What is Property Management? The Beginner's Guide to Building Your Empire
Curious about property management? Whether you own an investment property, you're a property manager - or even just looking to break into the industry - you’ll gain a solid introduction to property management in this article. By the end of this page, you’ll know the differences between a property management company and an individual property manager and understand the benefits of using one or the other. Let’s get started!
Property Management Defined
In short, property management is the operation and oversight of real estate assets. Property managers can work with residential properties, such as apartments, condominiums, townhouses, or detached single-family homes, or commercial properties, like shopping centers and office buildings. Property management serves as the bridge between the property owner and the tenant, and the property manager often handles maintenance and physical upkeep in addition to driving revenue and interfacing with tenants or guests.
Types of Rental Properties
When it comes to residential rentals, properties that look the same on the outside can be managed in completely different ways. Residential rentals can be split into two categories: short-term rentals and traditional long-term rentals. Depending on the goals and preferences of homeowners, they might decide to focus on short-term or long-term rentals.
Short-term rental properties are made available for stays less than one month in duration. Some short-term rentals allow nightly reservations while others focus on weekly stays. Short-term rentals are an alternative to hotels for vacations or business trips; they’re fully furnished and usually come stocked with linens, toiletries, and kitchenware. The phrase “short-term rental” often refers to urban apartments that allow short stays, while “vacation rental” or “vacation home” refers to detached houses available for short stays.
Long-term rentals, on the other hand, generally only allow stays longer than one month, and it’s not uncommon to find traditional rentals that have a 1-year minimum leasing term. These properties are usually unfurnished. Tenants can bring their own furniture, set up their own utilities, and make the place feel like home with their own decor.
Property Management Structures
In some cases, the property owner manages their own property, but many owners choose to outsource the hassle of property management activities to a professional, whether that be a real estate agent, an individual property manager, or a property management company. In all of these structures, the owner pays the property manager a fee or commission for their services and pricing varies based on the level of service provided. Some service providers only handle key hand-offs while others may manage multiple units within a larger multi-family complex and handle other facets of the operation such as: listing sites, maintenance requests, rental income accounting, setting up VR management software and even managing housekeeping services.
In popular leisure destinations, it’s common to see real estate brokers that double as property managers. Why? Many of the broker’s clients are purchasing vacation rental homes that they want to rent out during the parts of the year they’re not using the property. These broker-managers offer deep expertise in the local market and in the real estate and property management fields.
Other owners might choose to hire an individual property manager to handle all property management activities. An individual property manager will be dedicated to the property and know all the ins and outs of the property, the market, and the tenants or guests.
Professional property management companies also bring a wealth of experience and access to relationships with construction companies, travel agents, and other relevant connections. Some property management companies focus on a specific niche, like condos at a specific ski resort, while others manage hundreds of vacation homes of various sizes and price ranges across the world.
A Day in the Life of a Property Manager
What exactly does a property manager do? Whether a company or an individual manages the property, the operational tasks will be quite similar. Property managers have two main responsibilities: maintain the physical property and handle the business aspects of the property’s operations.
From a maintenance perspective, the property manager would respond to any alerts of damage or maintenance issues. If a tenant or guest notifies the property manager that there’s a leak in the bathroom, the property manager will contact a plumber and ensure the issue is resolved. The property manager will also schedule seasonal maintenance, such as winterizing pipes or cleaning gutters.
The property manager is also the link between the owner and the tenant or guest. At short-term rental properties, the property manager advertises the property, manages reservations, ensures guest satisfaction, and schedules cleanings between stays. At long-term rental properties, the property manager also advertises the property, but rather than accepting reservations, they screen potential tenants, manage lease contracts, and bill tenants for rent payments.
Why use a Property Management Company?
Property owners who want to outsource property management must decide whether to use a broker, an individual property manager or a property management company. Property management companies can offer several important benefits that deliver additional value for the owner and the overall business: expertise, connections, and scale.
Property management companies that work with dozens or hundreds of properties and have years of experience can bring valuable expertise to the table, especially for short-term rentals. These companies know how to market properties online, delight guests, and provide great experiences. Their operations are a well-oiled machine, and they know the nuances of hospitality, marketing, and legal requirements in the area.
In addition to operational expertise, property management companies have relationships with vendors and contractors who work closely alongside them. If your property needs maintenance or decor advice, the property management company can likely snag a discount on these services. Not only that, but if the property management company provides cleaning services, furnishings, or linens, they often receive bulk discounts by operating at a larger scale, which means the owner can save money too.
While property management companies can deliver a lot of benefits for owners, it’s important to remember that these benefits come at a literal cost in the form of a management fee or commission. The owner must balance their own financial goals with the efficiencies that come with using a property management company.
Property Management Licenses and Credentials
Another reason that owners choose to work with property managers is that many local municipalities require specific licenses or credentials. Some states or cities require property managers to hold community management licenses or special operating licenses for short-term rentals. The application process for these licenses can be complicated and lengthy, and a professional property manager will know secrets to a successful application.
Besides operating licenses, some states mandate that property management companies also hold broker’s licenses, which allows them to advertise properties via the multiple listing service (MLS) and hold showings at rental properties.
Whether you’re investing in real estate for the first time or considering launching your own property management company, you can find exciting business opportunities with short-term and long-term rentals.
What else do you want to learn about property management? Let us know!