Property Management for Single-Family Homes
Around 43 million American householders rent their home. As this market continues to grow, rental properties have become an excellent investment. Industry experts believe that the demand for single-family homes will continue to increase, partly due to millennials who want a home with space to raise a family but can't get a home loan because of current lending requirements. Millennials are also more transient, making them more likely to rent.
Key Point Module
- 1 Preventing vacancies is essential in a single-family home. If a home is empty, there’s no income to cover costs such as a mortgage or maintenance.
- 2 There tends to be less turnover in single-family homes because they often house families who prefer not to disrupt children’s schooling. They also have more belongings to fill the space, so it’s easier to stay in the same home.
- 3 It can be easier to diversify your investments with single-family homes because you can look for new properties in different neighborhoods. Working with a property manager may let you invest in other cities or states.
- 4 Although the cost of a property manager can seem daunting, managers can often increase your profits by finding high-quality tenants and lowering your vacancy rate.
As people always need somewhere to live, rental accommodation usually continues to bring in money independent of what’s happening in the stock market. This was aptly demonstrated during the Great Recession, where single-family rentals didn’t experience a higher vacancy rate or lower rents.
Renting out single-family homes does come with unique challenges that can be tough for investors to manage. Many choose to work with a property manager who has the time and expertise to overcome these difficulties.
This guide can help you discover if single-family homes are the right investment for you. It also discusses what a property manager can do for you, how to decide if you need one and how to find the right property management firm.
What to Know About Investing in Single-Family Homes
A single-family home is defined as a single dwelling on its own parcel of land. It doesn’t share walls with any other buildings. Generally, these properties have a yard of some sort and a private entrance. Although single-family homes provide a lot of space, storage and privacy, apartment buildings may have more amenities such as a gym or door attendant.
As an investment property, these homes can only be rented out to a single person, so there’s no income if the property is vacant. People who invest in multifamily homes or apartment blocks may be able to cover one vacant unit with income from other apartments.
Many people fall into renting out a single-family home unintentionally. They find may themselves with an empty house due to an inheritance or because they have to move away temporarily and don’t want to sell their home. Other people decide to rent when they move and can’t sell their home.
People who are intentionally investing in rental property find single-family homes a good choice because they’re easier to get into than multifamily residences. The price of single-family homes is lower than anything with multiple occupancy, so you don’t need as much down payment to get a loan. There can also be greater returns. Although annual yields are generally 4–5%, lower than multifamily residences, the value of single-family homes may rise faster. They’re also easier to sell if you need cash relatively quickly.
If you plan to invest in more than one building, it’s easy to diversify by buying different property types or in different locations. This way, your investment eggs aren’t all in one building. If something happens to the building or the market goes down in one area, your other investments can continue to grow.
What Does a Property Manager do for Investors in Single-Family Homes?
Property managers can help you manage your investment. Most people think the role of a property manager is just finding a tenant, collecting rent and taking care of maintenance. However, it can take much more to manage a single-family property.
Finding a tenant may require advertising and marketing, and your property manager also screens prospective tenants to ensure you get someone responsible and reliable in the house. As well as collecting rent, a property manager chases late payments and can evict tenants who don’t pay. Property managers may also keep your accounting and tax information in order to make tax time easier.
Tenant relations are a large part of the property manager’s job. They do regular inspections of the property to make sure your tenants are looking after the home. When emergency maintenance is required, they’re the ones who get a call at 3 a.m. and are the people who contact contractors and arrange to send someone out.
They also answer tenant questions. As they’re fully versed in the laws surrounding property rentals, they can ensure that their answers comply with regulations. This helps protect you from legal action by tenants.
Owners of single-family homes have to worry about challenges that don’t often come up with multifamily residences. Homeowners associations are one challenge. If your tenant is not keeping their lawn tidy, the HOA will contact your property manager rather than you.
Another common problem with single-family rentals is changes to the property. As tenants tend to stay in place longer, they may come to think of the property as their own. They may want to paint the walls or dig up part of the garden. Your property manager is the one who responds to these requests, freeing you from these personal interactions with your tenants.
How Much Does Property Management Cost for Single-Family Homes?
