Property Management Services Explained

Many real estate investors stay away from professional property managers because they don’t understand the services that they provide and the fees that they charge. Still, hiring a manager can be an excellent way to invest passively and grow your portfolio faster than by being a DIY landlord.

In this article, we’ll have property management services explained and outlined in a way that’s understandable even for beginners. We’ll provide a breakdown of all possible services that a property manager might cover, grouped in a few separate categories. We’ll explain the pricing of services and what makes sense and what doesn’t make sense in the US rental industry. Last but not least, we’ll provide you with the criteria you should use to choose the best property management company for your specific needs.

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Property Management Services Covered

To get the standard property management services explained, we’ll start with a comprehensive list of all imaginable things that a professional property manager might do. This does not mean that all companies provide all these services.

For your convenience, we’ve grouped individual services into a few major types:

Preparing Properties for Leasing

Some but not all property management companies help landlords get their rentals ready for tenants through the following:

Initial Inspection

During onboarding, a property manager needs to do a property walkthrough to evaluate if the property is ready to welcome renters. They should check both the interior and exterior in case of a single-family home or a townhouse. They need to look at the paint, the utilities, the smart home systems, the locks, the safety devices, and the furniture (if available).

The property inspection should conclude with a report that provides a detailed breakdown of necessary repairs, the expected cost, and the required timeline. This should be given to the property owner.

Fixes and Repairs

Some companies will take care of small-scale works needed to get the property in an optimal condition. This refers to minor electrical fixes, plumbing issues, repainting, and changing light bulbs and batteries.

For bigger repairs, they can reach out to their network of vetted local contractors, get quotes, and supervise the work.

Renovations

Relatively few property management companies offer large-scale home renovation projects, but it is still a possibility. This entails work that will take a few weeks to complete and that will require a sizable budget. However, such projects have the potential to increase the value of the property, attract better-quality tenants, and charge higher rent.

Furnishing

Property managers might help with the furnishing of long-term furnished apartments though this is not a common practice in the US market. Some have in-house teams of interior designers, while others can recommend local experts. Furnishing your property in line with local trends will enhance occupancy and boost income.

The property manager might be able to coordinate the purchase, delivery, and assembly of all the furniture. This will help reduce the cost to furnish your house as they benefit from discounted prices at local furniture retailers.

Landlord Insurance

Many property managers partner with the best landlord insurance companies like Obie, providing their investor customers with preferential rates. Having landlord insurance is a must in order to protect your investment property from damage and yourself and your property manager from liability. A homeowners insurance or a renters insurance cannot replace rental property insurance.

Getting and Keeping Rentals Occupied

Once a property is ready to be rented, the property manager needs to place the best possible tenants into it. This necessitates:

Rental Pricing

How much you charge for rent determines profitability. Too high of a rent will push away potential tenants and keep the property vacant. Too low of a rental rate will leave money on the table.

Thus, the best property management companies conduct competitive rental market analysis and have access to comprehensive real estate and rental data to figure out the most appropriate rental rate for each individual property. This needs to take into account local rental supply and demand as well as the specific characteristics of the property including the exact location, the condition, the type, the size, the number of rooms, the amenities, and the extras. The rental price needs to be based on rental comps, or comparable rental listings in the area.

Property Listing

Another major part of getting a property inhibited is to list it for rent. This means taking professional-quality photos of both the inside and the outside, highlighting all the most important features. It also entails coming up with an attractive listing title and detailed property description with the right keywords to rank high in online searches and grab the attention of potential tenants.

Rental listings need to be optimized for SEO and for human renters. They should be published on the website of the property management company and on other national and local rental websites including syndication on the MLS.

Marketing and Advertising

Property management services should include a mix of online and offline strategies to market and advertise available rental listings. Online techniques include content marketing, social media, email marketing, and paid ads on Google, Facebook, and Instagram. Offline practices can include flyers and brochures as well as word of mouth marketing.

Tenant Applications

The property manager is responsible for preparing the rental applications, distributing them along with the property listing, and collecting filled in applications. Then, they need to review them to find out the best possible renters without any discrimination on the basis of race, gender, religion, or anything else. Discrimination is strictly prohibited across the US rental market and can bring serious legal consequences.

Tenant Screening

Tenant applicants need to be carefully screened to check if they qualify. Property managers might have their own tools and processes or might resort to third-party online platforms.

The tenant screening process should include credit history and score, employment history, income verification, criminal background check, and rental history. In addition to online checks, some companies also ask for references from landlords and employers and even talk to them.

This step aims to ensure that the tenant will have the financial stability to afford to pay rent on time, will maintain the property in a good condition, and will not commit any crimes while on the property.

