Real estate investing offers impressive benefits like appreciation, tax breaks, and passive income. But building a real estate portfolio can also require a surprising amount of work. That’s why real estate investors hire property managers to oversee the day-to-day operations of their assets.
Property managers can handle many of the tasks traditionally required of property owners, including:
Property managers can handle many of the tasks traditionally required of property owners, including:
- Marketing rental units for lease
- Screening prospective tenants
- Drafting and signing leases
- Renewing leases
- Turning units between residents
- Proactively maintaining the property
- Addressing resident maintenance requests
- Collecting and holding security deposits
- Collecting monthly rents
A good property manager can reduce your property-related expenses and increase your bottom line. However, a poor property manager can potentially cost you money and create more headaches.
In this article, we’ll share a simple, five-step process to help you choose the right property manager for your passive income portfolio.
Step 1: Determine the Type of Passive Income Portfolio You’re Building
The property manager you choose should be well-suited to the type of passive income real estate portfolio you’re building.
Here are a few examples:
- If you’re investing in vacation rentals, you’ll want a property manager with the resources to quickly turn units between short-term rental stays.
- If you’re looking at long-term multi-family apartment rentals, you’ll want a well-staffed property management firm that can handle a high volume of renters efficiently.
- If you’re interested in commercial real estate, you’ll need a property manager who specializes in this property type.
- If you’re looking at real estate syndication investments (in which you pool funds with other investors to access deals that would be out of reach as an individual investor), you would need a special type of property manager, called a syndication sponsor. Sponsors go far beyond the scope of traditional property management, taking care of every detail of an investment from acquisition to development, to eventual sale, on behalf of the investors. While they manage every aspect of the property, they might also partner with a more traditional property management team to handle the day-to-day operations of rental properties. The primary advantage of building a syndication portfolio over a traditional property portfolio is that you get to leverage the expertise of the sponsor to create higher return potential will lower upfront investments and zero time or energy on your end.
Deciding upfront what type of passive income portfolio you’re creating will help you find a property manager whose knowledge base and skills are aligned with your chosen asset class.
Step 2: Research and Shortlist Candidates
You can learn a lot about your options online. A simple search for local property managers specializing in your asset type will return a list of potential candidates. At this stage, you’re looking to eliminate the ill-suited property managers from your search so you can focus on those who might be a good fit.
Pay attention to each property manager’s:
- Website. An outdated site could be an indication that the company is not investing in updating its systems for the future.
- Online reviews from real-world clients. Most companies will have a small percentage of negative reviews, but a large number of negative reviews or complaints in areas that are important to you are a sign that the company should be eliminated from contention.
- “About Us” information. Good property managers should be forthcoming about who they are and how they work.
- Contact information. Similarly, good property managers should be easy to contact when you have questions.
Step 3: Evaluate the Property Managers on Your Shortlist
With a shortlist of potential candidates, you can do a more thorough vetting of each contender. Whether considering traditional property managers or real estate syndication/crowdfunding sponsors, you should consider the following:
- Experience and local market knowledge. Have the property manager/sponsor been active long enough to know what they’re doing? Do they have a demonstrable track record of success? How do they stay ahead of local market trends?
- Transparency. Is the property manager/sponsor’s fee structure clear? Or are there hidden fees that you have to dig around to find?
- Software solutions for streamlining. How does the property manager/sponsor manage their properties, tenants, applicants, and property owners? Do they have software systems that streamline processes to improve returns for investors?
- Regulatory compliance. Is the property manager/sponsor in compliance with all relevant regulatory agencies? For example, traditional property managers should have an active real estate license with the state licensing board. And syndication sponsors should be registered with the SEC (Securities and Exchange Commission).
- Communication. Do you receive a prompt, helpful reply when you reach out for more information?
Step 4: Choose Your Property Manager
Armed with the information from your research and evaluation stages, select the property manager (or syndication sponsor) you feel is best prepared to effectively manage your passive income portfolio.
Enroll as a new client/investor and sign the legal agreements to start the professional relationship.
If you are using a traditional property manager, you may be required to place funds in an escrow account to be used for low-cost maintenance issues as needed. This account may need to have a minimum balance at all times during your contract period.
If you are using a syndication sponsor, you will choose the specific pre-vetted deal(s) you wish to invest in. (learn more about how to evaluate a real estate syndication deal). Then you will wire your investment funds to the sponsor to buy your shares in the project.
Step 5: Monitor the Property Manager’s Performance
Review your relationships with the property manager periodically to make sure you’re still happy with the way they manage your assets and communicate with you. Traditional property management contracts are typically renewed annually, so you have a chance to terminate the relationship and you in another direction if you’re not satisfied with your property manager’s performance.
If you sign with a syndication sponsor, your agreement will remain in place for the duration of the project. Pay close attention to the timeframe commitment as you evaluate your syndication deals. Single-family house flip projects, for example, may only require 10-14 months, while multi-family build-to-rent deals can potentially last five years or more. Once the project is complete, you can decide if you want to reinvest your original capital (plus your proceeds from the original project) into a new project with the same syndication sponsor or try a new sponsor.
How Gatsby Investment Manages Passive Income Portfolios
Gatsby Investment is an experienced real estate syndication sponsor with an impressive track record of completing successful projects for our investors.
We specialize in deals with high-return potential in the lucrative Los Angeles housing market. By focusing on creating new housing inventory in desirable neighborhoods with severe housing shortages, we develop projects with high demand. By leveraging our local market knowledge, industry connections, and proprietary software solutions, we consistently reduce overhead, increase profit margins, and exceed investor expectations.
If you’re looking to build a portfolio of properties that generate truly passive income, with no time, energy, or sweat equity on your end, explore the real estate syndication investment opportunities with Gatsby today!