Choosing the right property management company is crucial because it can make or break your real estate investment. Property is indeed one of the most valuable possessions you can have; thus, it needs professional and proactive management to nurture it for the long run. Undoubtedly, you would always want to ensure that your property remains in the best condition so that its value would not deteriorate.
For this reason, you need to know that property management also comes with its own set of risks and challenges. Lucky for you, this guide will help you get to know a thing or two about passive, hands-free real estate property management.
Getting started with a property management company
Get to know your market before buying a property.
When mulling over the things to consider in purchasing a property, the process can become increasingly daunting as there are indeed many things you need to take into account. For starters, one should assess that investing in real estate is a big financial decision, which should not be taken lightly.
So the question here is: how should I kickstart my journey into the property investment game? Well, the first step you can take is getting to know your market before buying a property. Let’s discuss this thoroughly.
Determine which investment type fits your plan
When looking for a property to buy, one of the essential things you need to consider first is the type of investment property you want to have. Determining which investment type fits your plan is paramount to choosing the best investment with the safest and great potential for high returns.
Whether you opt for apartments, single-family, townhomes, or properties for commercial use, identifying which of these you want allows you to plan ahead, determine its advantages and disadvantages, and discover how these property types can benefit you, as an investor, depending on your needs and goals.
Know your desirable neighbourhood.
Keep in mind that property is more than just a piece of land or building you want to invest in. One of the things you need to take a closer look at is its location for this is one of the factors that determine your return of investment over the long term.
Given that location matters, evaluate if your desired property will meet the needs of your tenants and not just your personal preferences. Assess if it has:
- Nearby amenities access
- Accessible school zone
- Access to public transportation
- Low crime rate
- Growing job market
- Reasonable property taxes
- Up-to-standard infrastructure
- Low insurance costs
Choosing the right investment property requires extensive research, and it is crucial to study up and glean the facts from as many sources as you can.
Study the cap rate.
Yes, you have already determined some of the factors you must do before investing in a property, and no doubt, you are now ready—but hey, you still need to hold your horses! Just because there are funds available for property investment, it does not mean that everything automatically translates to profit.
One of the things you need to understand is the current capitalization rates (cap rate) for a given type of property in a given area. It is critical for you to learn how to analyze your investment opportunities through the cap rate.
So, what is the cap rate? By definition, cap rate or capitalization rate refers to the return of investment or ROI of a rental property. Commonly used in real estate, the cap rate is primarily based on the net operating income or NOI that the property generates in relation to its current market value.
As an investor, you can use the cap rate calculation to analyze a certain deal or compare investment opportunities. The cap rate is generally used to compute the value of a property based on the property’s net operating income. In simple terms, you arrive at the value of the property by dividing the net operating income by the cap rate. To give you a simple example, if the net operating income of a property is $10,000 per year and the cap rate is 10%, then the value of the property would be $100,000.
Go for undervalued property or not?
When investing in one property, one thing that you also need to take into consideration is undervalued properties. They say that in property investment, you make money when you buy, not when you sell; thus, you might also opt for an undervalued property when you purchase your investment property. But is it worth investing in?
Undervalued property means that a property is being sold for less than it is worth in the market. When a property is considered undervalued, there are many possible factors that could make it undervalued. Among these are:
- The property requires repair or renovation.
- The owner is unaware of the current value of a property, making them sell it according to what they feel is worth.
- The owner needs to sell the property at the soonest time possible for a quick closing.
- The property’s cash flow is underperforming according to market standards.
Get to know property management metrics for your market.
As a landlord, entrusting your properties to a property manager is a big step. Finding and working with the right property management company can be a complex process as there are many property management services today that offer promising propositions.
So, where do you start? A question like “How much does a property management service charge?” is definitely one of the first questions that pops into your mind. You can know the answer to this by researching multiple firms to get a good idea of fair market pricing.
The first thing you’ll want to do is hit the internet and search for the phrase property management companies around your area. However, be prepared for there are around 4.5 billion search results! This can throw you into limbo but a good tip would be to get the list of the top ten local property management companies. From there, get a good grasp of their market pricing and weigh it according to your desired long-term investment goals through the following metrics below.
Initial set-up fees.
Initial set-up fees are usually a one-time fee you need to pay to set up an account with a property management company. However, not all companies charge this type of fee, but it usually is around $500 or less if they do. Initial set-up fees mostly cover the cost of property inspection and tenant transition to new management.
You can find set-up fees on your management contract.
We all heard about leasing fees multiple times, especially when we talk about property management. But what exactly are they? By definition, a leasing fee covers all the work involved in getting a property leased. This includes services like property tours, property marketing, applicant screening, and the move-in process for approved tenants. Most property managers will charge a portion of the first month’s rent as a leasing fee.
Remember that understanding the leasing fee for your preferred property management company is essential for you to know as it paints an accurate picture of what you will be paying out of pocket and pinpoint any fees that may be eligible to be waived or reduced.
The management fee is the primary fee you will pay each month. The fee covers all aspects of your property’s management, including communicating with tenants, collecting and processing rent, property inspections, coordinating repairs, and emergency maintenance calls.
Unlike leasing fees, which cover marketing your property, generating interested prospects, and conducting tours, management fees focus on maintaining your property’s condition and ensuring that your property generates income through your tenants.
