Pros and Cons of Engaging a Property Management Company for Your First Rental Property

Managing a rental property can be a significant undertaking, especially if it's your first time. Many property owners opt for professional management to ensure their investment is protected and managed efficiently. Here, we explore the pros and cons of using a property management company.

Pros of Using a Property Management Company

Saving Time and Effort: One of the most significant advantages of hiring a property management company is that it allows you to save time. Instead of handling all the administrative tasks, legal compliance, and tenant relations yourself, a professional property manager can take care of these responsibilities. This can be particularly beneficial for individuals who are new to property management or those who have other obligations that prevent them from handling these tasks themselves.

Professional Tenant Management: Experienced property managers have the expertise to handle common day-to-day issues that may arise, such as conflicts between tenants, maintenance needs, and compliance with local regulations. Their experience can help keep your property running smoothly and reduce the stress associated with managing renters.

Potentially Reduced Vacancy Periods: A well-managed property is likely to maintain a steady stream of tenants, which can lead to fewer vacancy periods. This factor is crucial as vacancy periods can significantly reduce your returns on investment.

Improved Legal Compliance and Profits: Property managers understand the intricacies of rental laws and regulations. By ensuring that your property is compliant, they can help you protect your investments and avoid penalties or legal issues. Additionally, a professional manager can help you maximize your profits through effective rent pricing and marketing strategies.

Tenant Retention: Good tenant retention is key to the success of any rental property. A property manager can implement strategies to maintain positive relationships with your tenants, reducing the likelihood of vacancies and maintaining a stable income stream.

Cons of Using a Property Management Company

Management Fees: The most obvious disadvantage is the cost. Property management companies typically charge a percentage of the rent collected, usually between 10% and 12%. This can reduce your overall profit margins, making it an important consideration when calculating the financial feasibility of your rental property investment.

Direct Control Over Property Decisions: By hiring a property manager, you may be relinquishing some control over property decisions. While this can be beneficial in many ways, it's crucial to find a manager who trusts and respects your input. You should carefully choose a manager who aligns with your vision and goals.

Varying Service Quality: Not all property management companies are created equal. The quality of service can vary greatly depending on the company and individual manager. Therefore, it's essential to conduct thorough research and vet potential managers to ensure you get the best service possible. Poor service can lead to higher vacancy rates, tenant turnover, and additional stress.

Using Property Management Software as a Compromise

A good compromise for those who wish to retain some level of control while still leveraging professional expertise is to use property management software. Tools like DoorLoop, Entrata, and Innago can help semi- or fully automate many property management processes. These platforms can reduce the need for high management fees and allow you to maintain a degree of control over your business without fully relinquishing it to a third party.

Property management software typically offers features such as:

Automated rent collection and reminders Credit and background checks for potential tenants Online lease management and contract management Property maintenance and repair tracking Calendar management for appointments and tasks Marketing and advertising tools

By using such software, you can reduce your dependence on a property management company while still benefiting from expert advice and support. You can also choose to toggle between manual and automated processes based on your specific needs.

Conclusion

Ultimately, the decision to engage a property management company for your first rental property should be based on a careful assessment of your needs, budget, and comfort level. While there are clear advantages to professional management, including cost-efficiency and experience, there are also potential drawbacks, such as increased costs and reduced control.

Consider the role of a property manager, who essentially handles all the work for the landlord. This includes:

Paying bills Organizing contractors Paying taxes House inspections Getting new renters Collecting and chasing up rent Organizing legal contracts

Realize that a property manager must be paid, and they will take 10–12% off the top of the rent. While they may work harder on the property, no one will care more about it than you unless you are willing to let go of control. Weigh the potential benefits and drawbacks carefully to make an informed decision that aligns with your goals and financial situation.