Residential Property Management: DIY or Outsource?

Many aspiring real estate investors dream of passive income, but the reality of being a landlord can be far more involved. If you're considering getting into real estate investing, you might be wondering what residential property management involves — and once you understand it, should you handle it all yourself or hire someone to do it for you?

Residential property management goes beyond just collecting rent checks. It's a set of tasks that keep your investment property running smoothly and profitably. From finding good tenants to fixing leaky faucets at midnight, property management covers a wide range of responsibilities.

In this article, we'll cover what residential property management really means, as well as the day-to-day tasks necessary to manage rental properties successfully. This guide will give you the full picture of property management, regardless of whether you plan to manage properties yourself or hire a professional.

What is residential property management?

Residential property management involves overseeing and maintaining rental properties such as houses, apartments, or condos. As a property owner, you have two main options:

1. Do-it-yourself (DIY): You can handle all aspects of property management yourself, from finding tenants to maintaining the property.
2. Hire a property management company: You can outsource these tasks to professionals.

If you choose to hire a company, they act as intermediaries between you and your tenants. These companies handle day-to-day operations, allowing you to take a more hands-off role and potentially make your investment more passive.

Functions of a property manager

What exactly does a property manager do? The most common tasks involve the following:

Tenant management

Property managers handle all aspects of tenant management. In residential rental properties, this includes the following:

• Screening tenants: They run background checks, verify employment and income, and check references.
• Managing tenant relations: Residential property managers take care of tenant questions, concerns, and complaints. This includes answering late-night maintenance calls, addressing noise issues between neighbors, and explaining lease terms.
• Handling evictions: If a tenant violates the lease or doesn't pay rent, property managers handle the eviction process. They know the local laws, file the correct paperwork, and represent you in court if necessary.

Rent management

A residential property manager seeks to increase rental income by doing the following:

• Setting rates: Research the local market to set competitive rent prices.
• Collecting rent: They also manage the entire rent collection process.
• Handling rent increases: Implementing annual rent increases when appropriate, based on market conditions and local regulations.

Marketing and vacancy management

Property management companies help reduce vacancy rates by quickly preparing and marketing your residential property for new tenants. They handle this process by doing the following:

• Marketing units: When a tenant moves out, the property manager handles listing the vacancy. This includes posting ads on popular rental sites, networking with other managers, and conducting showings.
• Unit preparation: They oversee the process of getting vacant units ready for new tenants. This includes deep cleaning, making repairs, and handling any updates to make the property rent-ready as soon as possible.

Financial management

Property management firms support the financial management of your rental property through tasks like these:

• Budgeting: Creating and sticking to an annual budget for your residential property. This includes planning for regular maintenance, setting aside reserves for unexpected repairs, and forecasting income.
• Financial reporting: Providing detailed monthly and annual financial statements. These reports help you understand your property's performance, including income, expenses, and profitability.
• Property taxes and insurance: Professional property managers verify payment of property taxes and that you have the correct landlord insurance coverage.

Lease and legal compliance

A property manager helps make sure your residential properties stay in compliance with local laws and regulations. This starts with the leasing process:

• Lease management: Property managers create and update lease agreements that protect your interests while complying with local and federal laws.
• Legal compliance: There are several regulations rental property owners need to follow that a property management company can handle. This includes fair housing laws and security deposit regulations.

Property maintenance

This is a big area for a property owner. If you have multiple rental properties with simultaneous maintenance requests, just trying to keep up with this on your own could be a lot to handle. Here's how property managers help:

• Proactive maintenance: Scheduling regular upkeep like HVAC servicing, pest control, and landscaping. This helps prevent small issues from turning into costly repairs down the line.
• Tenant maintenance requests: Property managers answer all incoming maintenance calls and dispatch the correct professionals to fix issues.
• Inspections: They'll conduct regular property inspections to catch potential problems early. This includes move-in and move-out inspections to assess any tenant-caused damages.

Vendor and staff management

You can't own rental properties without third-party services and potentially staff. Property management companies handle these resources by doing the following:

• Vendor management: The best residential property management companies have a network of reliable contractors and established competitive rates. They coordinate repairs, renovations, and routine maintenance, verifying that these vendors complete the work on time and within budget.
• Supervising on-site staff: They hire and manage on-site employees, such as maintenance techs or leasing agents for larger properties.
• Managing utilities: Some properties have a master meter for utilities, meaning owners get one bill for the whole building. In these cases, property managers track usage, handle tenant billing, and tackle any service outages.

Pros and cons of using a property management company

Should you hire a property management company? Making passive income sounds very appealing, but you'll also incur extra costs and fees that impact your overall profit. Consider the pros and cons:

Pros of property management

Besides making your residential property as hands-off as possible, there are other benefits of using a property manager.

