When Does It Make Sense to Outsource Property Management?

While being a hands-on landlord does have its benefits, for many landlords, there comes a time when outsourcing starts to make sense. This is especially true if you’re running short on time, are thinking of investing in multiple properties, or are considering investing out of town. 

If you’re starting to feel overwhelmed by the daily duties of property management, then it’s probably time to think about outsourcing the work. Fortunately, outsourcing doesn’t have to be difficult, and it doesn’t mean that you have to take a backseat with your rental properties. Instead, outsourcing can be a step in the right direction, helping to free you up to focus on other things, like overseeing your investments. When done right, outsourcing is also key to passive income with rental properties. 

In this article, we’ll talk about a few things you should consider if you’re planning to outsource to a professional property manager.

What Does a Property Manager Do for You?

Before deciding whether or not to outsource, it’s important to understand what property management entails. 

Property management involves the day-to-day operation and oversight of rental properties. While each property manager is different, this may include tasks such as:

• Tenant Screening and Placement: This includes finding and vetting potential tenants, handling lease agreements, and helping to ensure a smooth move-in process.

• Inspections: A property manager can conduct move-in inspections, documenting the condition of the property at the time of move-in.

• Rent Collection: This includes collecting rent from tenants, managing late payments, and handling any rent-related issues.

• Property Maintenance: This involves conducting regular maintenance and repairs and fielding tenant maintenance requests.

• Marketing and Advertising: This involves marketing the property to prospective tenants.

• Lease Enforcement: A good property manager will also be able to enforce the terms of the lease. This means if a tenant isn’t abiding by the terms of the lease, they can levy a fine or in some cases, even proceed with an eviction on your behalf.

7 Factors to Consider When Outsourcing Property Management 

1. Lack of Time

One of the most common signs that it’s time to outsource property management is when you find yourself constantly strapped for time. That could look like:

• Having frustrated tenants repeatedly calling for problems that they already reported to you.

• An increase in tenant turnover due to tenant satisfaction being low.

• Realizing that you don’t have the time to file your tax return, perform maintenance at the rental, or follow up on important issues.

Aside from landlord duties, you might also have a full-time job or family responsibilities. If you feel like your work-life balance has gone out the window, outsourcing may help you regain control of your time. Outsourcing property management allows you to delegate these tasks to professionals, giving you peace of mind, and saving you time.

2. Expanding Your Property Portfolio

As your real estate portfolio grows, so does the complexity of property management. Handling multiple properties typically requires more time and effort than managing a single unit. For investors who want to scale their property portfolio, outsourcing property management becomes a strategic move. Real estate professionals have the resources to efficiently manage a growing number of properties, which allows you to pursue new opportunities without being bogged down by administrative tasks.

3. Geographic Distance

The location of your rental properties can significantly impact your ability to manage them effectively. If your properties are spread across different cities or states, the logistical challenges can become a hurdle. Dealing with tenant concerns, conducting property inspections, and responding to emergencies becomes more complicated when you’re not physically present.

Working with property management experts becomes especially valuable for long-distance landlords. They have local knowledge and can oversee your properties on your behalf, in a prompt and timely manner. This relieves you of the burden and costs of traveling back and forth to manage your properties effectively.

4. Lack of Expertise

Effective property management requires a diverse skill set and in-depth knowledge in a number of different areas including landlord-tenant laws, maintenance and repairs, tenant screening, lease creation, and more. While some property owners possess these skills, others may lack the necessary know-how or experience.

Outsourcing can provide confidence for those who are new to real estate investments or feel unsure about handling certain aspects of property management. 

5. Tenant-Related Challenges

Positive landlord-tenant relationships are vital to a successful rental property business. If you find yourself spending an excessive amount of time addressing tenant disputes, late payments, or lease violations, it may be time to consider outsourcing property management.

Professional property managers excel at handling tenant relations and can mediate conflicts, enforce lease agreements, and address issues effectively. They can handle the stressful parts of tenant relations so you don’t have to. Maintaining a harmonious landlord-tenant relationship could help to keep tenants happier, and in some cases, even renting from you longer as well.

6. Financial Considerations

Cost is often a major consideration for rental investors. You want to be efficient, but not at the expense of profitability. Property management companies typically either charge a percentage of the monthly rent or charge a flat fee. 

To have a clearer picture of what outsourcing might cost you, check out the formula and considerations below:

• Time Value: Calculate the value of your time and evaluate if outsourcing helps you focus on income-generating activities or personal pursuits. The first step is to estimate your hourly rate. Add all your income from all sources, including your job, investments, and other activities. Divide your annual income by the number of hours you work per year. 

