What Does a Property Manager Do, and Should You Hire One?

A property manager runs the day-to-day work of your rental for a fee: marketing the unit, screening tenants, signing leases, collecting rent, arranging repairs, and keeping the books. Hiring one makes sense when the total yearly fees cost less than the time you would spend plus the vacancy and late-repair risk you carry by doing it yourself, which is most often true when you live far from the property, have little free time, or own several units. You remain the landlord: fair housing, repair, and deposit laws still apply to you, and you can be held liable for what your manager does on your behalf.

Most small landlords manage their own rentals. In the 2021 Rental Housing Finance Survey from HUD and the Census Bureau, about 22% of rental properties with 1 to 4 units were professionally managed.

What does a property manager handle?

The management agreement, the contract between you and the manager, decides what the manager does. A full-service agreement usually covers the tasks below. Check each one against the agreement before you sign, because tasks left out are still yours.

How property managers charge

Fees come in several pieces, and the monthly percentage is only one of them. Ask every manager you interview for a written fee schedule that lists each of these:

• Monthly management fee. Usually a percentage of rent. Ask whether it is a percentage of rent collected or rent due. On rent due, you pay the fee for a month the tenant did not pay.
• Leasing or placement fee. A one-time charge each time the manager finds a new tenant, often stated as a share of one month's rent.
• Renewal fee. A charge when a current tenant signs a new lease term.
• Maintenance markup. A percentage added to vendor invoices, or an hourly rate when the manager's own staff does the work.
• Other charges. Setup fees, fees for vacant months, inspection fees, eviction coordination fees, and a fee to end the contract.

Here is how a sample quote adds up on a $2,000 a month rental. Suppose the manager charges 8% of rent collected, a leasing fee of half a month's rent, and a 10% markup on repairs, and in one year you place one new tenant and pay $600 in repairs:

• Monthly fees: 8% x $2,000 x 12 months = $1,920
• Leasing fee: 50% x $2,000 = $1,000
• Repair markup: 10% x $600 = $60
• Total: $2,980, or 12.4% of the year's $24,000 rent

Compare that total with the hours you would spend on the same work and with the cost of one extra vacant month ($2,000 in this example). Management fees are a deductible rental expense on Schedule E, according to IRS Publication 527. Passive activity loss limits can postpone deductions for rental losses, so the fees may provide no current tax saving. See which rental expenses you can deduct for how to record them.

When hiring a manager makes sense

A manager is more likely to be worth the fee when one or more of these is true:

• You live more than a short drive from the rental, so you cannot meet a contractor or show the unit on a weeknight.
• Your job or travel means you cannot answer a tenant's emergency call within an hour or two.
• You own several units, so leasing and repair calls overlap.
• Your state or city has detailed rules on notices, deposits, and repairs, and you do not want to track them yourself.

Self-managing is more likely to pay off when you live nearby, have one or two units with long-term tenants, and can respond quickly. A middle option is to hire out single tasks, such as tenant placement only or emergency calls only. Managing a rental part time covers the systems that make self-management workable with a full-time job.

Check the manager's license

Many states require a real estate license to manage rentals for another owner for pay, and the rules differ, so check yours. Under Cal. Bus. and Prof. Code section 10131, anyone who leases or rents property, solicits tenants, or collects rents for others for compensation is acting as a real estate broker and needs a California license. Texas defines a broker to include a person who controls the acceptance or deposit of rent from a resident of a single-family home. Look up the manager, and the broker the manager works under, on your state real estate regulator's license search, and check for disciplinary actions. Then ask for references from two or three current owner clients with properties like yours.

What the management agreement must spell out

Read the agreement as closely as a lease. It should state:

1. Authority limits. The repair amount the manager can approve without you (for example, $500), which decisions need your written approval (new leases, rent changes, evictions, any repair above the limit), and who signs leases.
2. Trust accounting. Rent and security deposits belong to you and your tenants, so the agreement should specify who holds them and how they are kept separate from the company's own money. California's Department of Real Estate requires brokers to deliver trust funds to their owner, place them with a neutral escrow depository, or deposit them into the broker's trust account within three business days following receipt. It also bans mixing them with the broker's own funds and requires a monthly reconciliation of each owner's records against the bank account. Ask which account your tenants' deposits sit in, and get a monthly owner statement.
3. Payment timing. The date each month the manager sends your rent, minus fees and expenses, and how much reserve the manager keeps on hand for repairs.
4. Termination terms. How many days' notice either side must give, any fee for ending early, and what the manager must hand over when the contract ends: deposits, leases, keys, tenant ledgers, and vendor records. Watch for a clause that keeps paying the manager a fee for tenants it placed after you end the contract.
5. Insurance. Ask the manager to carry professional liability (errors and omissions) coverage and to be added to your landlord policy as an additional insured, then confirm both with your insurance agent.

Which legal duties stay with you as owner?

Hiring a manager hands off the work, not your legal responsibility:

• Fair housing. Under HUD's fair housing rule, an owner is liable for a discriminatory housing practice by the owner's agent or employee, even without knowing about it. Give the manager your written screening criteria and ask how its staff is trained. What counts as unlawful discrimination in a rental application lists the practices to watch for.
• Repairs and habitability. State repair duties are written for the landlord. If a manager ignores a no-heat call, the tenant's remedies under state law run against you.
• Security deposits. State deposit laws set return deadlines and deduction rules for the landlord. Write your state's deadline into the agreement and ask for a copy of each itemized statement the manager sends.
• Lead disclosure. For housing built before 1978, the EPA's rule makes agents share responsibility for the lead disclosure, but you as the lessor must still give the disclosure, the pamphlet, and the lease warning statement.
• Taxes. You report the rental income and expenses on Schedule E, using the manager's statements as your records.

Check in each month: read the owner statement, compare it with your bank deposits, and look at any repair invoice above your approval limit. The laws every landlord must follow lists the federal, state, and local rules your manager will be applying in your name, and the basics of operating a household rental business covers every job a landlord takes on, managed or not.