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Whether you’ve invested in a multi-family apartment building or are trying to flip the farmhouse you inherited from your great aunt, a property manager can be a welcome addition to the team. A property manager can result in better-maintained units, increased profitability, and higher-quality residents.
Plus, when you have fewer tasks on your plate, you gain the free time necessary to investigate new investments. You may even find ways a property manager can help with expanding your real estate portfolio.
No matter your reason for hiring a property management firm, once you’ve found your ideal match, what’s next?
It’s time to put together the all-important property management agreement.
So you’ve found a promising property manager. Let’s sign on the dotted line. That’s basically what a property management agreement is: two parties putting forth their responsibilities and outlining the partnership going forward, in writing.
A property management agreement (PMA) is a contract between the property owner and the property manager. It’s the perfect place to iron out the details of what will and won’t happen within your impending professional relationship.
Documented agreements serve many purposes, chief among them is the protection of all parties involved. As with other partnerships, it’s imperative to outline what each party is responsible for. The purpose of a property management agreement is to clarify the role of both the property owner and manager.
A PMA ensures everyone knows what to do on a daily basis, and can minimize disputes later on. At the end of the day, you want to know that your investment is in good hands. A PMA delineates the daily tasks of running a property, such as responding to tenant requests, handling routine maintenance issues, and filing time-consuming paperwork.
While the exact language of property management agreements can vary quite a bit, there are a few key elements that should always be present.
The top of the document should begin with the full legal names of all those signing. Include the name of the property owner or the rental portfolio business name as well as the name and contact information of the property management firm. Also, this section should include the date the contract goes into effect.
This is the place to be as explicit as possible about what property management services will be included. While needs vary from owner to owner, typically property managers take care of one or all of the following:
You’ll also want to keep in mind your or your property manager’s engagement with tenants when creating this section. If you’re not sure where to start when considering tenant needs, surveys show that tenants prefer property managers who:
Considering tenant desires alongside as your own will help when including all necessary elements in your final agreement.
You’ll also want to incorporate language surrounding the dates of the agreement and what to do if the worst should happen. This section often outlines a set date for the contract to end or renew, what events may bring the agreement to an early end, what to do if someone wants out of the contract early, and how those involved will complete any outstanding obligations in that event.
In addition to stating explicitly what property management services will be offered, a property management agreement lists owner responsibilities. Most commonly, an owner who wants to work with a property management company agrees to have:
Of course, there are limits to what an owner is entitled to when their property is occupied. It’s best to familiarize yourself with a few of the things landlords can’t do.
While the actual monthly total can vary considerably, property managers generally charge in one of two ways: a monthly percentage of the rent or a fixed amount. Both are common practices and are accepted in the industry. You just need to discover what works best for you and your real estate investment.
With all these moving parts to consider, the good news is that you don’t have to reinvent the wheel by creating a property management agreement from scratch. Beginning with a template and adjusting the language as needed to fit your situation is a time-saving step we highly recommend.
So much differs state-to-state when it comes to the real estate market, including whether property managers need to obtain some type of licensure, what you can do with security deposits, and even how much rent you can charge. While some things remain consistent across the country—such as the necessity for compliance with Equal Opportunity Housing and Fair Housing Laws—it’s necessary to familiarize yourself with state laws prior to creating your agreement, to ensure you don’t wind up in legal limbo.
Partnering with a property manager is an excellent way to increase profitability, shorten your monthly to-do list, and expand your real estate investments. A property management agreement is the first step toward building that fruitful relationship. If you’ve decided to join 72% of other landlords who work with property managers—start your search here.