A common decision that landlords encounter is: Should we hire property management? In order to answer this question, let’s take a step back. What is property management in the first place?
We as landlords have to manage our assets (properties), and how well our business runs depends on how effective our management is. We have an option to hire outside help (e.g. property managers). Even so, we still need to learn what constitutes good property management in order to differentiate a bad property manager from a good one, right?
Let’s tackle this question from a slightly different angle: What do we mean by good property management?
What defines good property management is a system that works. The system of property management can be broken down into three main components: the Sweet Talker, the Muscle Man and the Numbers Guy.
For a first-time landlord, the landlord himself may be the Sweet Talker AND the Muscle Man AND the Numbers Guy. For a large 500-unit building, there will be multiple people handling each component. That said, the general principle remains the same. This 3-component system of property management can be applied to any landlord with any portfolio size.
Let’s explore these three roles in more detail.
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The Sweet Talker
The Sweet Talker’s main role is to foster landlord-tenant relationship by addressing concerns and resolving issues. The Sweet Talker is the PR (public relations) person for the landlord.
The Sweet Talker is a people-person with diverse skills. Some required skills include:
- Sales & Marketing Knowhow: The Sweet Talker garners prospective tenants’ interests in order to rent out your properties. Once interest has been captured, the Sweet Talker utilizes sales skills to convert the prospects to view the property, and if all goes well, to negotiate leases.
- Ability to Read People: The Sweet Talker screens the most suitable tenants, so knowing how to read people is essential.
- Effective Communication & Interpersonal Skills: The Sweet Talker facilitates contact with landlords, tenants, contractors, attorneys, government officials and many more professionals. The Sweet Talker is the “glue” for everyone.
- Diplomatic Abilities: The Sweet Talker manages relations, getting routine things done, such as collecting rents, responding to tenants’ complaints and even pursuing evictions. A Sweet Talker should be good at playing as a nice person as well as a tough person.
- An Understanding of Psychology: Home can be an emotional topic. The Sweet Talker is adept at communicating with residents in a positive and understanding tone.
The Muscle Man
The Muscle Man keeps your rental properties intact.
- Mechanical Skills: The Muscle Man manages the physical aspect of premises and maintenance issues to ensure they are addressed promptly. As cliche as it sounds, an ounce of prevention is worth a pound of cure. The other way to look at it is that the inherent value of your investment properties will increase through regular and proper upkeep, thereby increasing your financial gain.
- Maintenance Expertise: Things break and deteriorate. The Muscle Man devises maintenance plans and prepares for maintenance issues: emergency, preventive, corrective, custodial and cosmetic. Other seasonal operations include removing snow and mowing the lawn.
- Rent Collecting Abilities: Aside from the physical aspect, the Muscle Man can also help to collect rents under certain circumstances, say, when a particular tenant refuses to pay rent and gets rowdy when demanded to pay. (Note: Obey the laws. Meanwhile, it doesn’t hurt to have a muscle guy on your back.)
The Numbers Guy
The Numbers Guy manages the financials of your investment properties.
- Administrative Skills: Accurate documentation is required.
- Knowledge in Accounting, Bookkeeping, Finance & Economics: The Numbers Guy is responsible for keeping track the incomes and expenses of the properties. On the expense side, he ensures the service providers (e.g. the Muscle Man, the Sweet Talker) get paid. On the income side, he keeps track of tenants who owe rent. Overall, he manages invoices and generates reports on the financial health of the properties for the owner to review. Essentially, when it comes to money, the Numbers Guy is a part of it.
- Other Abilities: A great number guy goes beyond this. Aside from the routine work highlighted above, he takes a step back and sees the big picture, the whole portfolio. For example, he makes suggestions on how to maximize the income while allocating appropriate resources for maintenance expenses and debt servicing. He detects anomalies that eat into the owner’s profit (e.g. unusual water bill). He evaluates the properties that are the “winners” that the owner should keep and the ones are the “laggers” that the owner may want to sell. He devises management plans that reflect the owner’s best interests and objectives.
More often that not, he is the landlord’s right-hand man.
You should have a firm grasp of what good property management entails by now.
To summarize, property management is a specialized conglomerate of public relations, handyman and bookkeeper. All of them are key to your success.
Once you know what good property management means, whether or not you want to hire a property manager should be natural to you. From my experience, when I bought my first property, I didn’t hire a property manager, and it is completely manageable. As the business grows, more and more money (and maintenance issues!) come in, and you’ll know when it will be time to hire a property manager. The key to hiring a good property manager is to understand what good property management entails.
A quick tip: If you are concerned about the costs, at least outsource part of the work to someone else. If you don’t want to get your hands dirty, have a muscle man to do the work for you. If numbers are not your forte, hire a numbers guy to take care of it. Sooner or later, as your portfolio becomes bigger, you will have to hire outside help regardless, so might as well be now!
As a landlord, your main goal is to develop your business. The last thing you want is to be inundated, which will deter you from pushing forward. Once you have your Sweet Talker, Muscle Man, and Numbers Guy in place, you can focus on what matters most – building your real estate empire (or researching on your next vacation destination).
What roles are non-negotiable to you when it comes to property management?
Let me know with a comment!