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I often hear people speak about the difficulties of renting out a house, such as dealing with damage to the property, delinquent tenants, occupancy, etc.

Where I live (the US), real estate companies often make a deal with owners and rent out the house for them. It seems like this takes care of every major task or issue a landlord would need to do.

  • Chasing down delinquent tenants is largely the company's problem. If the tenant doesn't pay up, both you and the company still lose the income, but with a company you need to do zero work actually keeping track of the payments and urging the tenant to pay if delinquent.
  • I don't know how much legal work is done by the company, but usually the lease contract is between company and tenant, and the eviction notice also mentions the company not the ultimate owner.
  • Small damage will be covered by the deposit, for large damages an insurance can be bought.
  • The company already actively seeks out tenants so occupancy is their problem and they will probably do a good job of actually finding tenants.

It seems like the only things to consider are whether the return is still good after the agency's fee, and beyond that it's an effortless way of obtaining income on your property.

So does the common advice of "consider the issues you will face as a landlord before renting out" still apply if you go through an intermediary?

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    What country are you in? I've never heard of a management company that will pay for damage. They'll hire workers to fix it, of course, but you get the bill. – JoeTaxpayer Apr 11 '15 at 0:55
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    Does the company's contract really commit them to pay you even if the renters don't? My understanding is that the management company usually receives the rent from the tenant and passes it on to you - but if the tenants don't pay, you don't get paid. Likewise, if the house is vacant, the managers will try to find tenants, but you don't get paid in the meantime. – Nate Eldredge Apr 11 '15 at 1:08
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    @Knuckle-Dragger - damage is often small, but frequent. A tenant leaves and there's damage to drywall that might cost $400 to repair. If such a policy exists, there would still be a deductible. Severe damage may be covered as vandalism, but not quite like the question suggests. – JoeTaxpayer Apr 11 '15 at 1:41
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    Perhaps you should edit the post then, because when you write It seems like this takes care of every major risk it sounds exactly as though you are asking whether they can eliminate risk. – Nate Eldredge Apr 11 '15 at 6:19
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    @Superbest, if you want a lazy investment then you will get lazy returns. I have an investment property which was managed by real estate agents. They kept changing tenants every 6 to 12 months, used to charge me a fortune every time a repair was done, and the property was running at a big loss. 3 years ago I took over the management and repairs, I still have the one same tenant, repairs are down over 50% and the costs down 75%, I am getting 30% higher rent, and both me and the tenant are happy. I spend 5 minutes per week checking if the rent is in my bank account, which it always is. – user9822 Apr 12 '15 at 1:56
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So does the common advice of "consider the issues you will face as a landlord before renting out" still apply if you go through an intermediary?

Yes. You may face different issues if you use a management company, but that doesn't mean you won't face any.

As the many comments on your question indicate, you still have conssider every issue you would otherwise face, and determine whether the management company will handle that for you. Not only that, but you'll need to get written confirmation from them that they will handle it (in the contract you sign with them), and then you need to be sure that the contract you sign says what they say it says. So every issue you have to consider as a landlord is still something you have to consider as a landlord-using-a-management-company. It's true that you will have less work on a day-to-day basis once the management arrangement is in place, but you still have a lot of up-front work to do in choosing the management company and negotiating the deal.

In addition to that, you have the problem of covering the loose ends not covered by the manager. If the management company says they won't handle X (e.g., won't handle legal eviction proceedings against tenants), then you have to figure out how to handle them. In some cases this could be trickier than if you handled everything yourself, since you will have to work around what the company does handle.

Finally, we can't forget that the management company is in the game to make money. There are bad management companies out there that will slack on repairs, lease to messy/deadbeat tenants, and pocket a sizable chunk of the rent. Even if the company as a whole is straight-shooting, individual employees of that company may not be committed caretakers of the property (as Mark Doony suggests in his comment). Handing the company the keys and leaving it to its own devices could result in a rude awakending down the line.

Basically, if you can find a good management company that you trust, then yes, it will save you a lot of work. But a bad management company can cause you a lot of pain, and the process of finding a good one is itself a lot of work. (Note that this doesn't even address the issue of whether the work it saves you is worth the money it costs you to pay the management company. Even if the manager saves you a lot of work, it still might not be worth it if they take too large a cut.)

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TLDR: Yes, it can work just the way you propose, but at a cost with every small service call the typical small landlord can do himself turning into the bill of a pro dispatched to the apartment.

Your points are, for the most part, correct. I am a real estate agent, and work in-house, for a large landlord/real estate developer. To be clear, the investor has a large enough portfolio that he didn't hire an outside management company, but was able to hire the employees it took to create the team in-house. To the level where the one broker was able to take on more real estate agents to be part of the company.

In theory, if we took on an outside client, you would find the experience you suggest, but this comes at a price. In other posts here, the warning to small landlords is about all the prone calls. My warning to you is that the "clogged toilet call" will result in a bill. The bill might be $25-50, if the timing is right, and the jack of all trades handyman is nearby, or a $150 bill if it takes a visit from the plumber. In other words, the small owner often finds that he's making money, but using a chunk of his times avoiding paying professionals to do a number of simple tasks. The management company would give you a price, either as a percent of the rent, or flat fee per tenant, and agree to perform certain tasks. Still, each and every task at the apartment will require someone to go do the work. An outside lightbulb (or in a small apartment house hallway) needs a guy to go change the dead bulb. Unless you're real clear in the lease, even an inside light might result in a service call. Do you expect an 80 year old person to climb on a stool to change the bulb in a vaulted ceiling? (A small point here - you'll need to spell out to the management company when you want to be contacted. A $100 expense? $500? The obvious tradeoff is that a call at too l.ow a level has you feeling like you are still micromanaging. Too high, and you'll see a $600 refrigerator bill with no warning.)

No matter how well the tenants are screened, say these are perfect renters, there's the regular small failures, and wear and tear. They move out on the 30th, and you see that there are marks on the walls from furniture. Nothing to charge their security with, this is just dirt that doesn't quite come off the walls. You now need a paint job, and have a month's vacancy, at best. You owe the utilities for that empty month.

My investor has a large enough portfolio that the law of large numbers kicks in. The small percent off the top pays for the management team as well his real estate agents. Units that are empty are a statistic. In your case, an empty unit is 100% empty, or, if you buy a 3 or 4 unit building, 33%/25%. We're buying stoves and refrigerators every few months. In your case, a broken appliance that needs replacing might be your profit for a month or two. For you, it takes 2-3 years for the law of averages to kick in. Similar to the market averaging a positive return, you'll have a bad few months, and then a string of months where you see no extra bill at all.

Often, the reason the small investor fails is by buying too high, and thinking that 'after taxes' they are coming out ahead. They also underestimate the average expenses over time. Yes, the mortgage is being paid down a bit each month, but when you sell, there's depreciation that's lowered your basis so much that a hefty tax bill awaits.

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