you have to pay for it. After being in the PM business for over 35 years I can tell you that a 10% mgmt fee will give the landlord a maximum of 1hr per mth of service. Keep in mind that the $100 fee is split 3 ways. The Managemnt agent gets $33 per mth. $33 goes to office expense and overhead and $33 goes to the broker or owner. So don’t complain if your PM company is a little slow in meeting your expectations, your getting exactly what you paid for. Also keep in mind the property management part of a real estate company was never designed to be profitable, it as aways been a way for real eatate agents to generate future listing and sales. And that’s where the bills get paid.

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