Do you own property for investment and manage it yourself? Are you thinking of buying investment property and want to save money by managing it yourself? While I think it is true that no one will care for your property like you do, I still believe there is tremendous value in having a property manager, and this article will explore those reasons.
What are the biggest concerns that an investor has when it comes to their properties? Being an investor myself, I think that most people want to have the BEST Tenants, earning the HIGHEST market rents, staying compliant with all of the tenant laws and regulations that exist, and finally, being PROTECTED and SEPARATED from tenant issues that arise by having the right contracts and agreements in place.
The #1 killer of good investment property is VACANCY. When a unit sits empty, the owner is losing money every day that it sits there. Vacancy happens, but there are distinct reasons for prolonged vacancy. The first and most important reason is poor tenant screening. The pressure to fill that property with a tenant can be tremendous for an owner, and they might cut corners on having proper screening, only to find out later, that the applicant looked great on paper, but had issues in the past rentals. The second is also important, and that is having poor property condition, which leads to tenant dissatisfaction, which can lead to chronic vacancy as tenants constantly switch out at the end of the lease. By the way, poor property condition can also be detrimental to the long term value of the asset as well, especially in areas where market appreciation is big like in California. Many properties are evaluated by investors by CAP rates; which is your rate of return on the investment, and when used with what the actual rents less the expenses in a formula, turns out a number that determines the value. So you can see if the property condition isn’t as good, you get less in rents, therefore less in value of the asset.
The KEY to a good investment for an owner, in my estimation, is having good property management! Whether you do it yourself or hire one. The property manager screens tenants thoroughly; collects rents so you get paid on time; handles the tenant issue that arise at a moment’s notice; periodic inspections; monthly and annual reporting; uses proper contracts and helps you make the right disclosures to keep you compliant with tenant laws; does rental analysis to keep you apprised of current market rent trends.
Other benefits include simple things like being able to take vacations without worry of tenant issues or collecting of rents. It also assures that even long term tenants are not paying “under-market” rents. I have met owners who have had the same tenant for years and years, and have had a great friendship develop, so much so that the owner doesn’t feel like they should raise the rents when it is time, and thus after a number of years find themselves significantly lower than they should be. Now I will grant you, that there is tremendous value in having a long term tenant, as it addresses the “vacancy” issue raised above, but that being said when ten years goes by and your $500 lower in monthly rent than you should be, that is VERY costly indeed.
One of the biggest advantages of having a professional property manager is that liability. The property management company is licensed, insured, and stands in the gap to mitigate your liability, shielding you from potential tenant issues that can often lead to lawsuits. The costs of a property manager are easily made up with this protection as well as addressing issues quickly to maintain the property, and having current market rents.
Find yourself a good one, who has good problem solving skills, great communication skills and cares about your investment like you would care for it. Should you ever have any questions about property management or investment properties in general, please email me at firstname.lastname@example.org or visit my website at www.MikeRains.com
Mike Rains, Realtor
Huntington Beach, Orange County, CA