The formula is:

Hourly Rate = Annual Income / Number of Work Hours Per Year

If your annual income is $80,000, and you work 2,000 hours a year, your hourly rate would be:

Hourly Rate = $80,000 / 2,000 hours = $40/hour

Next, estimate how many hours you currently spend on property management tasks each month. Be sure to include activities like tenant communication, property maintenance coordination, financial recordkeeping, and any other property-related tasks.

Let’s say you spend approximately 15 hours per month on property management.

Monthly Time Value = Hourly Rate × Hours Spent on Property Management

Monthly Time Value = $40/hour × 15 hours = $600/month

The last step is to compare your monthly time value (the value of your time spent on property management) to the cost of outsourcing property management. Let’s assume that in this scenario, the property management company charges a fee of 10% of the monthly rent or $200 per month.

Now, compare the two values:

Monthly Time Value: $600/month

Cost of Outsourcing Property Management: $200/month

In this example, the cost of outsourcing property management is significantly lower than the value of your time spent managing the properties. In this scenario, it could make more financial sense to outsource, as it frees up your time for other activities.

• Scalability: Assess whether outsourcing will allow you to scale your real estate portfolio, increase your rental income, or pursue additional investments that would not have been feasible otherwise.

• Efficiency: Determine if professional property management can lead to cost savings in maintenance, tenant retention, and vacancy rates.

In many cases, the financial benefits of outsourcing property management can outweigh the costs, especially when it allows you to focus on expanding your real estate portfolio or enjoying a better work-life balance.

7. Property Maintenance Challenges

Regular maintenance and timely repairs help you to preserve the value of your rental properties. However, years of managing maintenance requests, coordinating repairs, and ensuring that the property is in excellent condition can take its toll, even on the handiest of landlords.

If you’re ready to hang up your working gloves, passing them on to a property management team can be an ideal solution. Property management companies have a network of reliable contractors and maintenance professionals who can respond to repair requests promptly and make sure that your home is well-maintained. They’ll know who to call when something goes wrong.

Related: Should You DIY Your Property Maintenance and Repairs?

How to Select the Right Property Management Team

Your choice of a property management company can make or break the profitability of your investment. 

Here are a few things you’ll want to look for when choosing a professional property management team:

• Experience and Reputation: Look for a company with a proven track record in property management. Check to see how many years they have been in business. Check their client reviews online and see what people are saying about them. Are they rated highly? You may also consider asking if they have any client testimonials from other landlords that they could share with you. A reputable property management company should be more than happy to share client success stories.

• Services Offered: Ensure the company provides the specific services you need. This may include rent collection, property maintenance, tenant screening, lease enforcement, and more. 

• Licensing: Verify that the company is licensed if this is a legal requirement in your area. Check to see if they’re insured as well.

• Tenant Screening Process: Inquire about their tenant screening procedures to see how they go about finding qualified tenants. This can increase your chances of securing a tenant who pays on time and abides by the terms of the lease.

• Tenant Response Time: You may also want to ask about their average response time to tenants. Timely communication can help to solve issues promptly.

• Fees and Costs: Clarify their fee structure. It’s often a percentage of the rent or a flat fee, but ask about additional charges for key services.

• Technology and Tools: A company that uses modern property management software can streamline processes and provide you with quick and easy access to updates and reports.

• Eviction Procedures: Understand how the company handles evictions, which can be time-consuming.

• Exit Clauses: Review the contract for exit clauses and termination terms in case you decide to terminate their services.

• Level of Control: When you outsource property management, you relinquish some degree of control over your properties. While this can be a positive aspect in terms of freeing up your time, it’s important to understand the level of involvement that you will still have with the property. It’s a good idea to clarify this with the property management company by asking them what level of control you will maintain over your property.

• Communication: Effective communication between property owners and management companies is essential. Ask the property management company what communication channels they use and when you will be involved in key decisions. 

Deciding to outsource to a property management company is a choice that depends on many individual factors. Many landlords find, however, that it’s a choice that gives them back their freedom, and helps them to turn their rental properties into passive income. Take the time to do research and choose an experienced, reputable, highly-rated property management company that understands your needs and can deliver on its promises.

Thinking of outsourcing your rental management? Read more about the benefits of hiring a property manager. At Renters Warehouse, we offer 24/7 Hassle-free Property Management. We can help you reduce your workload and stress: freeing you up to focus on other things.