This is the next installment in the Reader’s Questions Series, which highlights questions emailed to me by you, the readers of Money Q&A.
Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover if I feature your money question on a blog post. If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It’s one of the top ten best personal finance books you should read.
Today’s question comes from Jeff who asks about renting his house by himself even after hiring a property manager.
I have been working with a property manager for a few months now to try and find a renter for my home. My wife and I are moving and didn’t want to sell our home. After a few months of trying to find a renter, the property manager still didn’t have the home rented. I started placing my own ads for tenants and finally found someone. Can I still rent out my property to someone after hiring a property management firm?
This question raises a couple of red flags. It makes me wonder if you have chosen the right property manager. There are many questions to ask a property manager before you hire them to ensure that they are a good fit for your family and that you feel comfortable with their work. After all, you will be entrusting them with your most valuable asset, your home.
Another concern that I would have about a property that has been on the rental market too long is its price. Do you have the monthly rent payment priced right? Many accidental landlords and first time homeowners incorrectly list their rental price. They choose an amount that helps them pay their mortgage instead of a realistic price that helps them find a renter to live in their home. That’s one reason why I took a monthly loss for years as a landlord.
Signed Contract With A Property Manager
Most property managers ask homeowners to sign a contract with them. I know that the contract I signed with my property manager gave them the exclusive rights to list my home for rent.
The contract prevented me from using another property management firm to list and rent out property for me. It also prevented me from finding a tenant by myself too without paying a cancelation or early termination fee.
You should read and understand any agreement that you have entered into with a property manager. Most agreements have cancellation policies where you have to let your property manager know that you are using someone else or canceling their service. Most contracts lock you into a specific period of time using the property management firm’s services.
If you want to rent out property, your home, yourself or use another property manager, you may be able to pay the property manager’s fee, typically 10%, for the work the property management firm would have done. Of course, you would be paying them for work that you did instead, though.
There are often many benefits and drawbacks of managing your own rental property or hiring a property manager. You have to weigh your options carefully and know your break-even point for profitability. Are you fine with losing money in order to keep your home for the cash flow later? Do you have to have a renter that covers all of your mortgage, insurance, maintenance, estimated vacancy rate, and other fees?
How does paying a 10% property management fee factor into your break-even point that you need to charge for rent? Will your rent cover all of those additional monthly expenses? You must consider many things when deciding whether managing your own rental property or hiring a property manager is right for you and your family.
Ethics Of Going Behind Your Property Manager’s Back
And, finally, you should consider the ethical implications of hiring a property manager and then going behind his or her back to rent out property on your own. If you have agreed to us someone’s service, you shouldn’t go behind them to rent out property by yourself instead without their knowledge.
This has the potential to become unethical if you’re not careful. You want to be as open and honest with your property management firm as you can when you decide to rent out property yourself.
At the end of the day, the home is yours and what you do with it is your business. But, you want to make sure that you have the legal standing to stop using a property manager after you agreed to work with him or her. It may be as simple as paying a cancelation fee or waiting for a certain amount of time to pass in order to do so.
What do you think? Is it unethical to find your own tenant after agreeing to use a property manager? I’d love to hear what you think.
Past Readers’ Questions:
- How To Prioritize Which Bills To Pay First
- Should You Put Your Emergency Fund In Mutual Funds?
- How Do You Start Saving If You Live Paycheck To Paycheck?
- How To Find A Payment Plan Without Cutting Necessities
- Is My Money Save In A Bank?
- What To Invest In After The Company Match
Do you have a money question that you would like to ask? Email me your money, investing, retirement, savings, or other question to Questions[at]MoneyQandA.com.