Becoming a landlord can be a rewarding venture, but it also comes with responsibilities that can be time-consuming and complex. One way to streamline the process is by hiring a property manager. This guide—based on information from Fannie Mae—outlines some key factors to consider to help you make an informed decision.
Defining the Role of a Property Manager
When deciding to hire a property manager, it's essential to outline their responsibilities clearly. This step will help in setting expectations and ensuring that both parties understand the scope of work. Typical duties of a property manager include:
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Marketing and Leasing: Property managers are responsible for advertising vacant units, showing properties to prospective tenants, and handling lease agreements.
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Tenant Management: They will select tenants, address tenant complaints, and handle lease renewals or terminations.
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Property Maintenance: Managers coordinate repairs and maintenance to keep the property in good condition, which can include everything from routine inspections to emergency repairs.
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Rent Collection: Collecting rent and managing financial aspects like late fees and rent increases are also part of their duties.
Independent Contractor vs. Employee
One of the decisions you'll need to make is whether to hire a property manager as an independent contractor or as an employee. Each option has its own benefits and drawbacks, depending on your situation.
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Independent Contractor: Hiring a property manager as an independent contractor can simplify your responsibilities, as you won't have to handle employee-related tasks such as payroll taxes. However, contractors operate more independently, which may limit your control over how they perform their duties.
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Employee: If you choose to hire a property manager as an employee, you’ll have more oversight but will also need to comply with employment laws, such as paying minimum wage, overtime, and handling tax withholdings. This arrangement requires you to obtain an Employer Identification Number (EIN) from the IRS and handle various tax forms and filings, like the W-4 form for employee withholding.
Determining Compensation
How much you pay a property manager will depend on various factors, including the scope of their responsibilities, the number of hours worked, and the local market rate for property management services. Compensation can be structured in several ways:
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Flat Fee: Some property managers are paid a flat fee, which could be a set amount per month or a percentage of the monthly rent collected.
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Hourly Rate: Others may charge an hourly rate, which can vary based on the number of hours required to manage the property effectively.
Deciding on Work Hours and Residency
You will also need to decide whether the property manager will work full-time or part-time and whether their work hours will be flexible or set. Additionally, some property managers may live on the property, which could be beneficial for on-site management but is not a requirement.
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Residency on Property: If the manager lives on-site, you will need to determine how much, if any, rent to charge. Keep in mind that if you charge rent, this may establish a tenancy, which could complicate matters if the employment relationship ends.
Legal Considerations and Licensing
It’s crucial to ensure that your property manager is knowledgeable about relevant laws, including landlord-tenant regulations and fair housing laws. In some areas, property managers may be required to hold specific licenses, such as a real estate license. Hiring a property manager with credentials from national industry organizations can also be beneficial, as these certifications often indicate a certain level of expertise and professionalism.
Choosing the Right Property Manager
Selecting the right property manager is as important as finding the right tenants. Look for candidates with experience in critical areas like maintenance, leasing, collections, marketing, advertising, and tenant relations. Verify their knowledge of local and state laws to avoid potential legal issues. Remember, as the property owner, you are ultimately responsible for the actions of your property manager, so careful selection is crucial.
Before handing over the keys, securing the right tenants is crucial for maintaining your rental property’s success. The next step, "Finding Reliable Tenants," will guide you through the process of screening applicants, setting criteria, and ensuring you select tenants who are responsible and fit well with your property’s needs.