Should You Add Property Management Services?

Consider the pros and cons of expanding your brand to include rental services.

If you’re looking for growth opportunities in your real estate business, adding property management services might be the next natural step. Even though home buying is increasing, rental growth has remained constant over the past decade, creating a steady demand for quality property managers.

Property management broadens your real estate expertise by allowing you to work with property owners who are renting out their homes. As a property manager, you will build relationships within the industry, work with homeowners and investors who might be looking to buy or sell in the future, and develop a deeper understanding of your state’s real estate laws and financial practices.

Responsibilities of a Property Manager

Property managers work as the middleman between owner and tenant. You or your team would be responsible for any of the following real estate transactions for rental properties:

  • Marketing vacancies
  • Showing properties
  • Collecting and processing rental applications
  • Tenant screening and approving prospects
  • Lease signing
  • Move-in and move-out procedures
  • Maintenance management
  • Tenant relations management
  • Rent collection
  • Processing security deposits
  • Following state and federal real estate and landlord-tenant laws

Property Management Licensing Requirements

In order to manage rental property, you need to follow your state’s real estate laws and requirements. Most states require property managers to carry a broker’s license or a property management license that operates under a licensed real estate brokerage firm. This requirement is why we often see property management paired with real estate brokers.   

Property management licenses and real estate broker licenses are granted by state governments or real estate boards. One of the biggest reasons a broker’s license is required is because property managers must understand how to handle trust funds.

The Pros

1. Income potential. Property managers typically charge a monthly management fee between 7 percent and 10 percent of monthly rental income. So, if you manage 10 properties that rent for $1,000 each per month, you’ll earn $100 per property. The more properties you manage, the more your potential income increases. If you hire property managers to work under your brokerage firm, they typically get paid an annual salary.

2. Client relations. If you sell a property to an investor client, you can recommend your property management services to them as well. The other benefit of working with investors is that many will want to grow their portfolio and will look to you to help them purchase additional properties. Plus, if you create strong relationships with your renters, they will consider you and your team when they decide to make the transition from renting to owning.

3. Stable market. The housing market is cyclical, and there will inevitably be times when sales are slow. The rental market, however, has proven to remain strong, even when housing bubbles burst. The stability of the rental market means that you as a broker-owner can have a reliable source of income if your main revenue stream is jeopardized during an economic downturn.

The Cons

While it might seem logical to add property management to your real estate business, the move is not for everyone. Property management requires additional skills beyond those needed for traditional residential sales.

1. Tenant relations. Dealing with misbehaving tenants, tracking down rent payments, and handling maintenance crises are some of the top management hurdles.

2. Landlord-tenant laws. You will need to be familiar with all the federal, state, and local landlord-tenant laws. While you will initially learn about these laws during your required education class for your license, they change often. You will be required to stay up to date on them to protect your business and your clients’ and tenants’ best interests. 

3. Focus. If you are managing rental properties and working as a residential sales broker, you might find yourself pulled in too many directions to truly give your business the focus it needs to succeed. If you feel like you are stretched too thin and not giving the attention required to make your clients and tenants happy, it’s time either to delegate work or reconsider your business plan.

You’ll likely need to hire a leasing agent or a licensed property manager to help steer your company in the right direction. But adding property management services to your business has the potential to diversify your income and grow your firm’s client base. 

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