Whenever the conversation gets around to the fact that I’m a buy and hold real estate investor, I know I’m going to get questions and comments along the lines of:
- I can’t imagine doing it, the last thing I need is for my phone to ring in the middle of the night.
- How do you deal with all of those annoying tenants?
- Renters just trash your property.
I don’t think people are trying to be negative, they have genuine concerns. I think these concerns stem from the likelihood that pretty much everyone knows of someone who became an accidental landlord — generally because they moved and were unable to sell their home — and proceeded to have a negative experience. Accidental landlords are usually setting themselves up for failure. They don’t do their due diligence and instead they fill their property with the first person willing to sign a lease. I can dive into why this can lead to a disaster another time, the point here is that these accidental landlords then share their nightmare experiences with friends. I’ve heard the stories my self.
Property Management Is Essential For True Passive Income
This blog is all about establishing passive income. There is no way I could handle the day to day work of actively managing my tenants. Simply put, there is nothing passive about dealing directly with tenants. Generally all of the nightmare scenarios from accidental landlords can be completely avoided with a good and affordable property management company.
What Is Property Management?
Simply put, a property management company comes in and takes over all of the work involved in renting a property:
- Advertising your vacant property
- Vetting potential tenants
- Sign up tenants to leases
- Collect all rents and late fees
- Handle the eviction process for a non-paying tenant
- Handle all service and maintenance requests
Additional Property Management Services
For the real passive income approach, I also have my property management company setup to perform bi-yearly home inspections. This 56-point comprehensive inspection costs $169, but that is money well spent. Since I am completely hands off, I am not regularly coming to the properties and checking out every room. The management company does this for me and immediately makes me aware of any concerns — whether the issues are caused by the tenants or not. In my experience a tenant is quick to call maintenance for a leaky roof, but when the issue stems from the tenant these often go without a call.
Cost of Property Management
Of course it is going to depend on the specific property management company, but they generally charge 10-12% of gross rents plus first months rent to fill a vacancy. The company I use charges a flat $79 a month for property. Any maintenance expenses are billed directly to me, but I don’t have to call the plumber or worst, come do it myself. Established management companies will have a large contact list of experiences electricians, plumbers, HVAC specialists and handymen.
Questions To Ask Perspective Residential Property Management Companies
When you are ready to hire a property management company, keep in mind that you are the boss. Make sure you do your due diligence on the company beforehand, because you are entrusting your property to this entity.
- Is the company quick to respond to you inquiries?
- Are your questions and concerns answered in a reasonable and professional manner?
- Do they provide a detailed accounting record for your property?
- Are they exclusively a property management company or are they a real estate brokerage that handles property management on the side?
Really take note to your communications with perspective companies. You can pretty well figure out how they will treat your tenants based on their dealings with you.
Once you find a rock star property management company, it really puts buy and hold real estate investing on cruise control.