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Should You Use Property Management Or Not?

Posted on November 8, 2017 by Ray Williams (NMLS #216267).

Here you are, maybe a seasoned investor or buying your first rental (heck maybe moving out of your house and making it a rental). You may have that question running through your mind. Should you use property management? It is something we all go through, and a great question.

I have been on both sides of this, most recently back on the side of not. But there are things to take into consideration when wading through this decision. If this is your first time being a landlord you may be using this time to decide, if you want to be a landlord. Given the real estate market in Denver, holding your existing home , renting, and deciding if you want to be a landlord won’t lose you money. Because you will rent, and if even for a year , you will see appreciation on that home before you sell.

Then you have to decide should you use property management or not? It is a very ambiguous and loaded question really. To each of us may come a different answer. For example, if you own a condo it may be more clear cut to self-manage than if you own a townhome or single family home. You will want to wade through if you want to be a passive or active real estate investor. With property management you will pay a fee, likely a % of the first months rent, and a monthly % of the total rent received. Be mindful to have conversations with a property manager about decisions made on tenant improvements (repairs), who authorizes when they are done. This could become costly for a passive owner with a property manager without oversight.

Things to take into consideration would include; showing the property- do you have the time and desire to get this place rented? How will you handle showings to perspective tenants? How will you vet them? Will you pull their credit? Do a background check? Check employment and references? I am asked all the time, what do you do , Ray? Well, that is a cheat you see. I am a mortgage lender, and have been for 15 years. So I take a similar approach, and can say in 11 years of being a landlord on numerous properties, have evicted once, and had the property back in 3 weeks after the 1st of the month.

From there, once you have that tenant screened, where will you get your lease? Be mindful, that there are tenant and landlord rights in Colorado that we all have to abide by whether you are a tenant or landlord. How will you collect rent? What if they are late? Will you strictly enforce late fees, and are you willing to knock on a door if someone ducks you? Not trying to scare you, but it is the reality. IMO treat your rental as it is, an investment. I have a strict rule. You pay you stay. Pay on time, and we will take care of you. If you are late, you pay late fees. If you are really late, I will serve a notice to quit. I am not inhumane, but this is the reality of owning a rental property. Not a bad idea to have a Real Estate Attorney on retainer as backup. You may need this for an eviction should it ever go sideways.

If you decide to talk to property management companies, make sure to have them spend time with you on what services they provide. What they don’t do. Response times to requests from you and the tenant. Get to know them a bit, so you both end up happy for working together should you go that route. It can be a great way to offset the time demands placed on you when you choose to self-manage.

On a sidenote, but things to consider. How will you account for rents received? Will you set up a separate bank account for all things rental? Including the mortgage payment? Could be helpful when you go to prepare income taxes to be just a bit more organized. I digress. So , as you can see that is just the tip of the iceberg. Though one thing is constant, if you find you enjoy being a landlord and treat your home as an investment, reinvesting by keeping up on the maintenance, you are more than likely to increase your wealth over the years.

From the lending perspective, if you buy as a straight rental be prepared as you will need to use conventional mortgages. If you move out of your existing home and convert to a rental you may have more options on loan types. If you have further thoughts or are wanting to jump into this world and buy a rental or heck move out of your home and make it a rental, give me a call and we can chat! I have two younger clients, both single, both right now buying their next home and making their existing home a rental, and I couldn’t be more excited for them. Hope this helps you as you decide if you should use property management or not.

“Take calculated risks. That is quite different from being rash.” George S. Patton

Ray Williams I 303-779-0591 x101 I @MortgageMaestro

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