By: Joseph Goldy, CFP® with guest writer Edward "Ed" Mathis, licensed real estate agent with RE/MAX
A common question I often hear from clients considering purchasing a rental property or who may have just inherited one through the passing of a family member or divorce is whether they should manage the property themselves or hire a professional management company.
In this article, we get insight from a 22-year veteran of the real estate industry and RE/MAX Hall of Fame agent, Ed Mathis. Ed was named a top RE/MAX commercial agent in NJ in 2021, and his extensive expertise in residential and commercial sales, investments, development, and property management has consistently been recognized in the industry.
Below, Ed shares his take on the benefits and potential pitfalls of managing rental properties, along with some advice for divorcees and why this could be a good time to invest.
Managing rental properties can be a lucrative investment but requires significant time and effort. Whether to self-manage or hire a property management company depends on your circumstances, preferences, and resources.
Self-Management
Self-management can be cost-effective, eliminating property management fees and potentially maximizing rental income. Additionally, it allows for hands-on involvement, giving landlords direct control over tenant selection, property maintenance, and all other aspects of their investment.
However, self-management can also be incredibly time-consuming, particularly for those with multiple properties or other significant commitments. A lack of property management experience often leads to difficulties in handling maintenance, legal issues, and tenant disputes. The daily responsibilities can lead to stress and even burnout for the unprepared or overextended landlord.
Hiring a Property Manager
Engaging a property management company offers professional expertise, which can streamline tenant screening, lease agreements, and property maintenance. It also saves time, allowing property owners to pursue other investments or personal interests.
Conversely, professional property management comes at a cost, affecting net rental income. There's also the issue of control; relying on a property manager means entrusting someone else with significant decision-making power. Additionally, finding a reliable and competent property manager can be a challenge.
Ed explains why being a good landlord requires being good at wearing many hats.
What it takes to be a good landlord
The right person to be a landlord depends on various factors, such as financial stability, mental preparedness, and legal knowledge. Here are some general traits that can make someone a good landlord:
Financial Stability: As a landlord, financial stability is crucial to maintaining the property, addressing repairs promptly, and covering costs even when the property is vacant. This security ensures that the landlord can provide a safe and well-maintained living environment, which is a crucial responsibility of property ownership.
Mental Preparedness: Renting out property can be stressful with unpredictable challenges. Mental preparedness helps landlords handle difficult situations, such as disputes, emergencies, legal issues, or property damage. A good landlord should have the mental fortitude to bear these challenges calmly and professionally.
Grasp of Relevant Laws and Regulations: Knowledge of local tenancy laws, safety regulations, and housing standards is imperative to avoid legal pitfalls. It ensures landlords operate within the legal framework, protecting their rights and tenants. Landlords should have a basic understanding of laws, including fair housing, eviction, and tenant rights.
Effective Communication: Clear and timely communication builds trust and prevents misunderstandings. It is essential for resolving issues efficiently, enforcing lease terms, and ensuring tenants feel heard and respected. Clear communication can help avoid misunderstandings and conflicts.
Real Estate and Divorce
Divorce can be stressful and complicated, especially when dividing assets such as real estate. Common missteps include failing to share divorce decree details with real estate agents, hiring agents inexperienced in divorce situations, and neglecting to consider selling the property to divide assets.
When one party wishes to keep the property, buying out the other's share is often necessary, typically through refinancing or outright payment. Transferring ownership via a quitclaim deed ensures that the party relinquishing the property has no future claim to it. However, it's crucial to evaluate long-term affordability for the party keeping the property to avoid future financial strain.
Nesting arrangements can be a temporary solution until a permanent decision is made.
Nesting arrangements can be a temporary solution where the children stay in the family home while the parents take turns living there. Once the divorce is finalized, the parents can decide what to do with the property.
Divorce complicates real estate dealings, and it's essential to approach property division with clear communication, the right expertise, and a focus on the long-term financial implications. The decision should not be taken lightly, as it can have lasting monetary and legal consequences.
The fluctuating economy has created a potentially advantageous environment for investing in rental properties. High demand for rentals combined with decreasing home prices, low-interest rates, and increased rent suggest it might be an opportune time to invest in rental property.
The current economic climate, while volatile, offers unique opportunities for investment in rental properties. To make informed decisions, potential investors should conduct thorough research, exercise due diligence, and remain aware of market trends.
Investors should ensure that the rental income covers all expenses and the mortgage, taking a conservative approach considering the evolving real estate market. With the right approach, rental property investment can be valuable to an investment portfolio, offering immediate income and long-term capital gains.
Ultimately, the decision between self-management and hiring a property manager should be informed by an individual's time, expertise, and resources. For those considering becoming landlords, assessing one's financial capacity, mental preparedness, knowledge of the law, and ability to communicate and organize effectively is critical.
A big thank you to Ed for taking the time to share his expertise for this article. Thanks, Ed!
Edward "Ed" Mathis has been a licensed real estate in NJ for 22 years. Ed has been previously named the #1 monthly RE/MAX agent in NJ and a top RE/MAX commercial agent in NJ in 2021. Ed is in the RE/MAX Hall of Fame. Ed's expertise includes residential and commercial sales, investments, development, leasing, and property management. Ed started as a licensed professional Engineer designing buildings. He is also a certified building inspector. He can be reached at 201-310-7223 or edmathis@verizon.net.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.