If you’ve invested in a rental property but have no idea how to actually go about renting it out to guests or tenants, there’s a solution. You can hire a property manager or a property management company to take the reins and handle the rental process.
The resources available to property managers allow them to handle all aspects of rental properties: everything from guest bookings to payment and rent collection. When you partner with a reputable property manager, you’ll be able to sit back, relax, and reap all the rewards of renting out your property with none of the hassles.
Deciding on who will manage the property you’ve invested so much time and money into is not a decision to take lightly. There’s nothing worse than hiring a property manager and handing over control, only to discover that the terms and conditions set by the company don’t meet your expectations. So, to ensure you make the right choice, here’s the checklist for the perfect property manager’s contract.
Always Read a Property Management Contract Thoroughly
Before signing anything, you should always read the specifics of your property manager’s contract. Not only that, it is important to actually understand what you’re reading. If you don’t, feel free to ask questions. And if you don’t completely agree with something, ask if the terms are negotiable and if compromises can be made before considering another company.
The most common mistake for a property owner about to hire a property manager is treating the contract as a formality. You’re not agreeing to an iTunes contract here. This is serious stuff, and it should be treated as such. The contract agreement includes what is provided and what’s not, so it must be taken seriously. The specific terms of this agreement could determine the overall success of your rental property.
Must-Haves for Your Property Management Contract
Before reading the official contract, it is crucial to understand the essentials of all rental agreements between the property owner and management company. For example, one essential of any management contract is the inclusion of specific responsibilities of the property owner.
In other words, what is the property management company responsible for, and what remains in the hands of the owner? Here are a few more essential aspects of any solid property manager’s contract:
– Complete list of services and fees
– Liability terms and conditions
– Specific duration of the contract
– A clear termination clause
Services and Fees
Every perfect property management agreement should start with a comprehensive list of the services provided as well as the fees associated with those services. This is important for both owners and management companies in order for both parties to understand their roles in managing the property.
Think long and hard about the services you’re looking for. This depends on a few things, like whether this property is for reliable long-term tenants or successful short-term rentals. Many property managers will listen to your specific property-related goals and help you develop a plan based on them.
Most property managers will provide a list of the specific services they provide and a fixed management fee, usually in the form of a percentage. If there is a service that you’d like included, you can typically add it to your contract for an additional fee (either a fixed fee or an increase in the percentage).
Most of the problems that arise between property owners and managers have to do with an unclear ‘Services and Fees’ section. These issues can easily be avoided, though, as long as both parties involved understand what is expected of them.
Responsibilities of the Property Owner
In addition to the services provided by the property management company, there should also be a section designated as ‘Responsibilities of the Property Owner’ within your contract. This gives you a clear picture of your own duties, like whether you are in charge of collecting rent or finding long-term tenants. When you sign the contract, you are agreeing to perform these duties.
Nowadays you won’t find a property manager’s contract without a section on liability insurance, also called the hold harmless clause. This section is meant to protect the property manager and not hold them liable for property damages (unless of course negligence is involved).
Property owners don’t necessarily love the inclusion of the liability clause, but it makes sense for property managers to have one. It doesn’t matter if you rent out your property on VRBO, Airbnb, or you have long-term tenants, there is always a risk of property damage. Even if your rental property caters to seniors who are quiet and respectful, things happen. For this reason, property managers will always try to protect themselves.
Reasonable Care Clause
As a property owner, there is a way to protect yourself within the liability section of a contract. A ‘Reasonable Care Clause’ states that a property manager must take “reasonable care” when hiring a third-party. In other words, if damage occurs because your manager did not take the proper measures in hiring a repairman or contractor, the manager will be held accountable.
Another essential aspect of any contract is understanding the amount of time you’ll be bound to the property manager. Many property managers require you to commit for an entire year unless the contract terms are broken by the property manager. You might be able to participate in a trial run before committing to a full year, but this is not common.
Just because you have a “contract duration” does not mean you are 100% bound to a property manager no matter what. Every solid property manager’s contract will include a termination clause, also called a cancellation clause. This basically states that both the property owner and manager have the right to terminate a property management contract in certain events.
For example, if the manager fails to perform all of the services listed in the contract, you’ll most likely be able to terminate the service altogether. In most cases, though, you must give between 30 days and 90 days of notice before termination is completed. If you can, try to find a management company that allows you to end your contract without penalties or fees.
As long as you follow this checklist before signing a property manager’s contract, you should have no issues with running a successful property rental.