Rental Property Management Company: Pros and Cons

Should you hire a rental property management company to manage your rental house? No, in most cases you did not need to.

When I started buying houses in my early 20s, I was adamant that my real estate business did not interfere with my day job or my social life.

It sounds like a property management company was perfect for me to accomplish those goals, right? Not really. The rental houses did not take much time.

Let me walk you through why I never used a property management company, as well as the pros and cons of hiring a property management company.

What does a Rental Property Management Company do?

• Find Tenant
• Screen Tenant
• Collect rent and record keep
• Handle late payments and tenant issues
• Manage the maintenance and repairs

What does a Property Manager Cost?

The rule of thumb is that a Property Manager will charge 10% of monthly rent. Rental House Property Management Companies will also charge one month’s rent for finding a tenant.

These are the baseline costs. Your experience can be more or less depending on a number of factors, like how many houses you have and if you take on any of the activities like finding the tenant.

Rental house property managers often have extra fees for other activities. Some of them will be nickel and diming fees. Others will be things like you paying for their attorney for evictions.

Can You Negotiate With A Property Management Company?

Yes, negotiating with a rental property management company is possible and can result in significant savings. The key to successful negotiation lies in understanding the value you bring to the table and leveraging it to your advantage.

Here are some examples of how much you could potentially save:

1. Property Management Fees: Most property management companies charge a percentage of the monthly rent, typically around 8-12%.
   
   If you have multiple properties, you could negotiate this rate down to 5-7%. For instance, if you have five properties each earning $2000 per month, a reduction from 10% to 7% would save you $300 per month or $3600 per year.
   
2. Maintenance Costs: Some property management companies may agree to cap certain maintenance costs or offer discounts on their in-house maintenance services. This could save you hundreds of dollars each year, depending on the age and condition of your properties.
   
3. Leasing Fees: These are fees charged by the property management company to find and place new tenants.
   
   If you own multiple properties, you could negotiate a lower leasing fee, which is typically one month’s rent. A reduction from 100% to 50% of the first month’s rent for each new tenant could result in substantial annual savings.

The best way to get these discounts is by having more properties under management. Property management companies are often more willing to negotiate rates with landlords who can bring them more business.

They see value in securing your business because it means a steady income for them, and they’re usually willing to lower their rates to make that happen.

Over the years many property managers tried to secure my business. They often offered discounts when I said no. I knew I could have negotiated even lower if I wanted, mostly because I knew how easy it was to manage rental houses.

While negotiating lower rates can save you money, it shouldn’t be the only factor in your decision.

A Property Manager will not save you money. They are an added expense.

You will still be responsible for paying for all of the other expenses, like repairs, maintenance, rental licenses, utilities (unless the tenant pays them), real estate taxes, insurance, and so forth.

They can help with the bookkeeping and managing the process, but ultimately they are managing your money.

You are paying for the same things you would pay for if you didn’t have a property manager, except you also need to pay for the property manager.

Reasons people think they need to hire a rental property management company

You may think you need to hire a property manager if you:

• Are not handy
• Do not want to deal with tenants:
• Think it takes a lot of time to manage rental houses: It doesn’t.
• Do not know how to find a tenant: Dad is Fire is here to help. Read how to find a tenant.
• Do not know how to screen a tenant: We created a guide for how to screen a tenant.

Reasons you may actually want to hire a Rental Property Management Company

• Your rental house is out of town. If your rental house is more than an hour away, then it will be difficult to manage it yourself. This is the perfect scenario to hire someone.
• You own a lot of rental houses and have a full-time job. In this case, consider hiring someone directly and not a third party. Either way though, if you have dozens of houses and work full time you probably need help.
• You can not deal with seeing your house destroyed. This isn’t a big deal if you expect it and look at your houses like it is just numbers, bricks, and sticks. There is no reason to have hurt feelings or feel insulted when the house is left in gross condition. It’s part of the business. I wrote a guide to help: What to do when tenant destroys rental property

Why you do not need to hire a rental property manager

In general, you do not need to hire a property manager.

• You’re paying for things that are easy. Being a landlord is not difficult. There are resources (like DadisFIRE and your library) that make it easier.
• Time spent auditing their spending. The Rental Property Manager is managing your money. Do you trust them to operate in your best interests? Even if you do, will they make the same trade-off decisions that you would? Sometimes, when a faucet is broken, it makes more sense to just update the entire vanity so the bathroom is more up-to-date. Do you want them to call you every time and discuss trade-off decisions? If so, why would you hire them? Owning a rental property is a perpetual trade-off.
• You want to charge a premium for rent You can charge a premium for rent by positioning yourself as a better landlord. Can the rental property management company do that? I think this is an opportunity, but they don’t. Currently, their models are focused on bottom line and price wars with each other. They want to show you high ROI by controlling expenses.

How To Fire A Property Management Agreement

Firing a property management company can sometimes be a necessary step for landlords who are unsatisfied with the services provided. However, it’s crucial to remember that this process should be carried out professionally and in line with contractual obligations.

The key reasons for firing a property management company often include poor communication, failure to maintain properties, excessive fees, or a lack of transparency. If you find yourself dealing with these issues, it might be time to consider terminating your contract.

Before firing a property management company, it’s important to check the termination clause in your agreement. This clause will outline the procedure for ending the contract, including any required notice period, which is usually between 30 to 90 days. It’s crucial to adhere to these requirements to avoid any potential legal complications.

Next, prepare to give written notice of cancellation. This should be done professionally and clearly, outlining the reasons for termination. Some contracts may also specify how this notice should be delivered, so it’s important to follow these guidelines.

There’s also a possibility of facing some costs associated with the termination. These could include early termination fees or final service charges.

Make sure to review your contract thoroughly to understand any financial implications of your decision.

Once you’ve terminated the contract, ensure the property management company notifies your tenants about the change.

This is a crucial step to maintaining good relationships with your tenants and ensuring a smooth transition.

But more importantly, this is a great opportunity for you to reach out to your tenants. Tell them you terminated the agreement with the property manager because the tenant deserves better.

I feel strongly that being a good landlord is about customer service. It’s not about real estate.

Finally, obtain all necessary materials from the property management company. This includes keys, financial records, tenant leases, and any other relevant documents.

While firing a property management company can seem like a big deal, it’s a manageable process if approached with care and professionalism.

Always remember to respect contractual obligations and communicate effectively to ensure a smooth transition.

Bottom-line: Pros And Cons Of Property Management

I never hired someone to manage my rental houses. But everyone has a different style. Landlording is not difficult if you expect and plan for the roller coasters.

When something breaks it isn’t hard to call someone to fix it. When a house is vacant it isn’t difficult to find and screen a tenant.

Lawyers are easy to call when you need an eviction. If you want to retire early save yourself the expense of a Rental Property Manager and instead use that money to pay down mortgages.