As I have written before, I have a rental property about an hour from my house. It isn’t the best investment but since I used to live there with my wife, I decided not to sell it and let a tenant pay off the mortgage.
I use a property manager for this rental, partly because of the distance to my house, and partly because I don’t enjoy working on houses. You really should read my story about the 10 reasons you should use a property manager! It’s pretty funny and hopefully it will keep you from trying to manage a property from a long distance.
When I first got a property manager they were able to find a tenant within one month. Finding a tenant that fast was really a good result considering we had previously had months of vacancies. But this past month our tenant left so we were left with another vacancy!
Thankfully we didn’t have to do anything. The property manager let us know when the tenant was leaving and we didn’t have to go out there and pick up the keys and inspect everything. The property manager just let me know that the tenant had left and that it should receive a substantial cleaning.
Because the tenant was uncooperative with the property manager they took $500 from the security deposit to do a deep clean. It’s a shame that the tenant did not comply with the lease where it said to turn over the property in a clean condition. If they had done that they would have been able to keep the entire deposit. This is another reason I love property managers; I didn’t have to think about this situation at all or deal with the outgoing tenant.
I asked if the property was going to be marketed and the reply was that it most certainly was. The good thing about the way property managers are paid is that since they don’t collect a fee when the property is vacant, they are almost as motivated as me to see the property occupied again!
The downside of the way most property managers are paid is that they usually receive the first month’s rent as a finder’s fee for new tenants. The problem with that is it provides an incentive for the property manager to have tenants that stay for shorter lease terms. The shorter the term, the more opportunities there are to get that lucrative finder’s fee of one month’s rent.
This is one of the reasons you really need to find a property manager that you trust.
The great thing about our situation is that the tenant we found wants a three-year lease! We like this because we just want the stability of knowing that the condo is not going to be vacant. We make about $100 / month which is nice but we really just want to make sure our mortgage every month is covered by the rent. My wife and I were so glad to hear the news that the tenant has a stable job, a good credit score, and wants a three-year lease. This will lower the vacancy rate and the management costs.
My property manager did warn me that sometimes tenants who do a longer lease will request more updates or repairs. This turned out to be the case so I was glad for the mental preparation. Repairs are another item that you will want to carefully consider when using a property manager. One of the standard ways to make money in the property management business is to charge more for the repairs than they actually cost. I don’t have a problem with this model as long as it is a) transparent and b) not an exorbitant cost. One of the management contracts I read for another company had this arrangement all spelled out in the contract.
When I first read about it, I thought it was very shady. But then I realized they were putting it out there in black and white in the contract and telling me that this was another way for them to make money. What’s wrong with that? I don’t expect my auto mechanic to do work on my car and not make a profit. What’s wrong with a property manager using in-house resources to work on my house and make a profit on it? It doesn’t matter to me as long as it is done for a reasonable costs and it is done well. The benefit I get for not having to coordinate various contractors on different types of work and scheduling it all around the tenant is so valuable to me. I really don’t have the flexibility to do that kind of scheduling and coordination when I am at work!
So – the great news for us this month is that we have a new tenant on a three-year lease and only had to do a few moderate repairs which were needed anyway. Having a property manager makes owning rental properties so much easier!
What are your experiences using property managers?