Each year clients come to us at Cliffdwellers Real Estate and ask us to explain leasing vs property management, or “What is the difference between leasing and property management?” This is a very good question. We certainly understand the need to know the difference, as it is a choice an investment property owner is going to have when you decide to hire someone to assist you with your rental property. Here at Cliffdwellers we offer both leasing and full service property management, and we know that you have the third option of managing the property yourself. And the truth is, hiring a leasing agent or a property manager might not be the the best fit for you. In fact, managing the property yourself might be a better option for you. What this post is going to do is to explain the pros and cons of each type of program in an honest and transparent manner. This way, by the end, you’ll be able to identify which option is best for you.
First, let’s explain what each option is and then we can discuss the pros and cons of each.
Leasing is simply the process of marketing a property for lease, performing property showings and performing some agreed upon administrative tasks. These tasks may include things like reviewing tenant qualifications and getting a lease signed along with collecting the deposit and first month’s rent. After the lease has been signed the duties in a leasing agreement are generally complete, and the terms of the leasing agreement fulfilled.
Property management most often includes all of the tasks that are performed as a part of a leasing agreement but the property management company continues to be the primary point of contact for the tenant. So, for example, if there is a late rent payment the property management company would follow up to collect the past due rent, or if there is a water leak in the property the tenant would contact the management company and the management company would dispatch a maintenance company or in-house maintenance personnel.
Self management is leasing and managing your property and your tenant from start to finish without any professional assistance of a leasing agent or a property manager.
Leasing vs Property Management vs Self Management
To sum it all up, self management is for the true “do-it-yourself-er” who is comfortable with all aspects of the leasing and management process, or is okay with learning as they go. The difference between leasing and property management is with leasing, once the property is leased, you are self managing the property and the tenant relationship throughout the term of the lease and with property management you are hiring a professional company to manage the property and the tenant relationship throughout the lease term so that you don’t have to.
So let’s dive right in to the pro’s and con’s of each option:
1. Pro’s and Cons of Leasing
Pros of leasing.
The following are a few of the benefits of hiring a leasing agent:
- Marketing tools. Most leasing professionals have access to many marketing tools that will aid in exposing your property to the widest pool of potential renters.
- Tenant screening tools. Whether you your leasing agreement states that you will approve the tenant or the leasing agent will approve the tenant your leasing agent will have access to tenant screening tools that should screen for credit history, criminal background, evictions, and income. Having access to these tenant screening tools provides for a more informed decision which should lead to a better quality tenant.
- Property showings. Hiring a leasing agent will allow your property to be shown even when you are busy, out of town or unavailable for any reason at all. A good leasing agent makes himself or herself available to show property throughout the day and many companies have dedicated leasing agents that only show properties.
- Sales skills. Not everyone likes to sell and not everyone is good at it. Hiring a leasing agent that has sales and customer service skills will take the “sales” aspect out of being an investment property owner and put someone who has sales and customer service skills on your team.
Cons of leasing
- Who’s tenant? When you hire a leasing agent they communicate the terms of the lease and any expectations that you have of the tenant and that the tenant can have of you. If there is any miscommunication during the lease up process you are the one who is going to have to deal with the commitments that have been made. In addition, the tenant has worked through the entire lease up process with the leasing agent and then once the lease is signed and they have paid the deposit, they are told to deal directly with you. Often times the tenant will still contact the leasing agent, thinking that the leasing agent is their advocate if they should happen to have a disagreement with you and the leasing agent is no longer under contract to represent you.
- Maintenance and repairs. When hiring a leasing agent you are still responsible for coordinating all of the maintenance and repairs that become necessary during the lease term and without a full roster of vendors you could find yourself handling a repair late at night or in an emergency situation without having a vendor that you have used and trusted previously, causing you to essentially “roll the dice”.
