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Real estate investors face an important choice when deciding to rent their home: do I partner with a property management company or handle the details myself? Taking a DIY approach to property management may seem attractive at first because the investor saves on the cost of management fees. However, good property management companies can easily make up for the cost of their services. Here’s how.
Setting Competitive Rental Rates
For a property to generate positive cash flow, the rent coming in must exceed the cost of ownership. This includes the mortgage payment, taxes, management fees, insurance, as well as ongoing maintenance and upkeep. With this formula in mind, investors need to set their rental rate at a level that is both competitive for the local market yet high enough to produce a profit. Unfortunately, this isn’t always a straightforward process. Set the rate too low and you’re leaving money on the table. Set the rent too high and you won’t compete with lower-priced units offering similar amenities. So how do you find the proper balance?
Owners can research local rental rates by scouring popular listing sites like Craigslist or Trulia. Once they’ve developed a list of similar properties — known as “comps” — they’ll have a better understanding of their home’s value. However, that still may not be enough. In many markets, a home’s location could add or subtract hundreds of dollars from the monthly rental rate. Your home may also include certain features renters covet, like a washer and dryer, air conditioning, plenty of outdoor space, or great school systems, which don’t always come through in the comps. Without taking all these factors into account, investors could be losing monthly revenue.
Professional property managers, on the other hand, are local real estate experts who understand how to set competitive rental rates that maximize your home’s best qualities. Good property managers will also provide suggestions on cost-effective property improvements their clients can make that will help maximize rents. Setting rental rates is part art and part science, which is why experienced property management companies can deliver real value for their clients.
Performing Tenant Screenings
Of course, the cash flow equation falls apart completely if your tenant doesn’t pay their rent or damages the property. That’s why good tenants are worth their weight in gold. So how do investors weed out the good from the bad among hundreds of rental applications? Here’s a hint: it takes a lot of work.
To select the best possible tenant, DIY property managers should conduct comprehensive screenings for every applicant, including credit, criminal, and eviction histories. Owners should also verify a potential tenant’s employment and check their references, all while ensuring they’re following applicable federal, state, and local housing discrimination laws.
This is another area where property management companies more than recoup their fees. Through stringent screening practices and regular property inspections, good management companies select only the most qualified tenants. That way, their clients are protected from the potential losses a bad tenant brings.
Providing an Iron-Clad Lease
Before your perfect tenant moves in, they’ll need to sign a lease which is a legal agreement outlining the rental terms between a tenant and property owner. These documents outline details like:
- Security deposit amount
- Rental due date and late penalties
- Rules of behavior
- Pet policies and pet deposits
- Eviction terms
As with every legal document, a lease is only as good as the person writing it. That’s why most homeowners would be best served by hiring a lawyer to draft a lease for them. In many areas of the country — and especially here in Portland, Oregon — rental ordinances side heavily with the tenant. So without a well-written and properly enforced lease, property owners could be at their tenant’s mercy.
As part of their services, property management companies provide leasing documents for every rental transaction. They also serve as the lease enforcer to ensure tenants abide by its terms. Should the need arise, property management companies will also handle eviction procedures which carry their own set of legal requirements.
Property Management Companies Deliver Value
While investors may find it tempting to handle their own property management duties, they likely won’t see substantial cost savings over the long term. That’s because property management companies are dedicated to preserving the property, protecting the property owner’s interests, and delivering as much value as possible for their clients.
If you own a home in the Portland metro area and would like to learn how a property management company can help you, contact Portland Rental Homes today. With over 30 years of experience in the local rental market, we have all the expertise you need.