The following is a guest post from my friend and fellow blogger, Andrew at the Wealthy Nickel. I asked Andrew to share his experience on whether to use a professional property manager or do it yourself.
Andrew owns several rental properties and has written about that on his blog.
Ultimately, it's a decision everyone who owns rental properties must make for themselves. He does a great job of presenting both sides of the debate.
Here are a couple of my favorite posts from Wealthy Nickel:
6 Personal Finance Metrics You Can't Afford not to Track
The True Cost of Homeownership Is Higher Than You Think
With that, let me introduce you to Andrew for the details.
Should I Hire a Professional Property Manager
Real estate is a favorite investment class these days. But if you own rental properties yourself, you know it’s not nearly as passive as index funds or dividend stocks. Whether you own a hundred rental properties or are thinking of buying your first one, you’ve probably asked yourself the question “should I hire a professional property manager?”
As a real estate investor who currently self-manages his properties, I ask myself this regularly (usually after dealing with a particularly difficult tenant issue or maintenance call…)
There are definitely benefits to hiring a property manager, but there are also some good reasons to do it yourself. While every investor will have to make their own decision, here are some ideas to help you consider whether you’re better off on your own or hiring a professional.
What Does a Property Manager Do?
First of all, we should probably set the groundwork for what a property manager does (or what you should be doing if you are your own manager). A good property manager should have systems in place to handle the following:
- Marketing and advertising your unit for lease when it is vacant
- Showing and screening tenants to make sure you get the best quality tenants
- Collecting rent
- Dealing with tenant maintenance and repair requests
- Handling late fees, notices of non-payment, and eviction if necessary
Once you understand the scope of everything a property manager handles, you can start to figure out whether it makes sense to hire it out or take on management yourself.
To help you think through the pros and cons, here are some reasons why hiring a property manager might be a good idea, along with some benefits of doing it yourself.
When Should I Hire a Property Manager?
1. You Don’t Know Anything about Being a Landlord
Ok, by itself this isn’t a reason to hire a property manager. Being a landlord isn’t rocket science, and anyone can learn how to do it. There are plenty of free resources online. I started with a duplex and no knowledge, but a willingness to learn. Biggerpockets and local real estate investor meetups were invaluable to my studies.
But do you want to put in the time and effort to learn how to screen tenants, know the landlord-tenant laws in your state, and figure out how to fix issues when they arise? If the answer is no, it’s probably time to find a suitable property manager. It will cost you less, in the long run, to outsource to a professional than to stick your head in the sand when issues arise.
2. You Don’t Live Near Your Properties
I said at the beginning that we self-manage our properties, but there is one exception. We live in Texas, and most of our rentals are within a 30-minute drive. However, we own one property in Indiana (long story), and we outsource the property management of that one.
While you can property manage from a distance if you have the right systems in place, it is harder. If we wanted to self-manage our Indiana property, we would need to have a list of contractors we trusted to take care of issues, a real estate agent to list and show our property when it was available for rent, and potentially other people like a lawyer if we had to go through an eviction.
Instead of finding all of those people and maintaining those relationships, we chose to forfeit a little bit of our profit every month to hire a property manager to look after our house, handle the tenant screening and maintenance, and be the expert on the local laws.
3. You’re Not Good at Being a Landlord
Being a landlord is not that complex, but being a good landlord is not easy. A good landlord knows they are in the customer service business.
But you also have to be able to separate business from emotion. For every good tenant who takes care of the property, pays the rent on time, and respects the rules, there is another who will take advantage of every kind thing you do for them, and any perceived weakness you give them.
To be a good landlord, you have to be kind but firm – adhering to the letter of the law as stated in the lease. You also have to stick to your criteria when screening tenants. I’ve bent my own rules a few times for an applicant who I felt deserved a second chance, and almost always I came to regret it later on. I have even contemplated handing over a rental or two to a property manager to avoid dealing with a bad tenant.
If you’re not organized, or detail-oriented, or able to separate fact from emotion, you may not be cut out to be a landlord, and hiring a property manager could be a better solution in the long run.
4. You Are Busy or Want to Leverage Your Time
This has become a big motivator for me recently as we have two young kids at home, and it seems there aren’t enough hours in the day to get everything done.
For the most part, I enjoy property management and find it rewarding to provide people with a place to call home (my feelings on this are indeed more positive when overall we have good tenants as we do now). We have built up a list of contractors we trust and can call for any maintenance issue, and have generally systematized most aspects of property management, so we know how to handle any situations that arise.