- Ongoing responsibilities. Using a leasing agent to lease your property makes the “lease up” phase of owning an investment property easier but it still leaves you with the ongoing responsibilities of managing the property and the tenant relationship for the remainder of the lease, most often the full 12 month term. This means that if the tenant relationship gets off to a bad start, you are stuck addressing tenant concerns, coordinating maintenance, collecting rent, and processing the security deposit return, which means you need to be an expert in the difference between damage and ordinary wear and tear.
- The cost. While there is no set price for leasing services the typical fee that we have seen in this market is a leasing fee equal to 1 month’s rent for a 12 month lease. Some companies have higher fees or have set minimums but you can expect to pay around 1 month’s rent. For many landlords, finding a tenant, screening them, getting a signed lease and a deposit is worth the price, while others see this as an unnecessary expense, especially when compared to what you get when hiring a full service property management company.
2. Pro’s and Con’s of Property Management
The following are a few of the benefits of hiring a property manager:
Pro’s of property management
- Hands off investment. When you hire a property management company to manage your property you get all of the benefits of a leasing agent and you get the additional benefits of turning over the day to day management of your investment to a team of experts. This allows you to focus on what you do best or have more free time with less stress.
- Vendor relationships. When you hire a property management company you also hire their team of trusted vendors and contractors. Most companies have responsive and trusted vendors that provide quality services at a fair price. A good property management company will have a vendor screening program and will only send pre-screened and pre-approved vendors to your property ensuring that the vendor is properly licensed and insured and are familiar with the expectations set by the management company for work performed in your property.
- Expert representation. A licensed property manager, especially a member of the National Association of Residential Property Managers (NARPM®), will work as your agent, promoting your interests above all others in the management of your property. Most management agreements will state, just like in a real estate sales contract, that the property manager is your agent, if it doesn’t, ask what happens if there is a dispute. Who’s side are they on? In addition to agency, NARPM® members spend a considerable amount of time becoming educated in the latest legal trends, market trends, and market conditions which all lead to a smoother experience for you as the property owner. NARPM® is considered the source for education in condo and single family home management by the Colorado Real Estate Commission as stated in chapter 21 of the Colorado Real Estate Manual produced by the Colorado Real Estate Commission.
- Tenant buffer. Hiring a property manager puts a buffer between you and your tenant. Some landlord/tenant relationships are great and some are not but having a buffer between you and your tenant allows you to truly treat your property as an investment and removes the emotional component of dealing with a tenant’s requests or personal situations.
Con’s of property management
- Hands off investment. When you hire a property management company to manage your property you are turning over the daily decision making and execution to a third party. If the property manager you hire doesn’t have ample experience and resources to properly manage your property then you may have to manage your manager which defeats the purpose of hiring a property manager in the first place. Turning over control of your property to someone means that you become more “hands off” and this can be difficult for some investors who feel that they need to oversee and approve every small decision that is made regarding their property.
- Tenant selection. When you hire a property manager you are usually turning over the selection of the tenant to the management company. Due to Fair Housing laws, most management companies do not let the property owner select the tenant. Allowing the property owner to review applications, see credit reports, or even know the names of the tenant prospects prior to having an executed lease can open up both the management company and the landlord to a Federal Fair Housing lawsuit. Turning tenant selection over to a third party can be difficult for some landlords. If you do hire a property manager make sure you look for a company that has a documented policy in place for screening tenants. There are even companies that will even reimburse for the cost of an eviction if the tenant they approve has to be evicted and this reduces your risk of hiring a professional to perform the tenant screening.
- Vendor selection. If you like performing maintenance on your own investment property or you have a cousin, nephew, brother in law, spouse, etc. that works cheap/free and you always want them to do the necessary repairs on your property then you are going to be disappointed in hiring a professional property manager. As mentioned above, most quality property managers have a screening process for approving vendors and will only send a licensed, insured, and pre-approved vendor to your property to interact with your tenants. Waiting several days for a specific vendor to become available often is bad for tenant relations and poor maintenance practices has been reported as one of the top reasons why a tenant won’t renew a lease for an additional term. With that said, if you have a quality vendor that you would like to add to your management companies team of contractors and vendors and the vendor is properly licensed and insured, a management company will often screen them and if qualified the will add them to their list of approved vendors.