Rental Lease Agreements

Property management services also include preparing a copy of a lease agreement to be signed by the tenant and the property manager on behalf of the property owner. This agreement should not be generic but reflect all applicable local regulations and legislations.

The lease should clearly outline the rights and responsibilities of all parties involved and all necessary fees and deadlines. It should be fully compatible with the local rental laws. The agreement needs to be signed by both parties before the renter moves in.

Tenant Move-In

New renters should be provided with everything required for a smooth move-in process. This includes keys to the property, all relevant passwords, and guidelines on how to use available devices and appliances. Recent trends call for virtual onboarding property tours rather than more traditional printed materials.

Lease Renewals

Property managers are responsible for renewing rental agreements with good tenants on time. This is a must to boost the occupancy rate and avoid unnecessary vacancies.

Lease Terminations

Meanwhile, rental contracts with poor-quality tenants might need to be terminated early in case there is a legal basis for this. It is better to cancel a lease and start looking for a new renter rather than to suffer from ongoing late rent payments or excessive property damage.

Evictions

Unfortunately, evictions sometimes happen, and property managers take care of the legal procedures at court. They know when to file for an eviction and how to go through one in the least painful way. Some of them have eviction protection programs where they cover the legal fees (up to a certain amount) for tenants placed by them.

Tenant Management and Support

Another group of property management services includes those related to meeting the needs of tenants and making sure that they are happy with the rental property and the experience they get. This includes:

Tenant Communication

Property managers need to be available to respond to any questions from potential and current renters right away, preferably within a few minutes. Moreover, all questions and requests need to be handled with care, enough detail, and proper follow-up.

Communication with renters needs to be proactive too. It’s a good idea to check up on tenants once in a while, and it’s a must to give them enough advance notice of any upcoming changes, especially those related to property upkeep, rental rates, and lease terms.

Most property managers use online platforms to keep communication organized. Tenants should be able to get in touch with the manager via a desktop, a mobile app, or phone.

Tenant Support

Property management companies need to take care of all (reasonable) tenant requests and needs. This should be done in a timely manner and with enough attention to detail. Otherwise, renters will not renew their lease, resulting in vacancies and lack of rental income.

Rent Collection

Rent collection is done online, through a dedicated tenant portal. The property manager ensures that the process is automated for maximum efficiency. The online portal should have all the one-time fees (like security deposit) and recurring expenses (such as monthly rent).

Late Rent Management

While rent collection can be basically put on an autopilot, property managers need to occasionally interfere, especially in case of late rent. They need to take the necessary legal steps to request the late rent payment from tenants as soon as possible. Alternatively, they should be ready to initiate eviction procedures as long as the local laws and the lease agreement allow for it. That’s why it’s so crucial for the rental contract to outline all possible scenarios.

Property Maintenance

Rental management services also include keeping the property in top shape at all times. For this purpose, the following tasks need to be implemented:

Maintenance Requests

Property managers have to handle maintenance requests submitted by both property owners and tenants. They need to review and respond to all requests in a reasonable timeframe. Then, they need to arrange a property inspection visit and evaluate the seriousness of the problem. Afterwards, they need to provide an estimate of the cost and the timeline for fixing it.

Regular Property Inspections

Furthermore, companies that manage long-term rentals have to conduct periodic property inspections, preferably twice a year. These have to be coordinated and scheduled with the tenant, at a mutually convenient time. All major parts of the property need to be checked and evaluated to know when the next round of repairs should be implemented.

This is a must in the rental property management industry in order to ensure that all small problems are fixed right away, before turning into major money drains.

Move-In and Move-Out Inspections

In addition to scheduled inspections, property managers inspect properties before new tenants move in and after old tenants move out. In this way, they can identify any damage that has been caused by the renter to know if the security deposit can be returned or should be retained to fix damages.

Fixing Minor Issues

Most property management services companies have an in-house team of electricians, plumbers, and other handymen who can work on small issues. This helps them cut down on the cost for investors and address problems right away. Things that require less than $500 are usually fixed without notifying the property owner.

Coordinating Larger Repairs

The majority of property managers use local vendors and contractors to work on major property issues. These vendors need to be initially vetted and be at the disposal of property managers at all times.

Repairs above $500 need to be presented to and discussed with the landlord, in order to be approved. It’s the job of the manager to coordinate between the property owner, the tenants, and the contractors in such cases.

Few companies have their own in-house teams of qualified professionals to fix all rental problems.

Providing a Team of Vendors and Contractors

When first getting started in a certain market, a property manager needs to build a network of trusted, reputable, vetted vendors and contractors. Long-term relationships with them will help fix upcoming property issues fast and at preferential rates.

