What To Look For In A Good Property Management Contract
One of the most rewarding things you can do abroad is manage a rental. I find it enjoyable to get to know an area, pick a property, and outfit it for the rental market.
And managing a rental is also a good source of income… while sometimes also providing that income stream in another currency.
Aside from being a landlord, I’m also a fan of renting a furnished apartment for any extended stay in a foreign country, since it’s the best way to get to know a place. So, I’ve got experience as both a landlord and a frequent tenant, allowing me to see both sides of the coin.
Being a landlord is not always fun. But having a good property manager can make your life a lot easier… and having a good contract with your property manager makes your eventual success far more likely.
The property manager is your representative when dealing with your renters… but he is also their representative when dealing with you, so expect to see rights and protections for them as well.
While the points below will apply to any rental, most of my focus is on short-term or vacation rentals, that is, furnished rentals that rent for recurring terms of a month or less. For long-term contracts, remember that there are usually governing laws about tenants’ and landlords’ rights to take into account, in addition to the tips below.
There are two types of contracts to consider: the contract between you (the owner) and the property manager, and the contract between the property manager and your tenant.
The Difference Between Property Management And Rental Management
There’s a difference between rental management and property management… or to put it another way, between a rental agent and a property manager.
A rental agent is responsible for keeping your property occupied. They’ll do marketing, find you a renter, do any required screening or qualification, supervise check-in and checkout, and verify that nothing’s missing when the tenant leaves.
A property manager takes care of running the property. This will typically include things like paying the utility bills, paying the taxes, and performing any required maintenance.
Many property management companies offer both services. And when they do, ideally, they’ll have a separate fee structure for each service. This will be a real advantage in cases where you find the renter yourself and only want property management, or when you can easily take care of the property yourself and only need someone to find and manage renters.
In this article, I’ll use “property manager” in its generic form, to cover both rental and property management services.
Points For The Contract Between You (The Landlord) And The Property Manager
The contract between you and the property manager should address the following topics:
- Fees and commissions for the property manager’s services, as well as any potential add-ons.
- Whether the property manager is going to collect and then process rent on your behalf. If available, I’ve found this to be an important service.
- Greeting, check-in, and orientation of your tenants. Years ago in Medellín, I was dropped off at a property by a property manager and left on my own… to find that I didn’t have access. Only after hours of phone calls in the hot sun did I make it inside. This approach is not good if you expect repeat business.
- Review of the rental’s inventory at both check-in and checkout. It may seem like the checkout inventory would serve for the next check-in, but if service providers and maids have access to the property, things may disappear in between.
- Collection of security deposits, and refunding of these deposits at checkout time (if the inventory checks out and there are no property damages).
- The contracting of and payment for maintenance services when required.
- Payment of taxes and utilities. Here, I’d recommend that you arrange to pay online, if at all possible, whether the property manager offers the service or not.
- The contracting of and payment for cleaning services when required.
- Specification of how your funds will be delivered to you. Review the property manager’s methods of payment; both how he processes payments from the tenant, as well as how he gets the money back to you. Be aware of any fees charged or any unfavorable games being played with the exchange rates (if you’re not renting in dollars). If possible, it’s a good idea to have him simply deposit your funds into a local bank account.
- Eviction of tenants who are not in compliance with their rental contract, including payment.
- The provision of periodic statements, showing the income and expenses for your property.
- The retention of records for any maintenance performed, items replaced, and/or bills and taxes paid.
- Provision of assistance to your tenant. A good property manager is easily available and responsive when your tenant has a problem or emergency.
Of course, not every property manager will offer all of these services, and you may not even want them. But the list will serve as a checklist of things to consider.
Also Pay Attention To The Contract Between Property Manager And Your Tenant
You should be familiar with the terms and conditions that the property manager imposes on your tenants, to make sure all the bases are covered.
These topics should be addressed:
- How much the rent will be, when it’s due, and how it can be paid. Make sure you’re not unknowingly stuck with any fees, such as wire-transfer charges or PayPal fees.
- How to determine exchange rates, if applicable. As a renter on several occasions, I was given exchange rate terms and conditions that worked to the property manager’s favor, causing me to pay more than the advertised rental price. Again, this is not a good way to earn repeat bookings.
- The amount and terms of the security deposit, including how soon it will be refunded. These deposits can be a tricky item. If you charge too much, people will bypass your property… but if you charge too little, then you’re not covered for damage to major items. I charge moderate fees, and assume the associated risk.
- Any cleaning fees, if you’re charging them.
- How missing or damaged items will be handled.
- The “rules of the house,” including things like parties, noise, smoking, pets, etc.
- What happens when rules are broken, or payments are delinquent? If you want to evict a tenant for non-payment or for violation of the rules, then you’d better be clear on when and why this will happen.
Again, not every property manager will offer all of these services, and you may not even want them if they do.
The Property Manager Is Key To Your Success As A Landlord
If you’re relatively new at managing a rental, one thing you’ll quickly learn is that the property manager is critical to your success. A good one will manage the property and funnel the money through to you for a reasonable fee… while a bad one can turn your experience into an ongoing, stressful affair.
And your experience with the property manager will be better if you have clear and detailed terms in your contract.
Sincerely,
Lee Harrison
Latin America Correspondent, Overseas Property Alert