September 8, 2023

Management Agreement or Lease

When it comes to managing a property, landlords have two options: enter into a management agreement or lease the property to a tenant. While both options have their advantages and disadvantages, it ultimately depends on the landlord`s goals and preferences.

Management Agreement:

A management agreement is a contract between the landlord and a property manager, outlining the manager`s responsibilities and compensation. Under a management agreement, the landlord retains ownership of the property and receives all income generated by the property. The property manager is responsible for day-to-day operations, including leasing, maintenance, and rent collection.

Advantages:

1. Professional management: A property manager brings their expertise and experience to the table, ensuring that the property is well-maintained and can attract good tenants.

2. Time savings: By outsourcing management to a professional, landlords can free up time to focus on other aspects of their business or personal life.

3. Consistent income: A property manager`s main job is to keep the property occupied and generating income, which benefits both the landlord and the property manager.

Disadvantages:

1. Cost: Property management fees can range from 8 to 12 percent of monthly gross rent, which can eat into the landlord`s profits.

2. Loss of control: By entrusting management to a third party, landlords may feel like they have less control over the day-to-day operations of their property.

Lease:

A lease is a contract between the landlord and a tenant, outlining the terms of the tenancy. Under a lease agreement, the tenant is granted exclusive use of the property in exchange for rent payments.

Advantages:

1. Steady income: With a long-term lease, landlords can count on a steady stream of income, regardless of whether the property is occupied or not.

2. Control: By leasing the property, landlords retain complete control over the day-to-day operations and management of the property.

3. Tax benefits: Landlords can deduct depreciation, repairs, and other expenses associated with the property from their taxes.

Disadvantages:

1. Maintenance: Under a lease agreement, the landlord is responsible for maintaining the property, which can be time-consuming and expensive.

2. Risk: If the tenant defaults on rent payments or causes damage to the property, the landlord may be left with costly repairs or legal fees.

In conclusion, the decision to enter into a management agreement or lease a property ultimately depends on the landlord`s goals and preferences. If the landlord wants a hands-off approach and expert management, a management agreement may be best. If the landlord prefers more control and steady income, a lease agreement may be the better option. Consider the pros and cons of each and consult with a professional before making a decision.