You may have had a good year representing buyers and sellers in 2015, but perhaps not a great one – which is why you’re challenging yourself to come up with a plan to significantly grow your business in 2016.
As you drive by yet another home with a “For Rent” sign on the front lawn, you may start thinking about property management. After all, how difficult can it be to collect rent once a month? Plus, it could be a terrific way to build relationships with potential home buyers without spending a lot of time and money trying to find them.
Not so fast. Here are five questions to ask yourself before you make any drastic changes to your business endeavors.
1. What does a property manager do? The short answer is: a lot. According to the California Bureau of Real Estate (CalBRE), the many duties of a property manager may include establishing a rental schedule that will bring the highest yield, merchandising the space, overseeing maintenance and repairs, maintaining proper records, preparation and execution of leases, tenant qualification, advertising and marketing of vacancies, obtaining and paying insurance premiums and taxes, and compliance with federal, state and local laws. And that’s just the beginning. As the CalBRE also points out, property managers are frequently called upon to act as everything from decorators and gardeners to janitors and handymen. And don’t forget, property managers also have the thankless task of evicting tenants for a variety of reasons – none of which are likely to produce a home buying client for you.
2. How are property managers compensated? Property managers can be paid a flat monthly fee or a percentage of the gross rents collected, or a combination. Percentage of gross rents collected can vary but generally range from 3 percent for major facilities to as high as 20 percent for single-family homes or smaller buildings. In high-demand areas, this may reach as high as 50 percent, according to the CalBRE. In some cases, property managers may receive compensation based on the number of leases renewed.
3. Do I need a special license or certification? Property management activity requires a real estate broker’s license. Salespersons may conduct property management activity only under the broker under which they are licensed and only with the broker’s permission. Brokers must supervise any property management activity by their salespersons. There also are several organizations that foster professionalism, individual education, and ethics within the property management sphere. Among others, C.A.R. offers a Property Management Certification (PMC), and NAR offers a Certified Property Manager® (CPM®) designation. In addition, the National Association of Residential Property Managers (NARPM) also offers its own designations.
4. So what’s the catch? Chances are you’re already working more hours than you would like in order to serve the needs of your current clients. Establishing a new, part-time property management business with its own set of demanding clients may not result in more income when you evaluate your efforts at the end of the year. While the sales cycle for renters may be shorter than a home sales transaction, most rental deals are far less lucrative than traditional home sales – particularly when you consider the risks involved.
5. What risks? Property managers should be knowledgeable in everything from the Americans with Disabilities Act and the Fair Housing Act to regulations and laws governing the handling of security deposits, data privacy and so on. In this day and age, litigation can cost you big money if you fail to follow the rules of the game.
One way to avoid these and other risks is to work side-by-side with a professional properly licensed property management company. They have the expertise required to take on the challenges associated with investment or rental properties, pay the agent or broker a referral fee, and make sure the agent or broker is notified when a client is ready to sell. It’s an ideal business-building solution that doesn’t require agents and/or brokers to establish a second career.