Tuesday, July 2, 2013

Should I Use a Professional Property Manager/ (continued - post #2)

This is a continuation of a previous article discussing the various reasons why investors choose to hire a professional property manager.  Click HERE to view the original post.

In this post I will cover items #4-#7 in reasons for hiring a professional manager.

Reasons for Hiring A Professional Manager
1) Professional collections at the highest performance level
2) Access to quality, cost effective repair resources
3) Advanced marketing knowledge and expertise
4) Extensive background checks on prospective tenants
5) Comprehensive record keeping
6) Expertise in tenant relations
7) Privacy/Protection from Tenant Interaction
8) Someone to manage the process of tenant acquisition so I can focus on my personal life
9) Someone to provide a quality lease which protects my interests
10) Someone who will stay current on laws which cover the Landlord/Tenant relationship
11) 24-hour live support for tenant emergencies
12) Expert advice on when to raise rents
13) Expertise in tenant retention
14) Expert advice on making effective repairs decisions

Here are details on items #4 - $7.  I will tackle future items in later posts.

4) Extensive background checks on prospective tenants.  A professional property manager should have access to and provide you an extensive background check.  The four main areas are 1) a verification of a tenant's income, 2) an analysis of a credit history, 3) a comprehensive criminal history check and 4) a verification of rental history.  To summarize, you want to understand if the tenant has the ability to pay their rent, a history of paying their bills, you want to be sure your tenant is not someone with a history of breaking laws (especially felonies or sex crimes) and if they have any derogatory rental activities.  It may seem obvious that it is desirable to know these things before you make a decision about letting someone rent your home, but it is amazing how many landlords agree to rent to person based on their initial meeting of the person and their 'gut feelings" about this person.  I am sure that most of the people who gave their assets to Bernie Madoff had good "gut feelings" about Bernie.  All I am asking is that if you trust your feelings, back it up with a verification of available information.

Having all this information available is a key to making a decision which allows you to be a happy landlord and allows you to have a happy tenant.  This background information is used to decide when you may want to require an additional deposit to offset risk, and sometimes this additional deposit is the key to motivating a tenant to follow the rules and pay their rent on time and in full.  If someone has been challenged to pay their bills on time, the extra deposit you collect allows someone a second chance to improve their credit habits and the motivation to follow through.  ONEprop's data shows that a tenant with poor credit and an extra deposit is more likely to fulfill the terms of the lease than a person with good credit and a normal deposit.  One of the other advantages to having a professional property manager collect this data is that they can help you understand the risks and coach you through right decisions based on many more data points than you may have as an individual landlord.  ONEprop puts over 1,000 tenants in homes each year and sees how this background information collected can be used to forecast their success potential as a tenant.

5) Comprehensive record keeping.  This is one of the most overlooked advantages of using a professional property manager.  The time and effort involved in receiving rent, posting rent, paying bills on your behalf and organizing all the income and expenses in an easy to use report is extensive.  This alone is probably worth the total cost of what you pay for a manager's services.  If you do all this yourself, you are going to spend 2-4 hours each month on these tasks.  Wouldn't it be better to spend this time growing your own business or career and/or spending this time with family or friends.  Most of our clients spend about 5-10 minutes each month reviewing their reports and their funds are automatically deposited into their checking account.  At the end of the year an annual report of income and expenses, organized with summary totals is presented so you can easily prepare your taxes.  An income producing asset provides the landlord with many tax deductions, do you really want to be collecting these receipts, organizing them by hand or in an electronic accounting package and risk missing an entry or losing a receipt?  If you ever get audited it is great to be able to provide a professionally prepared report of all income and expenses, all at the click of a button.  Everyone has enough stress in their life, this is an easy way to relieve the stress in a cost effective manner with many, many additonal advantages.

6) Expertise in tenant relations.  A typical ONEprop manager is dealing with about 200-300 active tenants and about 1/3 of these are new tenants each year.  This experience allows them to become experts in dealing with the different personalities who are tenants.  A mismatch with a landlord and tenant personality can make the experience miserable for an owner or a tenant, and the time and effort involved in dealing with a mismatch can ruin the financial benefit of being a landlord.  A professional manager also has the advantage of staying up on the legal aspects which affect the landlord/tenant relationship.  So this is not just a case of dealing with different personalities, it is also protecting you from becoming embroiled in a situation where a change in the laws creates a tension when a tenant is more attuned to your legal responsibilities the you are.  A professional manager is skilled at bringing a tenant into a home and coaching them into being a good tenant, making for a better situation for all.

7) Privacy/Protection from Tenant Interaction.  This is the primary reason why someone who "self manages" their rental properties moves to professional management.  Professional management allows you to have the benefits of owning income real estate without the direct, personal interactions.  Tenants don't have to know who you are, where you live, where you bank.  As I discussed in the rent collection comments, you can still be nice to your tenants and do nice things for them, but you get to control the situation on your terms.  You are not getting calls from tenants at odd hours or strange requests.  The lease you use should require the tenant to use your manager for all communication, this way you can focus on your business and enjoying your life while your manager handles your tenant interactions.

I hope this information is helpful in outlining the potential upside to partnering with a professional property manager.  In my next post I will provide detail on the next set of criteria, items 8-11.  If you would like to talk to someone now - please contact mgmtservices@oneprop.com and someone will discuss these and any other questions you may have about professional property management so you can decide if this is right for you.

No comments: