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Property Management for Apartments

For many years, returns on apartments were booming. During the 2007-2009 Global Financial Crisis, more people needed to rent properties and the rents on those properties rose in response. However, the market has changed since then, and profits aren't as easy to make as they once were. Still there are plenty of opportunities to invest in apartments. People always need somewhere to live, and apartments are often an attractive option. The right property coupled with professional help can turn into an investment that provides a good income each year and a substantial nest egg when sold. This guide to property management for apartments provides information on investing in apartments and about the benefits of using a property management firm to make handling your investment easier.

Key Point Module

  • 1 The Fair Housing Act and Fair Credit Report Act are key laws to understand
  • 2 More nuanced rental laws are typically decided by individual states and can vary from location to location.
  • 3 State laws can require a high degree of expertise to understand them fully.
  • 4 Property managers can save owners time and money associated with learning and following state rental laws.

What to Know About Investing in Apartments

Apartment investments come in two varieties: investing in a single apartment and investing in multiple apartments, such as an apartment block. Multiple apartments are the more common way to invest in apartments and are often referred to as multi-family investments. These complexes range from small groups of two or four apartments to large blocks of 50 or more units. The size you choose depends on the amount of money you have available to invest and how comfortable you are with risk.

Investing in multi-family complexes is an attractive option because they provide you with multiple income streams. When one apartment is vacant, others will be occupied, meaning you continue to have an income. By contrast, an empty single-family home means you have no income until you find a tenant.

Apartments also give you economies of scale. For example, the cost of maintenance per apartment is cheaper than the cost for a single-family dwelling, even though the overall outlay tends to be greater. This is because you can get deals for buying larger quantities of paint or carpet and are more likely to use it all.

When looking to invest in apartments, the most important consideration is location. Americans continue to look for a shorter commute, so complexes close to business districts or public transportation are always popular as are those in walking distance to local amenities, such as restaurants and parks. Also, think about the type of apartments available in the area you are considering. Studios may do well close to colleges, but people who are working full-time and who have children prefer two- or three- bedroom dwellings. Both tenants and property owners benefit from amenities like vending machines around the complex or coin-operated laundry facilities on premises. These types of features add value and additional income toward your investment.

What Services do Property Managers Provide?

Property managers of apartment complexes can look after an apartment’s whole life cycle. Finding tenants is the first step and property managers look after advertising, showing the property, interviewing prospective tenants and screening them. Screening tenants is essential to ensure you have someone in your property who will pay rent on time and take care of the apartment. Property managers are experienced at spotting quality tenants among the applicants.

Once a tenant is in, property managers look after rent collection, lease enforcement, inspections and maintenance. Maintenance includes both regularly scheduled maintenance such as painting and roof repair, as well as emergency maintenance in case of situations like a burst pipe or broken heating unit.

Property managers also provide an additional service to investors. They understand the complexities of rental laws and regulations in their area and can make sure you are in compliance with them. This is an important step in protecting yourself from legal troubles with your tenants. Property managers also understand what they can and can’t do to enforce lease agreements, such as the proper procedure for evicting a problem tenant.

In most cases, property managers for apartments can manage almost every job associated with managing an apartment. The only exception may be your personal taxes, although they may be able to point to tax-saving possibilities for you to discuss with your accountant. Many property management firms offer their services a la carte, so you can choose to include some services and not others if you feel you don’t need everything on the menu.

How Much Do Property Managers Cost?

The monthly management fee is generally paid as either a flat fee or a percentage of the gross rent. Flat fees can vary widely depending on the type of property being managed and the region where the property is located. However, percentages are the more common pricing structure. These, too, can have a large range, but are generally around 6-12% of the monthly rent. Most property managers charge close to 10%; however, investors with many apartments can usually ask for a rate as low as 6% due to the large volume of business.

When considering the monthly management fee, check whether the fee is based on rent-collected or rent-due. If you’re paying a percentage of rent-due, you must pay the fee even if the tenant is not paying rent. A fee based on rent-collected means you pay based on the money the property is bringing in. It also gives you and the property manager the same goal: find quality tenants who pay rent on time.

