In two previous posts, Before Buying a Rental Property - Do You Need a Property Management Company? and You Already Own Rental Properties - Do You Need a Property Management Company?, we discussed important questions regarding property management for both prospective and current rental property owners. This post addresses some legal and financial considerations that will apply to either group.
Do you feel comfortable handling the record keeping and accounting for your property?
Keeping accurate and comprehensive financial records for your property is absolutely essential, allowing you to track the profitability of your investment and save money on your taxes. If you have a background in finance, or have done record keeping and accounting for other businesses, you may find this relatively easy. But if not, record keeping and accounting can become a major source of stress. Some owners hire an accountant to assist with bookkeeping, but this still requires the owner to collect and track all the relevant information. A property management company will keep detailed records and handle the accounting of your property efficiently and effectively.
Will you be willing to confront tenants about late payments, and if necessary evict them?
Often new property owners are too lenient when it comes to late payments, not wanting to the be the bad guy. Unfortunately, this can lead to situations where tenants feel they can take advantage of the owner's generosity, and late payments become a chronic thing. It's important to deal with late payments immediately, and sometimes this requires being confrontational with tenants. A single late payment from an otherwise good tenant rarely needs to become a serious confrontation, but tenants who regularly pay late may need to be evicted. You'll need to be both willing to deal with the uncomfortable situation of evicting someone, and know the laws regarding eviction in your area - unless you work with a management company that will handle these situations for you.
How well do you understand the laws regarding tenants and landlords?
Every state has different laws regarding rental properties, and tenants and landlords have different rights and requirements. It's essential to operate your property in accordance with all of these laws, both to prevent lawsuits and protect yourself from liability in the event of a lawsuit. You'll also need to be familiar with contracts and legal language, as your lease or rental agreement is generally the only legally binding agreement between you and you tenants. A property management company will know the ins and outs of all the laws in your area, and have extensive experience with writing effective, enforceable rental agreements.
Is managing properties yourself really saving you money?
At first glance, managing properties yourself seems like an easy way to save some money. But consider the time and resources you'll need to dedicate to management, and the potential costs involved if you end up making some mistakes. You may end up making more than enough to cover the cost of a management company by dedicating your time to your professional area of expertise, rather than spending it managing your properties. And small costs like longer periods of vacancy can add up over the life of a property investment, not to mention the major cost of a serious problem like a lawsuit. Having a management company run your properties will not only save a great deal of stress and time, but it may end up saving you money in the long run.