If you’re a Landlord who’s decided to hire a professional Property Manager, do you really need a written Management Agreement? ABSOLUTELY.
Management Agreements outline the terms of your agreement with the management company – how long they will be responsible for the property, what they will do, how much they’ll charge and so on. Some of the important things to look for are:
- When the agreement commences and ends and if there are any renewal clauses. Does it automatically renew until it’s cancelled? Under what circumstances can the agreement be terminated?
- How much will you pay them each month? Is it a flat management fee or a percentage of rent collected? What happens if no rent is collected – will you still have to pay a management fee? What “extra” charges are there and why?
- How and when do you receive your net proceeds each month? Will they provide a financial statement to show your income and expenses?
- How many times per year is the property physically inspected by the Property Manager and do you get a written report? If the document doesn’t address this, ask to have it added and then follow up to make sure you get your inspection notes or reports when they are due.
- Who handles eviction proceedings if a tenant defaults on the tenancy agreement and is it an “extra” cost to you? Ask your Property Manager what the procedure is so you can decide whether you want them to handle these situations for you.
- How much can the Property Manager spend on miscellaneous repairs without your approval? Some are as high as $500 per single expense, others prefer lower limits. Whatever the amount is, make sure you’re comfortable with it, but understand in an emergency, this doesn’t apply as the Property Manager will have to do whatever is necessary to protect the property and life.
Also ensure you’re clear on what the miscellaneous repairs and maintenance items are. If you have a contractor such as a plumber or electrician you prefer to use, make sure the Property Manager has their contact information (it’s not necessary for it to be in the Management Agreement but they should have a record of it so they know who to call).
- Do they “guarantee” a tenancy for a specific period of time, such as a one year term? If not, you’ll have to pay a fee for tenant placement each time a new tenant moves in, even if the Tenancy Agreement has been broken.
While the Management Agreement will provide much more detail, this gives you a good idea of some of the key components to look for. If there’s a term you don’t agree with, discuss it with the Property Manager to see if it can be changed. Don’t sign an agreement until you’re completely comfortable with the terms.
Hiring a Property Management company reduces the everyday stress of running an investment property. Your Property Manager will take care of everything from the mundane to the major, advising you along the way.