Vacation Rental Property Management
Vacation rental property management and buying an investment property often go hand in hand. A financially viable investment property, whether for capital gain, cash flow, or to offset the cost of a vacation rental, is dependent on a solid relationship with the property management company. To best maximize your investment, the process of vetting and choosing the right company is crucial. The hiring process is of the utmost importance if you want your property rental to offset much of the expense of second home ownership of a vacation property, or if you want the investment to be entirely funded by the vacation rental income. Knowing the basics of property management and what to look for in a company and a contract will help determine the best fit for your needs.
Basics of Property Management
Property management can be a high-stress job and many factors may lead to disputes or even lawsuits. Therefore, having a level-headed and rational property management team will be beneficial. Imagine a scenario where tenants trash the building, conduct illegal activity in it, sneak animals or extra people into the building, or start fights with neighbors. These problems could escalate and being able to deal with them rationally is key. Get to know the property management team and determine what they would do in these situations, or even ask how they have handled similar situations with other management clients. Their responses will help you determine their level of professionalism and the conversation will help to build a strong working relationship.
It’s important to consider the time you have, and how close you are to the rental property. Hiring a property management company can ensure that maintenance and repairs get taken of care of quickly. If you are unable to perform these tasks yourself, a property management company is your best bet. Another advantage, time-wise, is that the company will handle getting units rented. Advertising the property and showing empty units quickly is crucial to keeping up your profit margins.
Property management companies can also handle the accounting and record keeping for your property. The right company will handle issues including profit and loss statements and property taxes.
What to Look for in a Property Management Company
Finding the right company should take time. Interview several companies and ask how long they have been in business and how many certifications they have. Know the size of their staff, distance between their headquarters and your property, and how many properties they manage. They should be licensed and have experience managing your type of property, whether a condo, single family home, or estate.
A company with low fees could signify they are desperate for business. The average management fee ranges between 4-12% depending on the type of property and the market. Determine which company would provide the best service and remember that fees are negotiable.
The right company will be reliable handling tenant and owner funds. Rent and security deposits should be collected in a timely manner and checks sent on a predetermined date each month. Ensure the company handles security deposits according to state laws. The company should have thorough research on market data to help them determine short-term rental rates and when to raise rent. They should also provide you with an IRS-1099 and a summary profit and loss statement for tax purposes. Complete accounting documentation and detailed invoices should be expected.
How the company inspects the property may be the most crucial. A manager should inspect the unit with the tenant before move-out and take photos. Checking the interior of the property every 6-12 months is standard, no matter how long the tenancy. Exterior property inspection should be done monthly or quarterly. A copy of the inspection report should be provided.
Also consider the size of the company. Larger companies have more specialized departments and often their own maintenance crew. Smaller companies respond more quickly and can be more flexible with pricing. Staff turnover rate should be low. You want to trust in the management and financial stability of the company. You also want to work with the same people consistently.
Find out where they advertise their vacation rental listings and ask how they stand out from competitors. The right company will have a low vacancy rate and should be quick to fill empty spaces. Know their cost per lead and the preparation involved before showing a property. Adequate screening of tenants should include checking online reviews (ex. Airbnb guest reviews) and collecting a non-refundable deposit.
What to Expect in a Property Management Contract
Take the time to evaluate all foreseeable problems and reflect on what you are looking for in the company. Get a copy of each company’s contract during the interview. This will ensure that your needs will be met and disputes will not arise. A five or six-page contract is average and should include every detail of management fees and services. The first paragraph should state that it is a legally binding exclusive management agreement between both parties. The next section should examine Broker Responsibilities or “Authority and Powers.” It should lay out exactly what services you will be receiving and how they will be performed. The contract should contain a “due diligence” clause. It states that the company will do their best effort in managing the property. An “extra duties” section should list “work exceeding normal management duties.” Find out the billing rate for those services.
A one or two-year contract period is standard with most property management companies. Find out if the contract is automatically renewed. See how far in advance you must provide written notice to end it. The Owner Termination clause lists financial risk and penalties of ending the contract prematurely. A 30-day notice before terminating the contract is standard, but some companies require up to 90 days. A default clause should state the amount of time a party will have to fix a problem before the other party can terminate the contract.
The Owner’s Responsibilities clause outlines your duties. These could include not hiring another management company and abiding by restrictions on entering the property. If your property is a vacation property you intend to use yourself, negotiate a clause that outlines owner use and access. This could include restrictions on use, cancelling existing guest registrations, or booking friends and family for reduced fees.
The Liability and Indemnification clause outlines what the management company can and cannot be held liable for. Examples include personal injury, attorney fees, vandalism, or environmental conditions on the property. The Boiler Plate Legalese clause establishes that the contract is valid and enforceable. It serves as the final version of the agreement.
The basics of property ownership and hiring a management company are not complex, but do necessitate due diligence to set yourself up for success. Whether you are a seasoned real estate investor, a newbie looking to get started with investment properties, or someone looking to offset your purchase of a vacation home, enjoy the journey. Contact us today to locate the right property for you in the mountain regions of Colorado.