- The cost. In terms of dollars, hiring a property manager costs more than hiring a leasing agent or self managing the process from start to finish. If you consider that most leasing agents charge around 1 month’s rent for a 12 month lease to lease your property, you are going to pay a total of about another 1/2 month’s rent (or less) for full service property management for the full 12 month term. For many landlords, this is well worth it, for others especially the “do-it-yourself-ers”, spending any money on their investment property is seen as unnecessary.
3. Pro’s and Con’s of self management
The following are a few of the benefits of self management:
Pro’s of self management
- Total control. If you self manage your investment property you have total control of everything. You get to advertise the property where you want, how you want, using the words, photos and video you want. You get to show the property, meet the tenants, negotiate the rent rate and lease terms. You get to decide how maintenance is handled and who is going to perform it. You get to collect the rent and put it directly in your bank account. You get to control it all.
- Final say. You get to have the final say on everything. Every issue that arises is an opportunity for you to be involved in the management of your property and no one else will be making decisions for you.
- Enjoy it. Some people enjoy working with their properties and tenants and some are really, really good at it. If you are an outgoing person that likes to self manage your property you get to enjoy all aspects of building your financial future, and your network of contacts as you meet potential tenants, vendors, and occasionally the neighbors of your property.
- Cost savings. You spend zero dollars hiring a leasing agent or property manager. Having an extra $150 to $250 a month for handling all the aspects of renting and managing your property can offset the amount of time and effort involved with managing a property and tenant yourself.
Con’s of self management
- Total responsibility. Self managing an investment property means that you are totally responsible for the property and the tenant relationship 24 hours a day, 7 days a week, 365 days of the year – even on holidays, vacations and sick days. You are responsible for assembling your team of contractors and attorneys. You are responsible for collecting rent and posting necessary notices. You are responsible for handling everything, start to finish.
- Inconvenient. Managing your own investment property is inconvenient. Emergency calls in the evenings or weekends can ruin a well planned night on the town or even just an evening at home. Most things that come up during the leasing and management of an investment property are not scheduled, they just happen randomly, whether it is an inquiry on an available property, or a water leak, or a busted window, or an electrical short or a refrigerator that goes out right after your tenant buys groceries. Leasing and managing your own investment property is inconvenient.
- Difficult challenges. If you own an investment property, sooner or later you will encounter an issue that you will need assistance with. For example, if you own a condominium unit and the unit upstairs leaks into yours, or your unit leaks into the unit below you are going to have to know who’s responsibility it is to pay for the repair and you are going to have to be able to get the repair done quickly regardless of who is responsible to pay for fixing the leak and the subsequent damage. Or, you may find yourself dealing with a tenant who hasn’t paid rent by the due date and they won’t return your calls. What are your legal rights and who can help you get the rent or perform the eviction? Challenges are more difficult when you try to deal with them yourself instead of hiring a firm that has dealt with thousands of tenants, properties, maintenance repairs and collected millions in rent on behalf of their landlords. Difficult challenges are usually more expensive when you are unprepared to handle them.
- Market knowledge. Self managing your property means that you have to research the market rates, market trends trends, legal trends, and seasonal influences which all have an effect on your property and your annual return on your investment. Making an error in judgement due to limited time or exposure to market trends can cost you well in excess of what a leasing agent or property manager would cost you for the whole year.
The pro’s and con’s of hiring a leasing agent, hiring a property management company, or self managing your property listed above should give you a good start in determining which option might be the best for you and your property. If you have questions or would like more information leave a comment, contact me at 303-292-5638 or view our leasing and property management fees .