Four Practices To Stop When You Hire A Property Manager

When you choose to hire a property manager, it is likely the result of deciding to change your life as a rental owner. Most owners, who have tried to manage their property, eventually face a decision to sell or hire a manager.  It is not easy being the landlord and maintaining a professional distance from the tenants.   It is almost impossible if you are not located within a short drive from the home.   A rental owner, who has self-managed their properties,  may find it difficult to relinquish certain practices when they hire a manager.   Sometimes the new property manager learns about a practice from the tenant, or the owner asks about it when signing the management agreement.  When identified, the rental owner should be reminded that stopping the practice is important to achieving the goals they desired when they decided to hire a property manager.

Here is a list of a 4 self-management practices that need to stop when you hire a manager.  Doing so will allow the rental owner to achieve the freedom and efficiency they desire.

Security Deposits

Probably the most common issue is handling of the security deposit.  Most states require that a non-owner, who leases property for another party,  must hold a real estate license.  An owner can lease their own property without a license but otherwise, the state's real estate laws apply.  Universally, real estate laws that must be obeyed by licensees require that security deposits be held in a separate escrow account that is owned by the brokerage and is subject to audit by the state.   The owner can not hold these funds.  This can be an issue with owners who hold a security deposit for their current tenants.  As soon as the manager has the tenant execute a new lease, the security deposit will need to be transferred.  If the owner holds the security deposit, there are a couple of ways to move the funds to the escrow account.  Either the owner sends the funds or collected rental proceeds can be held to create a security deposit in the manager's escrow.   The licensed manager has a fiduciary responsibility to the tenant to ensure their security deposit is in safekeeping.   It may be a new way of thinking for an owner to recognize that the security deposit is not actually their money.  It belongs to the tenant until an eligible event allows for deductions.

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The owner should never interview the prospective tenant once a manager is hired.  Some owners have become accustomed to interviewing their potential tenants and they still want to continue this practice.  The reasons this should not continue are numerous.  One is the owner should not establish a relationship with the tenant in order to allow the property manager to do their job.   The property manager often has to wear a black hat to the tenant and the last thing an owner wants is the tenant to feel they can just turn around and contact the owner about the big, bad property manager.  Avoiding these confrontations with tenants is often a big reason an owner decides to hire a property manager.  Another large, sensitive issue concerns Fair Housing laws.  Anyone who holds a real estate license can not be a party to any type of discrimination when it comes to the sale or leasing of a property.   It is hard to speculate the line of questioning that could ensue between an owner and a prospective tenant, but as long as there is a licensed property manager they will be expected to monitor and ensure all the Fair Housing standards and laws, both locally and nationally, are followed.

Tenant Screening

Similar to the reasoning above, the owner can not be given a copy of credit reports or background checks.  The manager can review these and give general descriptions and recommendations, including to proceed with a lease or a declination.  Privacy laws protect tenants and this information.  A property manager is held to a very high standard by nature of having a real estate license.  In addition, in order to be approved for access to the types of information involved in a rental screening, a company has agreed to a number of commitments that involve how to handle the delicate information obtained on applicants.   An owner will have to trust the manager and their processes and screening procedures.  With trust, it will be easier to follow the manager's recommendation.  It is a key part of the relationship.

Inspections

Owners should not inspect their property's interior while occupied by a tenant.  Your tenant should not be subjected to a surprise visit from the owner.  A manager can't stop this from occurring but it is likely a violation of the tenant's rights.  Most leases provide the tenant with the right of a notice prior to the manager (or any party) entering the property.  There are certain exceptions such as access related to emergencies.  The curious owner is not one of those exceptions.  Additionally, these owner inspections create a direct communication between tenant and owner.  That usually moves the manager out of the loop and makes it difficult to provide the services in the agreement.  Again..why did the owner hire a property manager if they want to have this type of relationship with the tenants?  Let the manager follow their inspection processes and review the information as it is provided.

It is natural that an owner wants to stay a part of the management of the property they own.  If you are considering whether to hire a property manager for a property you self-manage, do an analysis of what you will gain with a manager versus what you will need to give up.   A professional manager will provide transparency, professional third-party management, income maximization strategies, and the resources to lease your property faster.  In return, the owner will step quietly into the background and spend their time on something else.  Ideally something that the owner finds much more rewarding!

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