You’ve finally decided. You want to keep the home you’ve been living in for the last few years, but you don’t want to or can’t continue living in it. Selling it just doesn’t make a lot of sense in this market.
But you don’t want to manage it yourself. The thought of finding a tenant, putting together a lease agreement and managing all the maintenance requests that might come is just too much for you right now.
You want to hire a property manager. The only problem is … you don’t really know what property managers do or how they operate. Before you embark on your search for the perfect property manager, here are the basics to give you a baseline:
Basic Responsibilities
First and foremost, your property manager is responsible for leasing the property to a tenant that can and will pay the rent every month, maintaining the property so it holds its value over time, manage the accounting of rent and all the bills and keep detailed records of everything that occurs with the property. Property managers are there to take care of everything associated with the property.
The Investments (also known as fees)
We like to use the term investment, because a good property manager is laser focused on generating returns on your investment. Those returns come from maximizing rental income and maximizing asset value. That’s why it’s important to select a manager who will make sure the property is well maintained and take care of the tenants who live there.
That requires an investment on your part in the property manager. Most property managers charge a monthly management fee of 7-10 percent of rent. Be careful about selecting a property manager based on the lowest fee. It costs money to run a property management business effectively. The lowest bidder here might not be running their business in a sustainable way or they might make up the losses in other ways.
The second investment is often the leasing fee. Most property managers charge between 25 and 50 percent of the first month’s rent. If this fee seems expensive to you, it’s because leasing a home is the most time and resource consuming activity. The home has to be listed on all the listing sites and someone has to physically show the property in many cases. Low leasing fees generally mean the property will be self-shown, which can be effective, but can also add risk to the property.
The third investment is the maintenance markup, which is usually around 10%. Some Denver Metro Area property managers advertise that they don’t charge a maintenance markup. If they aren’t charging you the maintenance markup, they are usually making up that revenue some other way. Sometimes by charging the vendors instead, the costs of which are still passed on to the owner. Either way, there is a maintenance markup being paid somewhere.
The final investment is the setup fee. It costs money to onboard a new property. A setup fee often covers or offsets those costs for the property manager. It partially pays for things like photography, technology setup time, etc … This fee is generally pretty small in comparison to what will be made in rent, but you should be prepared to spend $200 to $300 for this.
The Accounting
Property managers in Denver Metro Area must be licensed real estate brokers and follow the rules set forth by the Colorado Division of Real Estate. This means all rents go into an owner’s trust account and all security deposits go into a separate trust or escrow account. Those accounts cannot earn interest. If interest is earned, it has to be donated to a specific non-profit organization.
The accounts have to be managed very carefully and in accordance with rules of the division of real estate. Those rules do change regularly and the property manager is responsible for adhering to them. The important things you need to know are: 1. You often need to provide a reserve fund around $500 that is used to pay for repairs when rent money isn’t available to pay for them and 2. Your property manager is required to provide you with a monthly statement.
Property managers have a very complicated job because managing properties is not easy. If you’re thinking about renting out your rental property in Denver Metro Area, it’s critical that you choose an Denver Metro Area property management provider that cares about your property and your tenants as if they own the property themselves.
