Property Management, Is It For You?

Property Management

Mark Hutchins & Jereme Kleven
Owners
My Home Group
8360 E. Raintree Drive, Suite 120
Scottsdale, AZ 85260
myhomegroup.com

 

For much of the last year, we all have had a seat in the first car of the current home-selling market rollercoaster ride. Salespersons and brokerages alike have become accustomed to adapting on the fly and staying ahead of the trends including recognizing the opportunities that rentals provide. With rental inventory on the rise, some brokerages and agents will be looking for alternative revenue sources and may begin to consider engaging in property management. Property management broadens a licensee’s real estate sphere by creating scenarios for an agent to interact with property owners, renters and investors, all of whom often become long-term clients and referral sources.   

Responsibilities of a Property Manager

Broadly speaking, Property managers are responsible for a variety of services, including, but not limited to: (1) listing and marketing the rental property; (2) engaging with prospective tenants and/or their agents; (3) processing rental applications (including background checks, credit score reviews and the like); (4) negotiating the lease; (5) move-in and move-out procedures; (5) handling trust account monies; (6) handling deposits; (7) collecting rents; (8) tenant relations management; (9) processing deposits; (10) maintenance management and being familiar with Arizona’s Landlord Tenant Act.

Let’s explore a few details to assist with the due diligence process to determine if this is for you.

The Pros

  1. Income potential. As stated, this is an additional potential revenue source beyond the traditional home selling and buying market. Where does this revenue come from? 8.7% is the average monthly management fee offered in Phoenix by property owners with one single-family home, with ranges spanning between 6-12% of the monthly rent depending on the tier of service provided and number of units managed. In addition, property management companies usually charge a tenant placement fee for each new lease. Those fees vary from management company to management company, but are often 50% of the first month’s rent. 
  2. Client relations. Property management serves as another avenue to increase an agent’s sphere. Specifically, working with investors may result in the investor acquiring a large portfolio that requires property management. When it comes time to sell those homes, the investor will likely trust the agent that has managed them successfully. Alternatively, renters often turn into buyers and buyers turn into clients. Maintaining a high level of customer service and effective nurturing, will ultimately fill the agent pipeline.
  3. Stable market. The housing market is cyclical, yet the rental market is strong and inventory is on the rise in Arizona. (Rental supply was the highest ever recorded in the MLS in December 2022) In fact, historically the rental market in Arizona has remained strong even in turbulent times and inventory has more than doubled over the last year. 

The Challenges

  1. Tenant relations. Tenants may break leases, may damage homes and may be disorderly. This alone is a headache. The property manager is often the one who screened the tenant and a landlord may quickly become unhappy in these situations and place blame. This is why proper screening is a vital part of the process. 
  2. Managing money. Property management is one of the few areas in real estate where a licensee will hold and manage money. This should be in the form of a trust account and be clearly defined in a property management agreement. Money management requires meticulous oversight, bookkeeping skills and accurate reporting which is fraught with issues if not done properly. This is apparent in the number of civil issues and complaints we see disclosed by the Department of Real Estate.
  3. Landlord-tenant laws. Most licensees are not lawyers. This does not diminish the property manager’s responsibility to be intimately familiar with the local, state and federal laws. From the return of security deposits, to fair housing laws, the owner-landlord expects a certain level of knowledge and expertise in this area; so, know your craft.

Before you jump into this pond, make certain you are familiar with your brokerages policy and procedures regarding property management and familiarize yourself with the AAR Property Management Agreement.

As we navigate 2023, there are opportunities abound for the entrepreneurial agent and/or brokerage; you may find this is in property management.