Expertise and knowledge

A property management company invests in staying current with local laws and regulations. These rules often change, and if you don't keep up, you might make an expensive mistake. Their expertise covers a wide range of areas:

• Landlord-tenant laws
• Fair housing regulations
• Tax laws affecting rental properties
• Service and emotional support animals
• Eviction procedures
• Safety and building codes

Time and stress management

Paying a management fee to a property management company can be worth it to reclaim your time and reduce stress. If you have other commitments or multiple properties, managing on your own can be overwhelming. By delegating the day-to-day tasks, you free yourself from the following:

• Constant availability for tenant issues.
• The mental load of remembering all property-related tasks.
• The stress of dealing with difficult situations or tenants.
• Time spent on administrative work and property visits.

Property maintenance and value

Keeping your property in top shape takes work. Regular maintenance involves a lot of moving parts, like scheduling repairs, coordinating with tenants, and staying on top of inspections. Without help, this alone can feel like a full-time job.

If you let maintenance slide, you risk damaging your investment. Property management companies step in to handle all these details. They verify your property stays in great condition, protecting its value and appeal to tenants. This systematic approach to upkeep can save you money in the long run by preventing small issues from becoming major, costly problems.

Cons of property management

The biggest challenges with hiring a property management company involve the extra costs that eat into your profit, which is why you need to choose a good company.

Costs and fees

Property management companies charge various fees for their services. While it might sometimes feel like they're nickel-and-diming you, understanding these costs upfront helps you budget for these expenses. Here's what you can typically expect:

• Management fee: This is usually a percentage of the monthly rent, often ranging from 8% to 12%. Some companies charge a flat fee each month instead.
• Leasing fee: Residential property management companies charge this fee when they place a new tenant. It's usually half to a full month's rent. This covers their costs for marketing, showing the unit, and tenant screening.
• Other fees: The real estate management company may also charge for property inspections, evictions, maintenance markups, or early contract termination.

Loss of control

Even though passive income sounds appealing, handing over control to a property management company can be frustrating. Your investment becomes part of their broader portfolio, subject to their established policies and procedures. Your property gets folded into their system, which means the following:

• Less say in day-to-day decisions.
• Potential differences in management style or priorities.
• Possible delays in communication or decision-making.

Quality and consistency

When you hire a property management company, there's always a risk they might not meet your expectations. Most contracts lock you in for at least a year, so if you make a poor choice, you're stuck with them for the entire term. This makes it key to do your homework before signing on the dotted line.

To avoid potential disappointment, do the following:

• Get referrals from other real estate investors.
• Thoroughly vet any company you're considering.
• Check online reviews and ratings.
• Ask for client references.

Other types of property management

Besides residential property management companies, you'll find property managers in different real estate niches — for example:

• Commercial property management: These companies handle the day-to-day operations of office buildings, retail spaces, or self-storage properties. They typically specialize in specific commercial real estate sectors rather than handling all property types.
• Vacation rentals: Short-term rental properties require a different set of skills. Management companies in this hospitality niche focus on bookings, occupancy rates, and maximizing revenue. They understand the unique challenges of frequent guest turnover and seasonal demand fluctuations.

Optimizing rental properties

No matter which path you take — managing property on your own or hiring a property management company — Azibo's integrated platform and services can support your operations and help grow your revenue. Here's how:

• Rental applications: Simplify and streamline the application process with online forms that make it easy for potential tenants to apply.
• Tenant screening: Conduct detailed background checks to select reliable tenants. Azibo helps you screen applicants based on credit history and rental history so you can reduce the risk of problematic tenants.
• Lease agreements: Create state-specific, legally compliant lease agreements that simplify signing with e-signing capabilities.
• Rent collection: Easily automate rent collection to increase timely payments. The platform offers multiple payment options and automatic reminders, reducing the likelihood of missed or late payments.
• Maintenance requests: Quickly address tenant concerns and maintenance issues with Azibo's maintenance and messaging capability. Tenants can submit requests online so you can track and address issues quickly.
• Property accounting: Keep track of income and expenses with comprehensive property accounting tools. The platform helps you monitor cash flow and manage budgets.
• Financial management: Gain insights into your property's financial performance. Use advanced financial management features to analyze revenue, expenses, and profitability.
• Document storage: Securely store all important documents in one place. Digital storage makes sure that lease agreements, receipts, and other critical documents are easily accessible.

Property management in real estate

Residential property management involves a wide range of responsibilities to maintain and optimize rental properties. These tasks cover everything from finding and managing tenants to overseeing property upkeep and finances.

Self-managing allows for more control and potentially higher profits but requires significant time and energy. Outsourcing can provide expertise and save time, but it comes with its own costs.

As your real estate portfolio grows or your situation changes, your approach to property management may evolve. The key is to align your management strategy with your current needs, available time, and long-term investment goals. By understanding residential property management, you can make the best decisions to turn your properties into effective wealth-building assets.

Residential property management: FAQs

What is a property manager's first responsibility to the owner?

A property manager's most important responsibility is to maximize profit for the property owner.

Does a property manager need to be licensed in California?

Yes, California requires a real estate broker's license for property management companies.

What is RPM in real estate?

RPM is a real estate term for "Residential Property Management." It means overseeing rental properties and tasks like tenant screening, rent collection, maintenance, and lease management.