The Dangers of Hiring an Unlicensed Property Manager

One of the worst things that you can do as a landlord is hire an unlicensed property manager because having the wrong company, or property can cost you time, money and possibly your rental property as well.

Hiring the right property manager will bring peace of mind and confidence in knowing that your rental property is being managed by caring professionals who are committed to the long term success and ROI that you will earn from your rental property.

In this article we will share with you all of the risks that come from hiring an unlicensed property manager so that you what to look for in hiring a property manager and can have the confidence that you’re hiring the right team. 

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Reasons To Avoid An Unlicensed Property Manager

One of the primary dangers of hiring an unlicensed property manager is the potential for legal trouble. Property managers in most states, including Oregon, must hold a real estate or property management license. This ensures they are knowledgeable about landlord-tenant laws, fair housing regulations, and other legal responsibilities.

An unlicensed property manager may lack the training and expertise to handle the legal aspects of property management properly. This can lead to:

  • Improper lease agreements: An unlicensed manager may use outdated or non-compliant lease agreements that do not protect the landlord’s interests.
  • Fair housing violations: They may unintentionally (or intentionally) engage in discriminatory practices, exposing the property owner to lawsuits.
  • Failure to handle evictions correctly: If an eviction is not handled according to legal guidelines, a landlord could face costly legal battles or even be forced to compensate tenants.

In worst-case scenarios, landlords who hire unlicensed property managers may find themselves liable for these violations, facing hefty fines and legal action.

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Financial Risks and Mismanagement

Property management handles rent payments, security deposits, maintenance expenses, and other financial transactions. Hiring an unlicensed property manager can put your money at risk in several ways:

  • Theft and embezzlement: Without a license, no governing body often oversees their practices. This increases the likelihood of financial fraud, such as misappropriating rent payments or security deposits.
  • Failure to collect rent properly: A licensed manager follows professional procedures to ensure tenants pay on time. An unlicensed one may lack the necessary processes or fail to enforce lease terms effectively, leading to financial losses.
  • Unjustified maintenance expenses: Some unlicensed managers may have deals with unqualified contractors who overcharge for maintenance and repairs, reducing your property’s profitability.

Since unlicensed managers operate without official oversight, recovering stolen or mismanaged funds can be incredibly difficult.

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Poor Tenant Selection and Retention

A good property manager understands how to screen tenants properly to minimize risks for landlords. Licensed managers follow strict screening procedures, including:

  • Background checks
  • Credit history reviews
  • Rental history verification
  • Employment verification

Unlicensed managers may not have access to proper screening tools or choose tenants hastily to fill vacancies quickly. This can lead to:

  • Higher eviction rates
  • Increased property damage
  • Frequent late or missed rent payments

Additionally, poor tenant communication and lack of professionalism can result in high tenant turnover, increasing vacancy periods, and lowering profitability.

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Unreliable Property Maintenance and Repairs

Maintenance is a crucial aspect of property management. A licensed property manager works with reputable, licensed contractors to ensure repairs are done professionally and at fair market rates. An unlicensed property manager, on the other hand, may:

  • Use unqualified handymen: This can lead to subpar repairs, safety hazards, and increased liability for landlords.
  • Neglect maintenance issues: They may ignore or delay necessary repairs, leading to further damage and costly future repairs.
  • Overcharging for maintenance fees: Without regulation, companies may use maintenance to inflate costs and pocket extra money.

Improper maintenance can lead to tenant dissatisfaction, higher vacancy rates, and even legal consequences if the property becomes uninhabitable.

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Lack of Accountability and Oversight

One of the biggest problems with hiring an unlicensed property manager is that no regulatory body oversees their actions. Licensed property managers must operate under strict ethical and legal standards; if they fail, they can lose their licenses.

With an unlicensed manager:

  • There’s no guarantee they will follow industry best practices.
  • If they disappear or mishandle funds, landlords have little recourse.
  • They may not carry proper insurance, leaving landlords exposed to liability claims.

The lack of accountability means landlords must bear the entire risk of any mismanagement or fraud.

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Insurance and Liability Concerns

Many insurance companies require properties to be managed by licensed professionals. Hiring an unlicensed manager could invalidate a landlord’s insurance policy, making it difficult to file claims in the event of property damage, tenant lawsuits, or liability issues.

Additionally, if an unlicensed manager hires unqualified vendors for repairs and an accident occurs, the landlord could be held responsible for injuries or damages.

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How to Protect Yourself as a Landlord

To avoid these risks, landlords should always:

  • Verify licensing: Check with the state real estate commission or licensing board to ensure the property manager is licensed and in good standing.
  • Request references: Speak with other property owners who have worked with the manager to assess their professionalism.
  • Ensure proper insurance coverage: A professional property manager should carry liability, errors & omissions (E&O) insurance.
  • Review contracts carefully: Before signing a management agreement, ensure all terms are transparent, fair, and legally sound.

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While hiring an unlicensed property manager may seem cheaper or more manageable, the risks outweigh the benefits. From financial mismanagement to legal troubles, an unqualified manager can cost landlords thousands of dollars in losses and liabilities. Always work with a licensed, experienced, and reputable property management professional to protect your investment and ensure smooth property operations.

By making the right choice, you can enjoy peace of mind knowing your rental property is in safe and capable hands.

For more information about the property management services that we can offer you contact us today by calling (503) 646-9664 – Talk to a Live Person – Our office answers the phone 9 AM to 5 PM Monday through Friday – or click here to connect with us online.

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