Communications

Property management companies should communicate not only with tenants but also with property owners and vendors. Proper online and other channels need to be set up and to remain always available for this purpose.

Property Owner Communication

Most property managers provide owners with access to a proprietary investor portal where all communication is done and recorded. Moreover, this portal gives owners access to all information about their rental property’s performance that they need.

Financial Analysis and Reporting

Finances are a major part of the property management services explained here. After all, real estate investors buy properties and rent them out in order to make money. So, they need to rest assured that the work of their property is optimized. Related tasks include:

Boosting Revenue

Property managers commit to enhance the performance of long-term rental properties. This is done by selecting the best rental rate based on careful competitive market analysis.

Meanwhile, vacancy should be minimized by taking good care of renters’ needs to retain them for the long term.

Another element of enhancing cash flow is lowering operating expenses. This is achieved by maintaining properties well, avoiding major damage, getting good insurance, placing quality tenants, and benefiting from discounted rates from local vendors.

Adjusting Rental Rates

Long-term rentals don’t need to be as dynamically priced as Airbnb rentals, but rent needs to be regularly revised and updated. This is done based on local rental market analysis to detect changes in the supply and demand of rental properties as well as changes in prevailing rental rates.

To increase rent, property managers need to comply with local rent control laws. This means that they might need to not exceed a certain percent increase and might need to provide tenants with advance notice.

Furthermore, it’s important to ensure that a potential rent increase will not have the opposite effect of lowering cash flow. If this will result in extended vacancy, it might be better to refrain from it. Careful financial analysis needs to be done before taking such a step.

Monthly Statements

Property management companies need to provide owners with monthly financial statements that show the performance of the property. All cash that went in and that went out should be included. The statements should also provide details on any activities and updates such as maintenance work, change in tenants, etc.

In addition, the online owner portal should give investors immediate access to all past and future financial information. It should be easy to ask for more details when needed.

Annual Statements

The services of property managers also include end-of-year financial statements that summarize the property performance over the last 12 months. This should show comparison with the financial forecast for the year and explain any differences. Moreover, landlords should be advised on what they can expect in the upcoming 12 months.

Tax Support

While most property managers do not file taxes on behalf of property owners, they need to provide things like 1099s. All information and forms should be supplied to make filing taxes as easy as possible, while taking advantage of all applicable tax deductions and benefits.

Owner Payouts

The practice is for property management companies to collect rent from tenants, pay necessary fees, take out their own cost, and transfer the rest of the amount to the owner. This should be done on a monthly basis, within a clear deadline.

Owner payouts are usually made via bank transfers and should include a detailed breakdown of all revenue and all deductions. Landlords should fully understand why they receive the amount that they receive.

Fee Payments

In most cases, property managers pay the costs incurred by vendors and contractors for property maintenance work. In case of small amounts, the money is taken from the reserve fund or the monthly income. Large amounts need to be approved by the property owner and might need to be paid for separately.

Legal Compliance

In all property management services that they provide, companies have to remain in compliance with all local, state, and federal laws. They cannot afford to practice any breaking of the law because it risks not only their reputation and business but also the rental property and the standing of the property owner.

Property Management Services Not Covered

While property management services, as explained, cover a wide range of tasks and responsibilities, they don’t cover absolutely everything. Landlords still remain responsible for certain duties, including:

Mortgage Payments

Property managers do not pay monthly mortgage fees on behalf of the owner. This is something that the investor needs to do themselves.

Utilities Payments

Property management companies don’t usually handle monthly payments of things like electricity, water, gas, Wi-Fi, and phone. With long-term rentals, these are covered by tenants.

Tax Payments

Property managers help owners with certain tax forms, but they do not file and pay taxes on behalf of landlords.

Budget Management

Companies provide property owners with financial forecasts and performance reports. They work on maximizing rental income and minimizing rental expenses. However, they do not budget on behalf of real estate investors. Thus, they cannot be held accountable for poor financial outcomes as long as that’s not the result of bad property management services and practices.

Property Management Service Types Explained

There are three main types of property management services, as explained below:

• Self-management: This refers to becoming a landlord and managing your property on your own. This method requires living close to your investment property, having enough time to handle tenant requests, and owning some experience in real estate, albeit basic. You’d also need a big network of local contractors and other professionals like accountants, lawyers, etc.
• Lease only: Some property management companies offer service packages limited to getting properties tenant-occupied. This includes pricing, marketing, lease preparation and signing, and move-in. Once the renter has been moved in, the landlord takes over the upcoming duties.
• Full-service management: This model entails comprehensive property management services as explained above. Full-service property management gives investors access to passive real estate income. This strategy is becoming a popular choice among all types of investors as it allows them to focus their energy on growing their portfolio rather than dealing with tenants and property fixes.

