What a property manager does in real estate
5 ways they help landlords stay on the right side of the law
“What exactly does a property manager do?”
It’s a question I’m often asked by homeowners who are considering becoming landlords — especially at times when home sales are slow. In fact, I’m guessing that at some point one of your clients who is weighing selling versus leasing has asked you what a property manager does. It’s an excellent question — and my firm has developed a simple answer for it.
“We do all the stuff you’re going to have to do if you don’t hire us!”
Most of the time, a homeowner — let’s call her Lucy Landlord in this case — assumes that “stuff” will all fall mostly under the category of home maintenance. If she is especially handy around the house or likes DIY projects, she might think she’s ready for the task. So, here’s my list of what Lucy Landlord will have to do (in the absence of a professional property manager) to manage and maintain her property — and to stay on the right side of the law as she deals with her tenants.
1. The cost of choosing the wrong tenant is steep — in terms of time, money and, in some cases, legal difficulties. Finding and placing a good tenant demands both diligence and knowledge. Lucy must determine the right rent. What is the fair-market rental value of her property? Before she even places an ad, it’s important that she know and understand who her target market is and what the “sweet spot” for rent is in her neighborhood. Once the rent price has been set, it’s time to begin the process of advertising and reviewing replies to ads. Free advertising on Craigslist is a good option, as long as Lucy remembers to keep refreshing the ad weekly as they require and so that it doesn’t get buried under hundreds of others. Or she might opt to engage a Realtor who will list her property with the multiple listing service, draw up the lease, oversee a move-in day inspection and then withdraw from the transaction. After all, Lucy can’t really expect her agent to take time away from selling homes to manage a home. No matter how nice her agent is, that’s just not part of the job description. Although Lucy’s agent will certainly advise her that if she wants to do her own advertising, she’ll have to take extreme care not to violate any of the multiple federal, state and local fair housing requirements. Once Lucy has heard from an interested lease applicant, she will have to qualify that person as someone who will be likely to pay rent on time and take good care of the home. Employment status must be verified, and so does the applicant’s rental history, with references from current and previous landlords checked. Additionally, Lucy will have to check to make sure the applicant’s credit score and debt-to-income ratios fall within an acceptable range. Otherwise, it’s on to the next applicant.
2. Create a good lease. After successfully qualifying the tenant’s application, it’ll be Lucy’s, or possibly her agent’s, responsibility to draw up a lease that is both fully compliant with the law and 100 percent enforceable. What exactly does that mean? First of all, Lucy will have to determine whether the lease will fall under the South Carolina Common Law or the South Carolina residential Landlord and Tenant Act. And once that decision has been made, the next responsibility that falls to the landlord is to ensure that the lease includes all of the appropriate requirements for your property and is legally enforceable. Once the actual lease has been drawn up, there’s the matter of the security deposit. Properly done, a security deposit is placed in a separate escrow account, where it remains untouched throughout the tenancy, unless some portion of it is applied to tenant damage. If Lucy commingles funds, she might be inviting legal problems.
3. Fix things that break. If something breaks, leaks, bursts or wears out — it’ll be Lucy’s responsibility to determine the cause of the problem. For example, did the 8-year-old washing machine die of natural causes such as reasonable wear and tear, or did it stop running because the tenants all left rocks in the pockets of their jeans? Either way, Lucy’s going to have to fix it. And if it was the tenants’ fault, they’re going to be charged for the repair. She’ll bear the responsibility of documenting the cost with a legitimate contractor’s invoice. And, as Lucy will probably discover, the same will hold true for any damage the tenant might cause for the duration of the tenancy; if Lucy presents a do-it-yourself invoice in court, chances are very good that the court will not accept it as legitimate.
4. Collect rent and handle evictions. In the event the tenant stops paying rent, Lucy will attempt to collect it by sending written correspondence and making phone calls. When her collection efforts fail and she finally accepts that it’s time to evict, she will have to send a legal notice instructing her tenants to pay or vacate the premises. After that, it’ll fall to Lucy to file a lawsuit in court. At the time of the hearing, she’ll have to appear before the judge (probably taking a half or full day off of work to do so). If the court rules in Lucy’s favor, she will have to coordinate the actual eviction with the sheriff’s office — and in addition to that, she’ll have to muster up some help to remove the tenant’s belongings.
5. Keep track of income and expenses. Finally, there’s the task of accounting. Tracking the income and expenses for Lucy’s rental property isn’t just a good financial habit for her to build — it’s the law. She’ll be required to keep track of all gross rents collected and report this income to the IRS on a specific schedule (form), attached to her 1040. And, she’ll have to keep track of all legitimate expenses to offset the income when she files her tax returns. If she doesn’t, she could potentially trigger an IRS audit, something she definitely wants to avoid. So, what does a property manager do? All the stuff Lucy, or perhaps your client, will have to do for herself in the absence of a management professional — market research, advertising, tenant screening, legal document creation, rent collection, escrow accounting, maintenance and repairs, and more — while also staying on the right side of the law and, hopefully, out of the courtroom.