Generally, managing a single-family home incurs several fees. The basic management fee is the one that’s paid monthly and is usually around 7–10% of the gross rent. Some firms base this on collected rents, while others use rent due for the calculation. Be wary of managers that ask for fees on rent due, as you must pay them even if you’re not receiving any income. Paying a fee based on gross rent collected gives the manager an incentive to make sure there’s a tenant in the house paying the rent.
Types of Fees
Some property management firms use flat fees, but this is rarer. Whether you pay a percentage or a flat fee, the price will vary depending on where the property is located and how much management it’s likely to need. For example, a manager may ask for a higher percentage for an older house with more possible maintenance issues.
Other costs include setup fees when you sign up with the company. This is for adding your property to property management software and setting up banking.
Many firms ask for a leasing fee or lease-renewal fee. A leasing fee covers the cost of finding a new tenant while a lease-renewal fee is for managing the paperwork involved with a renewal.
Some companies request a vacancy fee, which is an amount paid when the property is vacant. Make sure you understand the costs of any vacancy fee and whether you’ll be asked to pay a leasing fee as well.
Maintenance costs are often the most expensive part of owning an investment property. Most firms ask you to arrange a repair reserve fund of between 100–150% of a month’s rent that they access to pay for repairs. You can put a spending limit on this fund, and ask that the payment be authorized if it’s more than a stated amount. Some property managers charge a markup of up to 20% of the repair cost for arranging maintenance, but this cost is much more often included in the monthly maintenance fee.
Always ask for the fee structure that the firm uses. Read any fine print carefully to make sure there are no hidden costs and clarify anything that seems strange. This way, you’ll understand exactly how much you need to pay and where that money is going.
Who Should Consider Property Management for Single-Family Homes?
There are a number of benefits to using a property manager for your single-family rental. Property managers take care of everything, giving you more time to do your day job, spend time with family or find your next investment property. They also have experience and systems in place that let them manage your property efficiently while making sure you meet all your legal obligations.
Property managers are good for people who don’t have a lot of experience in investing and don’t understand everything required. They’re also perfect for people who don’t have the time or inclination to deal with maintenance calls in the middle of the night or chase tenants for rent.
Property managers can also let you diversify your investment. It can be impossible to manage a property remotely, but with a property manager, you can choose to buy in a location that has low house prices or a growing need for rental properties no matter which corner of the country it’s in. Property managers can also help people with multiple investment properties. The more properties you have, the more time it takes to manage them. A property manager allows you to continue to build your portfolio without worrying that you won’t have time to keep the properties running smoothly.
Property managers do cost money, so people who are worried about their cash flow may prefer to take a do-it-yourself approach. However, keep in mind that managers often help you increase your profit by making sure you’re getting the highest amount of rent possible, keeping your vacancy rate down and making sure maintenance issues are dealt with before they can cause damage that’s expensive to fix.
Experienced investors who understand the legal requirements of being a landlord may choose not to hire a manager. Those who live near their investment property and only have one or two single-family homes may also find that they don’t need a management firm. Some people also prefer to know exactly what’s happening in their property and choose not to use a property manager so that they can keep full control of their investment.
What to Look for in a Property Management Firm
Firstly, make sure the manager has experience. You should ask them for details about their experience in both single-family homes and in the neighborhood where your property is located. Also ask them about their average vacancy rate, how they screen tenants and how they structure fees. Certifications demonstrate that your property manager is committed to their career. The Institute of Real Estate Management has a certification as an Accredited Residential Manager or Certified Property Manager for property management professionals.
Your property manager should have good references. Look at reviews online and ask other investors in the area if they have any recommendations. When interviewing potential managers, ask them for the phone number of a landlord and a tenant that they work with regularly. The landlord can give you information on how the firm’s systems work and if they send easy-to-understand tax information. Ask the tenant if the manager is polite and if they respond quickly to inquiries and maintenance requests. A property manager that’s difficult for tenants to deal with may lead to high tenant turnover.
Lastly, remember that you will be dealing with this person regularly. Make sure you find them professional and trustworthy because you’ll be entrusting them with one of your biggest investments.
Single-family homes have a lot to offer both new and experienced investors, but like all rental properties, they have the potential to take up a lot of time. A property manager can look after the day-to-day running of your investment, leaving you time to enjoy your profits or find your next money-making opportunity.