Manage Your Own Rental or Hire a Property Manager?
So you’re thinking about buying an investment property. The best case scenario is that the monthly rent covers the cost of your mortgage and other expenses, and puts some money in your pocket every month (making the investment cash flow positive). Some of the standard costs to consider with any rental property include:
- Mortgage Payments: Keep in mind that the higher your down payment, the lower your monthly mortgage payments will be, which means you have a much better chance at being cash flow positive with a high down payment.
- Strata Fees: Monthly maintenance fees for condos.
- Landlord Insurance: You will still need landlord insurance (and vacant insurance if the unit sits empty) to cover any potential problems. Ensure that the tenant has their own insurance as well.
- Property Taxes: Payable twice a year.
- Utilities: You can have your tenant cover utilities.
- Taxes: If this rental is a source of income, you’ll have to plan to pay taxes on your profit.
You will also have to plan for special levies, repair/maintenance to the property and vacancy, all of which can come up at any time.
The other big decision to consider is how to manage the property. You have two options when it comes to managing the rental:
1. Manage the property yourself, which entails finding new tenants, answering tenant inquiries, organizing repairs, collecting rent, ensuring the tenant follows building rules, educating yourself on landlord-tenant laws, etc.
2. Use the services of a property manager, which entails paying the property manager an initial monthly fee then a portion of the rent so that they take care of every other aspect of the rental on your behalf.
Hiring a Property Manager
There are many factors that go into deciding to hire a property manager. The biggest reason why people hire a property manager is that they aren’t in town to handle the rental personally, and make the very smart decision to have a trusted professional handle every aspect of the rental. Hiring a property manager is also a good idea if you don’t have the time to deal with tenants (perhaps you travel a lot of work?) or a lack of knowledge when it comes to property maintenance and landlord-tenant relationships.
In order to hire a property manager, you need to do some research. You are looking to develop a long term, trustworthy relationship with an individual who will manage one of your largest investments. First things first, ask for any referrals. Your realtor should have a very good reference available to you, and if they haven’t worked with property managers in the past, some of their fellow realtors likely have. Otherwise, ask friends, family or coworkers for recommendations, and do a google search for qualified licensed persons. Second, interview multiple agents to get a sense of how they work, what they offer (including marketing), their price structure, their contracts and their knowledge of landlord-tenant relationships.
Every property manager may have different pricing structures, but here is a fairly standard example:
- Initial Property Management Fee: 50% of the First Months Rent
- This should cover tenant placement services, marketing, move in inspections, and more.
- Monthly Fee: 6% of the Monthly Rent (Double for Furnished Properties)
- This should cover rent collection, emergency on-call, rental increase, lease renewals, inspections, strata issues, repairs and more.