Tips for Landlords: Your Property Management Options - dummies

Tips for Landlords: Your Property Management Options

By Robert S. Griswold, Laurence Harmon

Once you begin to branch out as a landlord, taking care of your own property may no longer be an option. When using someone to handle your property management tasks, you have three options:

  • Negotiate a service contract with a property management firm. Contracting with a professional property management firm avoids most of the complexities of hiring an individual. The firm is typically qualified to handle all property management work, including finding and screening new residents. You simply pay the firm a fee instead of a salary, so you’re not on the hook as an employer.

    The firm carries liability insurance to cover any damages resulting from improper or illegal property management activities. The primary drawback of contracting with a firm is the generally higher cost, but that may not be true if you accurately consider the value of your own time.

    Of these three choices, you may want to lean toward hiring a management firm, for the following reasons:

    • A good firm has skilled staff members who are specialized in several key areas, including law, marketing, human resources, accounting, and maintenance. They have established procedures and contacts for most situations and can be more efficient than you might be as a novice.

    • The firm sticks with you. It’s not going to leave you to take another job — especially without notice just before the first of the month.

    • The firm always has you covered. If an employee becomes ill or goes on vacation, the firm has someone who can step in temporarily to fill his shoes.

  • Hire an individual. Landlords frequently hire an individual (often one of their residents) to handle some property management tasks, including collecting rent, cleaning and light maintenance of the common areas, performing minor repairs in rental units, and responding to certain resident concerns. Hiring an individual, however, comes with some additional risks and responsibilities.

    You may be held liable for any actions the individual takes on your behalf (as your agent) and any injuries the person suffers in providing services on your behalf. You must also provide oversight to make sure your employee is responsive to your residents’ needs. Furthermore, you take on additional responsibilities as an employer.

    The primary benefit of hiring an individual is that the person can focus exclusively on your rental properties and can be more responsive than a firm to problems that arise. An individual may even live on-site, which enables him to monitor the property more closely and establish positive relationships with residents. If you find a well-qualified candidate, hire the person, especially if he has experience and a good track record.

  • Do it yourself. If you choose to manage the property yourself, consider taking on the tasks that you’re most qualified to perform and that you’re likely to enjoy and outsourcing the rest. For example, you may want to handle the money yourself — collecting and depositing rent payments, security deposits, and other fees and paying the bills — and hiring other individuals or companies to handle other tasks, including the following:

    • Maintenance and repairs (for example, you may want to hire a maintenance person who lives in one of your rental units to serve as building superintendent)

    • Accounting (hire an accountant or an accounting firm)

    • Applicant screening (hire a real estate broker or a rental locator to find and screen applicants)

    • Legal issues (hire an attorney to draft agreements and make sure you’re following all applicable housing laws)

If you decide to hire an individual or a professional property management firm, doing so is a matter of personal preference, but also a matter of good business practice. In certain states and municipalities, you actually may be required to have a resident property manager — a person who lives in the apartment complex — if it has more than a certain number of rental units.

For example, in California a responsible party is required to live on-site if you have 16 or more contiguous rental units. You should contact your local affiliate of the National Apartment Association (NAA) or a landlord-tenant legal expert to see if your area has any such requirements.

If you have a rental property with more than four units, your best option is to hire a professional management company and also have an on-site person who can be the eyes and ears of the property for a reasonable rent credit or small cash payment.