A financial analysis on why it’s worth the cost of hiring a property manager in Vancouver
When you purchase your first income property, the first question that usually follows is whether or not to hire a property manager. Often, a new property owner will consider if they have the time to manage the property on their own and weigh that against the cost of having someone else do it for them. However, a more appropriate question might be: what is the value of having an expert property manager looking after my investment? Using an average price range, we’ll weigh the costs and consider the value gained by having a property manager working on your behalf.
The very first thing many new owners get stuck on is the New Tenant Fee. Most, if not all, property managers will charge approximately half of one month’s rent for putting a new tenant into your property. Which, on the surface can seem like a big sacrifice especially when you’ve just laid out a considerable sum for a mortgage and you are looking to start paying down that debt.
So let’s breakdown the value of that fee. The average two-bedroom condo rental in Vancouver is $2,262 per month meaning the Property Manager would charge a one-time fee of around $1,131 from the first month’s rent of any new tenant they place. Usually, there is no renewal cost year-over-year if the tenant stays in place. Now with rental vacancy rates hovering around 0.6% new owners often assume it must be easy enough to find a renter on their own. Websites like Craigslist and Kijiji have made it so you can post your property for practically nothing. Except, that can be part of the problem.
Free listings will bring you an unfiltered list of spam, scams, and genuine prospects. Once you’ve weeded out the spam and scams (at least the dreadfully obvious ones) you will be left with the prospects. Now the real work begins. You will want to read through each of the inquiries before setting up a viewing for any that look promising. To save time, you may want to advertise a couple of viewing windows and encourage anyone interested in turning up.
With a property manager, you are going to be tapping into their networks. Not only is the listing handled for you, it’s not done through a free listing website. Property managers work to maintain a rolling list of qualified searchers and will usually have access to companies looking to place executives for multi-year transfers. All of this has a tendency to make the screening process easier. Of course, we haven’t gotten to that yet.
Once you’ve hosted your viewings, there are likely to be a number of applications come your way. Then comes the challenge of screening the applicants. You will need to be careful to go through each one thoroughly because the process to remove a bad tenant can be enough to make you wish you never bought the property. Hopefully you will be able to match the applications to the people you met during the viewing to give you a better sense of the person. After narrowing down your choices you are going to do a credit check, a reference check, and likely a follow-up call with your prospective tenant to answer any additional questions you have. Now, provided your first choice hasn’t already taken another rental, you will have come through the process only having expended several hours of your time and the cost for the credit check(s). If the process drags on you could find yourself covering the mortgage, sometimes, for a few months while you’re hosting viewings and screening applications.
And then there’s that nagging suspicion that you could have rented your property for a higher rental rate. Which, with a maximum annual increase cap at 2.9% in BC, it may be a while before you get any significant increase. Or of course, the opposite realization, that you may have had your property sitting empty much longer than necessary because you had the monthly rate set higher than the market would bare. Part of the value of hiring a property manager comes from their understanding of you local property market. A good property manager will be able to tell you how to set the rental rate so as you’re not losing money, but nor are you left covering the costs on a vacant, over-priced rental.
The next cost consideration is the monthly management fee. In most cases this ranges from 5-10% of the monthly rent. So, to keep with our example, that could range from $113 – $226 for a place with a monthly rental price of $2,262. Usually, it’s going to be somewhere in the middle based on the services provided.
It’s those services provided, where you are going to determine the value of the cost. A property manager will handle the payment of rent and follow up if the rent is not prompt and on time. They will be the first point of contact, for emergency and nonemergency situations. They will conduct inspections and provide reports back to the owner. And they will work with the owner to establish a plan for regular maintenance throughout the year and set the guidelines for dealing with any emergency maintenance that may come up. All of which will never relieve the owner of their involvement, but it will allow them to manage their property like an investment and not a day-today business continually requiring their time.
Up until now we’ve been assuming that there is a solid amount of work in being the owner of an income property and that having a property manager in place can provide really great value based on the costs associated. All of this has been assuming that you get a good tenant, who plays nice with the neighbours, cares for your property, reports any issues, and always pays their rent. However, it can be in less-than-ideal-tenant situations where a property manager can be extremely valuable. Which is somewhat humorous, considering that after having access to the property managers list and screening process you are statistically much less likely to ever need your property manager for dealing with problem tenants.
No matter how you acquired them, when a tenant turns out to be a problem and it becomes clear that you will need to end their time in your property, many landlords are at a loss. The legislation is set up in such a way to prevent arbitrary evictions and as such will require the owner to go through a serious and often drawn out process to end a tenancy. With your property manager in place, you have a capable manager who will work through the processes required for eviction, handle the stress of tenant objections, and plan for any maintenance issues that might need to be addressed as a result of the outgoing tenant.
So, to return to our example of the average two bedroom Vancouver condo with a rental price of $2,262. Assuming an initial fee of $1,131 to place a good quality, screened, tenant and using 8% to ballpark a $180 management fee in the months that follow. You would be looking at a total management cost of $3,291 for the first year and $2,160 for the subsequent years with the same tenant from a gross revenue of $27,144. And of course being a business expense it can be written off against any taxes you have to pay.
All of this to say, that the cost of having a good property manager working on your behalf to turn a full-time project into a low-stress investment pales in comparison to the value you, as someone who likely has a completely unrelated full-time job, will derive from their services.
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