Many people end up becoming landlords through varying means, intentionally or unintentionally, and then must decide if outsourcing management is appropriate for them. Sometimes people become landlords because they want to invest in an asset; perhaps to vary their investment portfolio. Sometimes it is because they cannot liquidate their home at a profit and discover rental income will pay the mortgage for them. Outsourcing happens when a person hires another to complete a task, one they are required to accomplish. For instance, a CPA to complete taxes or a maid service to clean a home. Regardless, many people who become landlords (owners of rental property) will end up outsourcing to a property management company to deal with the day-to-day tasks involved. Some people intend to outsource from the outset, while others end up deciding to do so later. For instance, some people find they do not enjoy dealing with management issues; whereas some grow their portfolios beyond their individual capabilities. Even though outsourcing management is an added expense, it can still be financially wise to do so. Property management companies often can leverage their volume against the price of expenses, thereby offsetting some of the cost of management for the owner. Landlords should consider the benefits of outsourcing; some of the strongest reasons are challenging legal issues, maintenance and repair considerations, and the freedom of time and vicinity.
Landlords must take many legal issues into consideration as they deal with leasing a property. Complicated, evolving laws can be quite a challenge for an individual to manage, both because of the expense and the time involved. The compulsion to use professional management because of these issues has been observed:
Given the legislative complexities, it has become a necessity in this day and age to employ the services of a credible rental agent to assist with managing your property and its occupancy. This includes navigating what has become a bit of a minefield of legislative issues, vetting of the tenants, collecting monthly rentals, managing the property including any maintenance issues and more. (Seeff)
Landlords working with minimal properties can see legal expenses exceed budgets. This is where professional managers have value, since they deal with these issues on a frequent basis they tend to have preferred providers that do quality work at good prices. The majority of these legal issues, such as tenant screenings, lease contracts, and notices, should be included in the regular service fee. Additionally, the issues that are not included can be handled by the manager and legal team. Usually, professional managers are able to obtain better rates by leveraging the volume of business they have.
Another compelling reason for many landlords to outsource is the multitude of considerations that go into maintenance and repairs. If landlords do not have the time or the ability to handle a broad range of maintenance and repair troubles, they must hire skilled assistance to handle the tasks they cannot perform. When it comes to hiring out maintenance or repairs, it is obvious that a person will need quality work done at a good price. The end result of hiring out different types of issues is a long list of vendors, and if any of them leave the industry, a good replacement must be found quickly. According to data accumulated by Buildium, a large software company for rental property systems, “Maintenance and tenant management are the two main pain points that rental property owners need property managers to solve. 62 percent of respondents reported maintenance as the biggest stressor.” (“Survey Finds”) This information indicates that maintenance and repair issues are not easily handled by the average landlord. Skilled property managers have leverage that most owners do not. They can create competition by having vendors bid against each other for work on multiple properties, thereby driving down prices for higher quality work. Should one vendor leave the market, other aspiring businesses can then compete to get on the vendor list. When these discounts are passed through to the landlord they help offset the price of professional management.
The grandest effects of outsourcing property management are freedom of time and proximity. From the perspective of a financial planner, Korn says, “the choice seems to be between giving up time to manage their property and giving up 6% to 10% of top- line income to a management company.” So, even if the price of management is not completely countered by vendor savings, the value of time saved could make management the financially wiser decision. Likewise, the freedom of proximity means a landlord is not required to constantly be close to the property because the manager can meet the needs of the tenants. Correspondingly, Korn notes, “long-distance landlords definitely need local property management.” These side effects, of time savings and freedom of movement, can be utilized by landlords in a variety of ways: investing in better markets, dedicating more time to finding and analyzing new deals, or even being able to vacation more regularly.
While outsourcing is not appropriate in every situation, property management clearly must be considered for the potentially valuable benefits it offers. Legal issues have an impact on nearly every aspect of rental properties and not addressing these issues properly can expose landlords to serious liabilities. Maintenance and repair expenses come in various forms, and effective property managers can navigate the different options to a cost-effective solution. Competent landlords can overcome these issues, provided they can dedicate enough time and are physically present to deal with them. However, if landlords value their freedom of time and location, then outsourcing property management to handle complex legal issues, maintenance, and repairs is a viable and credible option.
Korn, Donald Jay. “Property Rites: When Clients Want to be Landlords, Planners Need to Talk About the Nuisances as Well as the Numbers.” Financial Planning, 2005, pp. 121-126
Seeff, Samuel. “Pitfalls and Complexities of Investing in Rental Property.” Bizcommunity.com, 2016
“Survey Finds Majority of Rental Property Owners Use a Property Manager, With Rates Expected to Rise in 2016.” Business Wire, 2016