Frequently I see new investors pondering whether to try to tackle the property management of their new or soon to be new rental property. Like so many other facets of real estate investing, I don’t think there is a right or wrong answer about which is the best choice. In situations like this, I usually end up breaking down the pros and cons of the options and seeing how things pan out when comparing that to my individual situation. In the case of deciding between hiring a property manager or doing it yourself, I can see pros and cons for both:
Self-Management
PROS:
1. Certainly you will have the opportunity to gain the most experience by going this route. I know some real estate investors that are adamant in their opinion that all investors should self-manage initially to get a good understanding and appreciation for what is involved. I’m not sure that is applicable in every situation, but I can certainly see and appreciate their point. There really is no substitute for having done something yourself, but on the other hand I don’t think it is a requirement to make you a successful investor to self-manage your own properties.
2. Although I think the vast majority of property managers are honest individuals working with the intent to efficiently and successfully manage your property, there is always the remote possibility that you could end up with a property manager (or just someone with the management company) that takes advantage of you financially by manipulating the books or skimming profits off of your account in some way. By managing your own property you have complete control of the finances and accounts, so even the remote chance of encountering a situation like this would be avoided by managing your own properties.
CONS:
1. Let’s face it, property management for some properties could end up being a full-time job. Unless you are looking for a second job or just enjoy spending all of your spare time fielding tenant phone calls and arranging service appointments, taking on the role as manager might not be the highest and best use of your time. Sure, you could save potentially hundreds (or thousands) of dollars per month, but that alone does not make it “worth” your time.
2. To be successful at self-managing, you will encounter many situations where your ability to maintain objectivity about situations will be crucial. This objectivity will be needed to carry out consistent enforcement of rent policies and rules and regulations. If you know you would have difficulty interacting with tenants throughout an eviction process or consistently applying policies and procedures because you are too concerned about how the tenants will feel, perhaps this isn’t a role cut out for you. Beyond the personal interactions, you will need the ability to make decisions based off of what makes sense for the business, not just based on your subjective feelings about something. For example, if you are selecting new carpet for a rental you need that same objectivity in selecting what is appropriate and best suited for that particular rental, not what you would want for your own use. Sounds easy enough, but sometimes it can be difficult to keep our own preferences out of the equation.
Property Management
PROS:
1. A professional property manager will already have on hand all of the proper forms and documents you would ever need for managing your property: new tenant application forms, lease agreements, service contracts, etc. In addition to having the paperwork readily available, they also will be very familiar with the landlord-tenant laws of your area which should keep you from inadvertently running afoul of the law in dealing with tenants.
2. Most property managers have an extensive list of contacts for pretty much any service you will ever need as a landlord: electricians, plumbers, legal, laundry services, lawn service, etc. Without this, you have to build a list of reliable vendors that you can call on to address the needs of your property.
3. The biggest benefit of having a property management company is that it frees up your time to be doing more high level tasks. That might mean more time spent in your regular, professional job or more time planning for your next rental property; either way, that’s probably a more productive use of your time.
CONS:
1. The extra expense, of course! It goes without saying that you will be sacrificing anywhere from 6-10% of your gross rents to have the services of a property manager. That amounts to quite a variable number but could easily turn out to be $100-$1,000 less per month in cash flow. That might sound like a lot at first, but you really have to look at it objectively and see that your time is likely more productively spent working in your professional job than working as the property manager. And even if you are retired from your J-O-B, wouldn’t you rather be spending time with your kids, friends, or hobby?
2. Even with a property manager, you still have to “manage the manager” as the saying goes. This includes things like staying in communication with the manager regarding important decisions related to your property, reviewing the monthly property statements for accuracy and questioning any inconsistencies, keeping track of going rents in your area and making sure your manager is maintaining market rents. Generally, this will only take a nominal amount of time each week, but it is something that can’t be neglected in order to have a good feel for what is going on at your property and in your business.
Again, this overview is not meant to indicate a right or wrong way of doing things. Every situation will be unique including the property itself as well as the owner. My recommendation, however, is that you always factor in the cost of property management when you are considering properties to purchase because even if you want to manage a property initially, if there ever comes a time in the future where you either can’t or don’t want to self-manage any longer it would be a shame to see your financials take an unsustainable hit just because you transferred over to utilizing a property manager.
I’d love to hear your stories of success or disaster from either self-managing a property or hiring a property manager. Undoubtedly we all have something to learn from the experience of others.
Happy investing!