Pros and Cons of Property Management Companies

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Owning investment property is one of the best ways to create residual income, build up a financial portfolio, and increase overall assets. One of the first decisions you will face is to decide to manage your rental on your own, or hire a property management company. Before you decide, consider these pros and cons.

The Disadvantages

The only disadvantage to retaining a property management company is its effect on your profit margin. The average company will require the first month's rent as its first payment and then 8% to 10% of each month's rent after that. This first month's payment requirement covers their expense for any advertising, showing the property, processing an applicant, credit administrative costs, and other general expenses that come with setting up a new account. If your goal is to have the tenant pay your mortgage with the rent, you will need to factor in the costs of the management company to determine feasibility.

The Advantages

The advantages of using a management company far outweigh the disadvantages. Even if the numbers don't quite work and you determine you may be supplementing costs to the management company to keep your rental property, it is still a great value.

Property managers are up to date on state and federal rules and regulations with respect to tenant/landlord requirements and responsibilities. You won't risk a "violation" putting your property and finances at risk by not knowing these requirements.

Property managers will establish the current market rental rate for your property. The rental market is a fluid market. Rates can change from month to month and though you will have a set contract usually for the first year, the company will be able to assess the rents at the end of each contract to ensure you are getting the highest rent possible based on real estate markers

Property managers will do all the communication for you with the tenant. That includes the interview process and managing any complaints or emergencies that may arise day or night. There is nothing worse than having to respond to a tenant at 3:00 a.m.

Property management companies will find the best tenants. It's not only frustrating but financial suicide to allow an irresponsible tenant into a unit. A quality company has developed a process of screening out risky tenants to ensure a steady monthly income on your property as expected.

Property management companies have connections. If your property has written in maintenance agreements, such as lawn care and gutter cleaning, management companies can refer service companies at discounted prices. Due to the volume of these service providers as they work in connection with the company, they can pass on some savings to you. Their reputation and dependability has already been tested through the management company so you can rest easy knowing they will get the job down without your supervision.

Property managers handle the transitions of a tenant moving out and another moving in. That includes walk-through inspections, security deposits, and new applications.