What Does a Property Management Company Do?

By: , Contributor

Published on: Oct 23, 2019

Know what you’re getting into before turning over your investment to an outside company.

What does a property management company do?

It handles most -- and often all -- of the tasks related to owning rental properties. A property manager oversees tenant turnover, collects rent, screens tenants, runs background checks, performs property maintenance, and does many other things you would otherwise do as the property owner.

If you hire a property management company, you pay a management fee to make most of the headaches of rental property ownership go away.

When you own a short-term rental or vacation rental property, there’s a lot of work associated with keeping the profits coming in. You need to find and market to people who want to rent the property. You also need to handle the basic mechanics of having short-term guests. That’s what a rental management property company does for you. 

Handling things like tenant turnover, background checks, and day-to-day upkeep isn't easy, especially if you don’t live nearby. If you can’t easily visit, it’s hard to know if guests left at the proper time. Arranging for check-in is a challenge, too. These logistics can be hard even when things are going well, and they could be too much to manage even if you live close by.

In many cases, people who own short-term or vacation rentals outsource these tasks to a property management company. The company makes sure everything runs smoothly.

Should you hire a property management company?

Before you hire a property management company, take stock of your situation. If you don’t live close to your property, you probably need someone nearby to manage it for you. What would happen if a guest had trouble accessing your rental or didn't leave at the time stated in your agreement? Would you get on a plane to unclog the toilet or help a renter kill a bug in the kitchen?

Even if you live close by, it’s worth considering what you want to be responsible for. Do you want to maintain a calendar of who's renting your property on which days? Can you market the property or clean it between guests? Are you willing to take late-night phone calls asking you to solve problems?

A property management company handles most, if not all, of the work associated with renting out your property. You’ll pay a percentage of the rental price (there’s no standard rate, but 10% is common) and in exchange, the company will generally handle the following things:

  • Managing your rental calendar
  • Making sure tenant turnover is timely
  • Running background checks and screening tenants
  • Cleaning between guests
  • Solving access issues
  • Maintaining the property
  • Resolving guest complaints
  • Making sure guests leave when they're supposed to
  • Any other reasonable issue involving renting your property

And that's just for residential property management. If you rent commercial property, a manager might do even more.

Many property management companies also market your property and help you find renters. That’s more likely if you own a place in a resort area where there's heavy demand for rentals.

If you use a property management company you no longer have to think about your investment property on a daily basis. You're now paying someone to run the property for you. And, since a property management company generally gets paid only when someone's renting, it has a major incentive to find tenants and keep your investment property booked.   

Many owners prefer a property management company if they want a passive investment. You'll still have work to do, but it'll be much less than if you manage the property yourself.

Know what you're getting into 

Do your homework before picking a property management company. Find out what the company does and how involved you'll need to be. It’s also important to know the rules. For example, some property management companies require you to rent the property out for a certain percentage of the year. That may not work for you if you use the property yourself.

Ask property management companies for referrals and talk to some of their clients. Of course, they'll only give you people who had a good experience. But you can still get useful information by asking the following questions:

  1. What percentage of the year was your property rented for?
  2. Were you happy with the income you made?
  3. Has the property been well maintained?
  4. Have you had any problems? How were they handled?
  5. Is there anything else you'd like to share?

You can also solicit opinions from people you know. And it’s never a bad idea to see what’s on websites like Yelp. If a property management company has negative reviews, look to see how it handled them. Did someone from the company respond and politely address the issue? Were they dismissive and rude?

Nearly every property management company occasionally deals with unhappy customers. A property may not meet expectations or the weather may ruin someone’s beach trip. How a company handles complaints, however, is very important. A property management company that doesn't respond or is rude in a public forum is probably even worse behind the scenes.

If your rental property is in a resort, there may be an in-house property management company. Using that in-house entity may cost you a bit more, but demand for your unit may be higher because the company markets the property as a whole.

Why a rental property investor needs a property management company

If you rent out an apartment over your garage or something close to your home, you may not need a property rental management company. In those cases, you might be able to handle the needs of your tenant -- and you may even know people who want to rent the property.

Once you venture into owning multiple investment properties or buy one that’s not close to where you live, you almost certainly need outside management help. Even if you are nearby, it’s worth considering if you really want to manage your property. It takes a lot of work.

A rental property management company should be able to get fast service from providers like plumbers and electricians. In addition, property managers will have their own people who can handle basic maintenance or help someone access a property when they lost the key or the keypad breaks.

Hiring a rental property management company is about peace of mind and being realistic. It doesn’t take too many late-night phone calls or irate tenants to make someone pick up the phone to find a property manager.

When you use a property management company, you're paying someone to do work that you don’t want to do. Property owners who like all the work that goes into renting a property, may want to be active landlords. If you don't like that work, hire a property manager.

What does a property management company do? In short, they save you a ton of work and help you make money -- for a price.

The Motley Fool has a disclosure policy.