Take note that the management fee is usually a percentage of the gross collected rent, but you will also find property management companies that charge a monthly flat fee.
Like any other service, property management services also have their own set of renewal fees that you might want to take a closer look at. In property management, lease renewal fees are one of the most common offers, and they come into play if you decide to work with a property management company.
Lease renewal fees are typically less than leasing fees, for it involves renewing your current tenant’s lease agreement after reviewing tenant payment history and other criteria.
With all the possible fees above, recognizing the standard services provided for each fee is also crucial. Remember that the property management company’s services play a large role in how much they charge, for everything stems from the work needed to keep your property in good condition and maximize income and value.
All you need to keep in mind is that property management companies tailor their fees according to these factors:
- Property size – Whether it is a single-family, multi-family property, or commercial property, the larger the property is, the more work and fee involved.
- Property type – Since property managers can manage all types of properties, they can also scale their fees according to the nature of your property.
- Property condition – Older properties or some newer properties might need some renovations and maintenance issues. Depending on the condition, property management companies might raise their fees for this matter.
- Location – Property managers may charge more to manage properties in an expensive neighbourhood. This means that if your property is within areas that command higher rents, fees may pull up.
- Custom-made services – There might be instances where you need a particular property management service. Some companies offer customizable services that fit your preferences; thus, the services you require will also dictate how much your fee will be.
Steps in choosing the best property management company
If you are a first-time landlord, there is a high possibility that choosing the best property management company could be a hefty task for you. While so many offer the “best service,” the question here is, how can you tell them apart when most of them have the same claims and provide the same services?
With that said, we gathered below several tips in choosing the best property management company for you to use as your guide:
Know their reputation.
This may seem tedious and old school but seriously, research is the key. To begin with, look for property management companies in your area and list them all down and then determine their reputation and success rate by checking their reviews, portfolio, or track record.
Don’t hesitate to ask for information about them. Upon choosing the right property management for you, make sure that they are also ready or available to meet when required or expected.
Verify each credential and certification.
Now that you have already done your research, the next thing you need to do is verify all the facts about each of your Potential property management companies. Those which are competent and qualified should back up their technical expertise with proper licensing and certifications. Make sure to check each of their credentials to see if a property manager’s real estate broker’s license is current.
Here are some of the training programs, certification, portfolio and reference reviews that you can take into higher account. :
- Accredited Management Organization (AMO)
- Real Property Administrator (RPA)
- The National Association of Residential Property Managers (NARPM)
- Residential Management Professional (RMP)
- Master Property Manager (MPM)
- Certified Residential Management Company (CRMC)
- Service Organization Control (SOC 1)
- Systems Maintenance Administrator (SMA)
In addition, you can also check the company’s website and interactive social platforms. A good website and social media signify that a management company is connected within the community.
Getting recommendations from friends and colleagues is another way for you to get the best property management company. What puts you at an advantage in getting recommendations is getting first-hand information about the company’s services.
You can also ask for current client and tenant references, if available. Questions like “Does the company promptly respond to inquiries?”, “Are they proactive to maintenance issues and filling vacancies?”, “Are their fees clear and transparent?” or “Do checks arrive on time?” would be helpful in your deliberation process.
Also, don’t forget to ask friends and colleagues about the price and how satisfied they were with the company’s performance.
Don’t just go for the lowest rate.
There is nothing wrong with setting a budget; however, in choosing a property management service, don’t just settle for the cheapest rate. Remember that you need to see exactly what kind of service you are getting, according to the money you will shell out. Yes, you might get the lowest property management price, but the thing here is you might not get what you expect to have.
As mentioned earlier, you need to do your research to find out the differences between the services of each company on your shortlist, for not every property management service is the same.
Schedule a meeting with the company.
Sometimes, even if the company looks legitimate on paper, there is a possibility that they are still not the right company for you. In such cases, trusting your instinct is not enough. It is still better to meet with their representatives and ask them questions about their services yourself.
It is always best to interview the property management companies one-on-one, for this will give you additional insights that may not come out over the phone. Through the meeting with them, you and the management company can clearly understand your responsibilities.
This method also gives you a glimpse about their professional side. Do they have a positive attitude, and are they attentive and able to answer your questions or do they blow off particular concerns? Questions like these can give you an impression if the company fits your preferences.
Check the agreement.
If you already picked the right property management company, agreements automatically come in to determine the responsibilities between you and them. The property management agreement delineates the management team’s tasks and responsibilities, delivered at a specific time.
Given how crucial the contract is, it is a no-brainer for you to read it carefully and make any necessary amendments before signing. Confirm that all concerns are covered and are agreeable to your end to avoid problems later on.
Furthermore, make sure your chosen company has the appropriate insurance, such as general liability insurance, property-casualty insurance, and errors and omissions (E&O) policies, which benefit your protection.
Indeed, there are a lot of things to consider when you want to hire a property management company to handle your investment property. Whether you have a single property or five buildings, the end part is that you need to make sure that they are in good hands.
Our tips here are sure to give you an idea of how you can search for the right property managers that will enable your investment to move in the right direction. Isn’t it time that your property was managed like the investment it is? Click here to contact Real Property Management Instant Equity.
Click here for our Complete Guide to Property Management.
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