As an owner of rental property, the question of whether or not to hire a property manager or property management firm is an important one. The responsibilities and duties of owning a rental property are many, and hiring a professional can help simplify the daily operations of owning a rental business.
You should hire a property management company if:
- You own multiple rental properties with complex operational and guest service needs
- You live far from your rental property and are unable to tend to daily maintenance
- You have a high vacancy rate and have trouble finding tenants
- You can afford to lose 30%-50% of your rental property revenue
You maybe shouldn’t hire a property management company if:
- You are well-versed in online marketing and listing strategies
- You live close by to your rental properties
- You have a strong knowledge base in housing laws
- You own 1-2 rental properties and have the time to provide 5-star guest service
Many are also turning to cost-effective property management platforms to automate and scale traditional property manager responsibilities. In this article we help you evaluate your need to hire a property manager by:
- Breaking down the key responsibilities of a property manager
- Listing considerations and qualities you need to run a successful rental property business
- Covering property management fees and compensation models
What does a property manager do?
Before deciding if you really need to hire a property manager, it would be helpful to understand what a property manager does. Some of the most popular responsibilities of a property manager include:
Setting the right rental rates: performing market research to find out what similar properties are priced at to make sure you are priced competitively and maximizing while reducing vacancy.
Marketing your property: taking high-quality pictures (maybe even creating an instagram specifically for your property if it’s a vacation rental property) and actively updating your listing on popular rental platforms
Finding high-quality tenants: performing a tenant criminal and background check, credit check, reference check from prior landlords, etc. This is applicable mainly for long-term rentals. For short-term rentals, you can make sure the guest is a good guest through his prior ratings and reviews.
Managing maintenance and repairs: ensuring that everything is working in tip-top shape is critical to maintaining 5-star reviews for short-term renters and making sure you are keeping your long-term tenants happy.
Knowledge of housing laws: having a solid understanding of tenant-landlord laws and local and federal housing regulations will reduce the risk of a lawsuit or a squatter with those who have long-term rentals.
Customer service: being in open communication with your short-term rental guests or long-term rental tenants is key to maintaining happy customers, increasing bookings, and reducing vacancy.
Do you really need to hire a property manager?
Now that you understand what a rental property manager does, you can assess if you need to hire a property manager by considering the following factors:
Distance from rental property: the farther you live from your rental property, the harder it is to manage. As an owner of a rental property, you will need to make regular visits for maintenance, quickly respond to emergencies, etc. If you live far from your rental property, hiring a property manager might be a good idea.
Number of rental properties owned: the larger the portfolio of properties you own, the more moving parts and tenant or guest considerations you will need to address. It’s important to not let even the smallest of details slip through the cracks, so make sure you can handle the workload and detail-oriented responsibility of managing so many properties.
Rate of vacancy: if you are having trouble finding a guest or tenant to stay in your property, keep in mind marketing, fielding calls, and showing your property can take a considerable amount of time. Hiring a good property manager could potentially help address your vacancy challenges more quickly.
Experience with contractors: as an owner of a rental property, you will need to work with contractors to maintain the property. If you are not comfortable hiring, researching, and double-checking your contractor’s work, hiring a property manager could be beneficial.
Need for control: many property management agreement may give you little to no direct say over who rents your property or other major decisions like setting rental rates. There is always room for negotiation, but in the end you will be giving up the ability to have full-control over the way your property is managed.
Record-keeping ability: All owners of rental properties are also business owners, and business owners must keep track of documents like tax deductions and profit and loss statements. Keeping track of these records becomes even more complex with the more properties you own, so you need to ask yourself if you have the knowledge and organizational abilities to deal with paperwork and record-keeping associated with renting so many properties.
Property management fees
While hiring a property manager or management company can help streamline the process and operations of owning a rental property, making sure you can afford to hire a property manager is also important. In this section we break down the fees charged by both short-term and long-term property managers.
Short-term property management fees
Short-term, or vacation rental, property management involves renting out a property multiple on an ongoing basis to guests who are staying for a few months or less. As a result, this means fielding more inquiries, engaging with customers frequently, and listing and marketing a property routinely. For this reason, the work for short-term rental property managers is oftentimes more demanding and involved than the work of a long-term property rental manager.
Fees for vacation rental property management generally run 30%-50% of your overall revenue (with an industry average of 28%) if your compensation structure follows the “commission model” management fee. If you are looking for a potentially more cost-effective management fee model, you can also use the guaranteed model, where the property manager is guaranteed a fixed monthly income, regardless of how often the property is rented.
Long-term property management fees
Typical long-term property management fees range between 8%-12% of the monthly rental cost, with most property fees settling around 10%. Properties with 10 or more units, usually larger apartment complexes, command rental fees in the 4%-7% range.
Like short-term rental compensation structures, long-term rental compensation structures can also be based on flat rates. However, there is no general industry figure due to the variability in the size of property and the services required.
A more affordable alternative
Rental property owners both big and small are turning to property management platforms to help scale many of property manager responsibilities, particularly those that are marketing and customer service related. Superhosts all over the world are turning to innovate technology solutions like Hostfully’s to help stay in contact with their guests, provide them with localized recommendations, and offer a more personalized experience.
While these online property management platforms do not replicate all the duties of a professional property management platform, vacation rental business owners have found great success in cutting costs by using affordable, easy-to-use technology tools.
Weighing convenience against cost
While retaining a property manager to manage your rental properties can help make your life easier as a rental property owner, it’s important to evaluate personal and financial considerations to truly understand if you need to hire one.
Property managers can be expensive and take a huge chunk of your revenues. However, if you lack experience in housing laws (and do not have the patience to learn the laws yourself!), own numerous rental properties, or live far away from your rental property, it may help streamline your daily operations.
Hiring a property manager is a big business decision. By taking a step back and evaluating many of the considerations we have listed, rest assured that you will go into the decision-making process much more prepared and informed.