Property management is an invaluable tool for an owner. From the onset of the decision to purchase an income property or a decision to not sell and rent a property; owners sign up for the management of a tenant or occupant. Owning a rental property can be a very positive experience. It can also be a very negative experience. It really depends on ownership's management strategy.
Lets talk about some of the pitfalls and negative consequences of owning and self-managing real estate. The benefits are typically more in focus and easier to handle. Owners can develop a personal relationship where there should be a business relationship. This can really cut into your profits. Did the owner want a personal relationship or did the owner start off wanting an investment? Of course the owner doesn't own the property for a personal relationship! The owner wants their investment to pan out. Lets face it. You never know what expectations the tenant a.k.a. the general public will have of the landlord when they move-in. I have received phone calls requesting light bulbs to be changed, HVAC ducts to be cleaned, to scrape off the white dot on the burner of the stove, requests to determine what "that smell is," to come and get the bird that's flying around the unit out of the unit and, on and on. These requests are real. The hard part is breaking the bad news to the tenant. These items are tenants responsibilities. They do not fall under the umbrella of landlord responsibilities according to most leases. Landlords have to say no! Bottom line, you tell someone "no" and they are typically dissatisfied because they may truly believe its not their fault the odor exists, the bird flew into their unit, the white dot on the stove is theirs and the costs of lightbulbs are not equipment and maintenance items. Sheesh! Are the tenants unreasonable? We think not. They are typically misinformed. So lets get back to that personal vs. business relationship. Typically, the management tenant relationship is eroded over time one way or another. If you have a personal relationship with your tenant and one too many long conversations saying no may be difficult. Owners want to maintain a positive relationship by offering good-will but these instances cut into the bottom-line. Maybe the tenant created a plumbing problem, owner may step in and pay. Now the bill comes, that's $300 or more the owner won't see again. What if the owner goes and makes the repair on their own? Assuming everything goes well, that's valuable time the owner won't be getting back. The only thing it can do is strengthen that personal relationship thus opening ownership up to additional cuts to profit (remember, this was supposed to be an investment.) So lets say the owner gets away unscathed with minimal costs. The tenant should have still been responsible for the costs and the owner should not have had to get involved. Now, repeat this situation every 6-8weeks. That's right, lets say the situation has become recurring. Owner paid the first time. The precedent has been set! What does ownership do? Probably tell the tenant to stop clogging the drain or they will have to pay the costs of the plumber! Well, how much does the owner cost? Nothing! Maybe the owner will say the dreaded "no." That could be bad! Now owner goes from nice guy or gal to the jerk who just can't get the plumbing straightened out. There goes that personal relationship along with an erosion of the business relationship ownership should have maintained. The tenant should have been held accountable from the start. Typically, damages beyond normal wear and tear are not the landlord's responsibility. From time to time, owners may step in if necessary to preserve the property (that's just smart management,) but really need to rely on the underlying business agreement (lease) to determine responsibility. Owners are smart enough to deal with this and figure it out. So lets assume this is a house. How much would the management be? Typically between 7-10% of the monthly rent. Not much. If the property were managed professionally, the owner could probably save that amount on the repair using management's existing contractor relationships. The low fee also stops many of the calls and keeps the relationship on the business side of the street. If owner lives locally, they don't have to bump into the tenant at the store or when their out to dinner. Imagine getting all dressed up and heading out to dinner just to encounter your tenant who alerts you to problems with that plumbing job. Just a hire a manager, while your at dinner, your issues are being resolved. Responsibilities are placed where they should be. Many owners never actually meet their tenants. They have a liaison -the property manager to work with. Preserve your bottom line and your sanity while enjoying the financial benefits of your investment. To be continued. . .
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