But one thing you can’t control is when a situation will arise that requires your immediate attention. For example, a few weeks ago we got a call from one of our tenants that the hot water wasn’t working anywhere in the house and the yard was starting to flood.
I had to drop what I was doing, call our plumber, and explain the situation. While they knew there was a leak somewhere, it took them two days and $3,000 worth of tunneling under the house to find the source. And of course, it took my time talking back and forth with the tenant and plumber, when I’d much rather have spent my limited free time with my family, not worrying about a plumbing issue at a rental house.
Hiring a property manager wouldn’t have completely removed me from that situation. You can and should be involved in any significant high dollar decisions, but I could have had the property manager deal with the “in the trenches” issues and just communicated with them to make the best decision on how to move forward with the repair.
At some point, you have to put a value on your time and decide if it’s worth it to continue being on call 24/7 for any tenant issue that comes up.
This is also true if you are interested in spending your time expanding your real estate empire. Finding good deals that meet the 1% rule, acquiring them, and getting them fixed up and ready for move-in takes a lot of time. And arguably, your time is better spent finding the next deal than dealing with day-to-day management issues. As every entrepreneurial strategist would say, you should be working on your business, not in your business.
5. You Want a Hands-Off Passive Investment
I will always maintain that owning physical real estate is never a purely passive investment. But if you see it strictly as an investment and have no interest in the day-to-day management of your properties, hiring a property manager is as close to hands-off as you can get.
This goes hand in hand with #1 and #3 above. If you don’t want to spend the time to learn how to be a landlord, or you don’t have the right disposition to be a good one, hiring it out from the beginning will save you a lot of money and heartache.
You might also like:
What Does a Financial Advisor Do?
Why Investment Diversification Is Important for Success
Reasons to Self-Manage Your Rental Properties
While there are many benefits to hiring a property manager, there are trade-offs as well. Here are some of the big ones that have kept me managing my own properties thus far.
1. Property Management is Expensive
Most property management companies will take 8-10% of the gross rents every month, along with a half to a full month’s rent to place a new tenant. There can also be fees for lease renewals, annual inspections, and markups on maintenance costs.
My wife and I currently manage our six local properties ourselves, and just the monthly cost of hiring a property manager would cost us over $700 per month! I would estimate we spend far less than 5 hours a month managing our properties. And while sometimes the timing of handling issues is inconvenient, we are effectively paying ourselves over $100 per hour to do our own management.
If you want to scale up, at some point, there’s no way you can do everything yourself, but as a small-time landlord, once you get your systems in place, you can save quite a bit of money by doing it yourself.
2. Nobody Cares More About Your Property Than You Do
Confession time – I am a little bit of a control freak. As much as I would love not to have to worry about taking tenant calls and collecting rent, part of me cringes at giving up control of the day-to-day management.
While in theory a property manager will make sure your house is kept in good repair and regular maintenance is done, I have heard many horror stories of property managers not doing any kind of routine inspection, and upon move-out the owner comes to find out the place has been trashed and needs thousands of dollars of repairs.
By doing your own property management, you are the one communicating with the tenants and checking up on the houses. You get to decide how things are done and verify the quality of tenants and contractors.
And bonus, if you are handy, you can get even more involved in the upkeep of your properties if you want. I was not born with the handyman gene, and nobody would want me doing any of their maintenance (my wife included), but I know a lot of investors who genuinely enjoy getting their hands dirty improving their properties.
3. Hiring a Property Manager Doesn’t Guarantee a Passive Investment
While a good property manager will handle the day-to-day tasks, you still have to “manage the manager.” You will need to be involved in final decisions on tenant selection and will have to sign off on any major repairs needed.
Your property is just one in a list of hundreds or thousands of others that a property manager is responsible for. As I mentioned in the previous point, ultimately you care way more about your property than they do.
It can sometimes be frustrating to have to micro-manage the manager to make sure your property gets the attention it deserves (such as making sure it gets rented out promptly or being regularly inspected to make sure the tenants are taking care of the house).
Wrapping Up – There’s No One Size Fits All Solution
There are pros and cons to both sides of the equation when it comes to hiring a property manager or doing it yourself.
Making the right decision for you involves some self-reflection: do I want to be a landlord, would I make a good landlord? It also depends on how you value your time, and how much control you’re willing to give up.
And the decision could change over time. It made a lot of sense for my wife and me to manage our properties when we were building our portfolio and before we had kids. Now that we have more family obligations at home and less time and interest in continuing to develop our real estate empire, it could make more sense for us to take a more hands-off approach going forward.
What about you – did you hire a property manager or do you do it yourself?
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