It's a question I hear quite often so I thought I should address it.
Starting with the basics... what's the goal of investing in real estate? It boils down to securing an additional income stream. Clearly, there are risks involved, as there are with any investment. So, the only reason we should do it is if we can reasonably believe it will provide us with more income... and a source of income that has historically been pretty secure (as long as we do it right). Unfortunately, like many investments, if we do it wrong, there can be substantial losses involved. Ugh! I knew there was a catch!
Okay, so what does it mean to "do it right?" Well, a few basic things that actually cover a lot.
- Follow the numbers
- Follow the rules
- Manage expectations
Following the numbers starts before you invest. You need to make sure your investment makes financial sense from the start. We'll assume that you've already covered this part, since you're already a property owner and you're wondering about hiring a property manager. Alright then, you also need to make sure you have enough cash set aside to handle emergencies. Unfortunately, our imperfect world catches up with us from time to time and they do happen. But don't worry; with proper planning and a well-designed maintenance program, we can minimize those expensive occurrences. Hey! That brings me to my first reason for hiring a property manager! Professional property managers have this covered and they do it in a way that promotes the longevity of the asset as well... so that equals fewer emergencies on a well-maintained asset that can continue generating income over the long term. Nice! Right? And it doesn't stop there. The "numbers" also involve staying current with the rental market. Many private landlords fall behind on rents because they don't keep up with their rental markets. Sadly, this is an often unseen and unrecoverable loss. A professional property manager maintains a keen awareness of the local rental markets and knows when to raise rents and what property conditions, characteristics, and decor lead to the highest rents. Further, they also know what is "too much" for a given area such that the additional expense is unlikely to yield additional income. Clearly, this is valuable information to have at your disposal when you're renting a property.
Now for the "rules." Oh, the rules... so many rules! There are a lot of laws and regulations that must be followed when you're renting real estate. And while they often create burdens for good landlords, it's worth noting they were designed to try to protect tenants from unscrupulous landlords (which still do exist in many areas). What this means is that, because of the unfortunate actions of a few bad apples, the costs associated with violating the rules can be pretty high. This could easily reduce or eliminate the income on which we were counting from our properties. So, what are these "rules?" Wow! It seems like an almost endless list, but it involves:
Security deposits, notifications, maintenance, lease structure (what's allowed; what's not; and what's nice to have to protect the owner), inspections and property access, home safety, rent increases, rent court documentation, subsidizing agency rules (that's a whole other topic by itself... whew! But we have you covered by clicking here )... the list just goes on and on. And in many jurisdictions (Maryland included), each violation of these rules can lead to stiff financial penalties that can add up to huge losses. You need someone on your side who not only knows the rules but has processes in place to ensure they are followed. In short, it's a good idea to have a professional property manager working for you.
So what can you expect from a property manager? Well, as I mentioned above, you can and should expect a good plan for the numbers and a good plan for the rules. You can also expect your property manager to hold your tenants accountable for following the rules on their side as well. But, unfortunately, those "endless rules" also cover the relationship between the landlord (or property manager) and the tenant. So, there are legal and practical limitations on the enforcement of rules on tenants including specified processes that must be followed. I often get asked by owners, "Why don't you just do this...?" and I must explain that doing so is a violation of the law (you know, those "endless" rules I mentioned above) and would be more costly than following the defined legal process (which, unfortunately, almost always takes longer... Ugh!). So, it's important to know that, while property managers are not miracle workers and cannot solve every problem, they are trained professionals who understand the business and can help you navigate the pitfalls and market changes in a cost-effective way.
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