Why Managing Your Own Income Properties…is Risky Business
Surprisingly, managing your own income properties is an area where many investor-owners go astray; and can unwittingly ruin what could have been a profitable enterprise. Reality checks are critical in the real estate business, and this is an especially important one you should apply sooner than later:
“Just because you buy and hold, invest and negotiate, wholesale and retail real estate doesn’t make you automatically proficient in property management – or accounting and online marketing for that matter.”
The value of support is a lesson entrepreneurs tend to overlook – after all, they’re used to being all things in any situation. But in real estate, you don’t want to learn the hard way – that it does, in fact, take a village. It may be a small village, but you need one nevertheless. Do what you do best, and let others do what they do; your time is valuable, and without backup you’re treading water.
If you’re thinking you can’t afford having someone else mind your rentals – think again. Unless you personally have a strong property management background, you can’t afford NOT to use a professional Property Manager.
Property Managers are Worth Their Weight
Property Managers know their neighborhoods, and have their fingers on the pulse of this target market. They have access to tools that you don’t, have experience in diplomatically handling situations which might send you over the edge, and (if they are worth their salt) are experts at bringing in great tenants and keeping them. They only use licensed vendors and contractors who insure their work, and should regularly drive by the property even when it’s occupied. It’s not just their job to keep the rents flowing in, they are obligated to make sure your investment is maintained so it holds its value.
Property Managers will Keep You Honest
Local laws dictate the responsibility of a landlord within the specific jurisdiction. You can’t just write up a lease agreement from a template on the Internet and expect it to protect you and check all the boxes, and you definitely can’t use the same contract in different localities. There are Federal laws, state laws and even regulations unique to certain municipalities that may come into play. What you do with a property you live in is one thing, while renting it out is something entirely different. You would be amazed at the lines you can cross with the best of intentions.
Property Managers are Legally Accountable
Property management is a specialty unto itself; and it comes with its own laundry list of liabilities. In fact, it’s so risky that real estate schools repeatedly warn soon-to-be agents not to go into this profession in the first place. Why would they do that, you may ask? Well, there’s a host of legalities, technicalities, record-keeping and proper money handling involved; not to mention strict adherence to the tenant rights defined by individual state laws, Federal statutes and even the Constitution. Managing your own income properties without this kind of expertise can take you way out on a limb, or dragged into court, without a net.
Out of Sight, Out of Mind Doesn’t Work
If you’re an out-of-state owner, you have even more reason to use local Property Managers (ideally those within a licensed real estate brokerage). A Broker is legally responsible for overseeing their agents and won’t just allow any agent to manage a client’s properties. Why not? Because rents must be kept handled carefully and security deposits kept in trust accounts – with strict adherence to statutes set down by the region’s real estate authority and other government agencies. Any person managing client properties at a brokerage must be additionally licensed in property management. Some states do not require Property Managers to have a real estate license, but as you can see, it’s your best case scenario to hire someone with both certifications.
Property Managers Go to Bat for You
One distinguishing feature of professional property management is that it provides separation between tenants and owners. There’s a few reasons this is a good thing. Dealing directly with the occupants of your rental is like putting buyers and sellers in the same room without representation, things can go south, quickly; essentially they help protect you from yourself. Additionally, the contract is between the property management firm and the tenant – as a result, your name and any peripheral business dealings aren’t openly connected to the rentals.
Rethink Setting Up Multiple Branches
Some investors create a headquarters in the city in which they live, with branches in areas proximate to their buy-and-hold or rent-to-own income properties. On the one hand, localized administrators may cut down on corporate paperwork. On the other, managing your own income properties from afar can be the source of repetitive problems that – when not dealt with properly – can tarnish your company’s reputation and potentially pull it into multiple lawsuits.
Because most states do allow you to manage a property that you own doesn’t make it a great idea; think long and hard about this option. If your business model is more about ROI and cash flow than it is about service, you’ll soon find tenants going through your rentals like a turnstile and plenty of bad social media reviews that may eventually sink your reputation in the local market.