The monthly management fee does not include expenses, which can add to the cost of property management. Obvious expenses include the cost of property maintenance. Although the property manager arranges for maintenance, you still need to cover the cost of parts and labor. Less obvious expenses can include legal fees associated with evicting a tenant and advertising costs when finding a new tenant.

Many property management firms also charge extra for certain services. These services and fees should be disclosed in the contract. Often investors are asked to pay a leasing fee, which allows the management firm to cover the cost of finding a new tenant and is generally between 25-100% of a month’s rent. Non-standard activities such as chasing late rent and evictions may also incur an additional fee. Some property firms will also charge a vacant unit fee when the property is empty and a lease-renewal fee for handling the paperwork involved in renewing a lease.

You may also need to put aside money initially for a reserve fund. Again, this is often around a month’s rent and pays for emergency maintenance. Maintenance is an ongoing expense in property ownership, so it’s important to plan for it. If your property manager uses a reserve fund, you can put a limit on the maximum amount from the fund that can be used without your approval. Generally, any unspent money from the fund is returned when you part ways with the management firm.

Who Should Consider Hiring a Property Manager?

Property managers are very popular among people who invest in apartment complexes. This is because they often have a large number of tenants to manage, which can be difficult for one person to do. Property managers are good for anyone whose time is limited, as managing apartments can require your time and attention daily. This is especially true for those in a full-time job or with young families. Landlords must be reachable 24 hours a day, every day of the year. Property management firms have people available to take emergency calls so that you’re not woken up at 4am to fix a flooding kitchen.

Property managers are also great if your investment property is in a different region compared to where you live, as it means you have someone on the ground to manage day-to-day issues and don’t need to travel regularly for inspections or maintenance issues. First-time investors may like to have a property manager to ensure that they follow all the laws and learn the ins and outs of managing a property, and people who want a more passive income and don’t want to interact with tenants regularly can also benefit from hiring a management firm.

Those who may not wish to hire a property manager include investors who already know and understand tenancy regulations and people who understand apartment maintenance and know contractors who can do the work — or can do the work themselves. There are also some people who don’t like to relinquish control, choosing to manage their properties themselves.

Still others may be hesitant due to the fees; they don’t want to turn over a percentage of their profits to a management company. However, those costs are generally offset by the extra money a professional manager can provide. One survey showed that although vacancy rates for properties in the U.S. are around 9%, properties with property managers have a vacancy rate of just 4.5%, according to one survey. Having more tenants in your properties means more money in your pocket. Managed properties also tend to have a better maintenance schedule, which can help the property continue to increase in value. Many property managers also have preferred contractors who provide discounted services due to the high volume of work the firms provide and they may pass these savings on to you.

What to Look for in a Property Manager

The most important quality in a property manager is specific and specialized experience. Make sure they know the market in the area your apartments are located and that they have experience with managing apartment complexes rather than just commercial properties or single-family dwellings.

Ask them about licenses and certifications. In most states they need either a property management license or a real estate broker’s license. Also look for membership in professional bodies such as the National Association of Residential Property Managers, which offers education and certification to its members.

Make sure they have a good reputation by checking references and reviews. You can look at Yelp or Google reviews, but asking other investors for recommendations is also a good idea. If you don’t have friends who are investors, organizations like the Real Estate Investment Association may provide you with opportunities to meet other people who are investing in apartments. The Better Business Bureau and Chamber of Commerce may also be able to provide you with insight into the firm.

It’s good to speak to people who interact with the firm, so ask them for the contact information of both a client and their tenants. Ask the client about costs, hidden fees and how well the communicate. Tenants can give you insight into how they respond to queries and how quickly they respond to maintenance requests. Remember, if they don’t interact well with your tenants, then you’re more likely to have a high tenant turnover and vacant apartments.

When you sit down with the property manager, make sure they’re easy to communicate with, as it’s likely you’ll have to speak with them regularly. Look closely at the contract they’re offering. Make sure that the services they provide and any extra fees associated with them are stated clearly in the contract. Look for plain language, fair pricing and transparency. A contract designed to obscure costs rarely works in your favor.

There are many benefits to working with a property management firm. They can save you time, stress and money, but more importantly, they can also increase your earnings. Spending time to find the right property management firm can help you turn your investment in apartments into a success.