Property Management Service Costs Explained

Before deciding if you should hire professional property management services, it’s important to know what costs and fees you’d need to cover. We’ve broken these down into monthly property management fees and additional costs.

Monthly Property Management Service Fees

There are two main types of monthly pricing structures that US property managers use: flat rates and percentage of rental revenue.

Fixed rates, or flat fees, signify that a property owner pays a certain amount each month no matter how much the rental rate is. The usual range for this type of monthly fee is between $70 and $200 per property per month, with the average around $90-$120. The exact amount depends on the company, the provided property management services, the market, the property type, the rental size, etc.

This is a good pricing model for investors who’d rather have more stability and predictability in the long term. However, the main drawback is that the property manager does not feel incentivized to improve performance and boost rent to make more money.

The second pricing model entails paying a percentage of the monthly rental income to the company for the property management services it provides. This is relatively predictable too in terms of cost because rental rates don’t change often in the long-term rental market. Moreover, the property manager should be motivated to maximize your revenue in order to enhance theirs as well.

The standard range is between 7% and 12% in the US residential market, with some managers charging as little as 5% of monthly income for multifamily properties.

Most property managers offer heavily discounted rates for larger properties (that bring more revenue) and to investors with big portfolios.

Additional Property Management Service Costs

Aside from the recurring monthly fees, property managers charge a few extra fees including:

• Onboarding: Though uncommon, some companies ask owners to pay a set-up fee when first getting started. This is usually a few hundred dollars.
• Leasing: A flat rate between $100 and $500 or between 25% and 100% of one month’s rent.
• Lease renewal: Typically 50% to 100% of one month’s rent.
• Reserve fund: Usually around $500 to cover urgent fixes and repairs.
• Insurance: The price can vary widely, depending on the landlord insurance company, the market, the property type and size, the property age and condition, the provided coverage, and the rental activities. Property owners are able to get better insurance rates through management companies as they have long-term relationships with insurance providers.
• Fixes and repairs: Property owners need to cover the expenses related to maintenance work. If the estimated cost exceeds $500 per occurrence, the owner will be contacted for review and approval. The monthly cost of these depends on the property needs. A good estimate is to budget for about 1% of the property price in annual repair costs.
• Tax help: Some property managers charge a fee to help prepare tax documents.
• Eviction protection: Some companies have an optional eviction protection program. For a fee of around $10-$12 per month, the manager will cover the legal fees associated with an eviction.
• Early termination fees: Certain property management companies charge a fee for canceling services before the end of the management agreement.

How to Find the Best Property Management Services

Hiring a property management company can be a great way to boost your rental’s performance and earn passive income, simultaneously. Nevertheless, to achieve this goal, you have to implement a very careful selection process. The most important factors to consider include:

• Property management service type: Decide if you need lease-only or full-service property management.
• Property management service coverage: Look for a property manager that covers everything, from helping you get your property ready for renters all the way to evictions.
• Locations: Choose between a national company with local offices or franchises and a local property manager. Make sure that they have a solid presence in your market which will provide them with enough rental data and experience.
• Property management fees and costs: Select a company with a clear, transparent pricing and no hidden fees.
• Online reviews: Check out reviews by both landlords and tenants on third-party websites like Trustpilot, Yelp, and BBB.org. Focus on companies with an average rating above 4/5 stars, but also make sure to read through individual reviews.
• Local investor experiences: Aim to speak to a few investors who have worked with this company in your specific market. The extent and quality of property management services varies from one location to another in case of large companies. You can look for fellow investors on real estate forums or ask the property manager themselves to provide you with some names and contact information of owners who don’t mind being contacted.
• Interview availability: Choose a property manager who is available for an in-person or phone interview before you decide if you want to work with them. If they don’t have time for you and your property now, they won’t make the time in the future.
• Property management agreement: Ask to see a copy of the management contract and review it carefully. Make sure you can cancel if you’re not fully satisfied with the quality of the property management services explained in the terms.
• Value for money: Select the company that gives you the best value for money, meaning the most comprehensive services at a competitive rate.

Takeaway

Now that you have property management services thoroughly explained, you can decide if hiring a professional makes sense for you or if you’re better off managing your own properties. In case you decide to work with a manager, it’s important to choose a reputable company with a solid reputation and strong performance in your specific market. Do a lot of research and due diligence before making a decision. Most importantly, make sure you can cancel if you’re not fully satisfied.