You’ve purchased your first rental property. Now you must decide whether to hire a property manager or manage the property yourself. There are pros and cons for both decisions. Managing the properties yourself will allow you to maximize your revenue and gain a thorough understanding of the process. Sometimes it’s as easy as collecting the rent check and depositing it each month. But other times, that 10% property management fee can seem like a small tradeoff. Chasing tenants down to collect rent, posting notices to vacate, managing property showings to new tenants and being on call to address emergency repairs is a lot of work. To help you make the right decision, let’s break down the pros and cons of self-management and review the benefits of professional property management.
THE PROS OF SELF MANAGEMENT
The first reason to manage yourself is to maximize your cash flow. Not paying a management fee can save a lot (which is typically 10% for most rentals). Let’s say you bought a duplex that rents for $900 per side, $1800 total per month. That 10% savings would come out to $180 per month. That’s over $2000 per year additional money in your pocket every year!
Additionally, if you’re handy, managing basic repairs and maintenance could translate into more big savings. A leaky faucet may only require a quick tightening. But a typical plumber will charge $100 just to show up for the call. If a unit needs to be repainted in between tenants, doing it yourself could save thousands. That extra cash could really help accelerate your timeline to purchasing the next property!
NOTE: Even if you plan to manage your rental properties yourself, standard management fees and repair costs should still be entered into your analysis to determine the purchase price. Otherwise you don’t save anything and only cost yourself time!
Beyond the savings, acting as your own property manager is a great way to educate yourself. You’ll have a full understanding of all that goes into management and repairs. This insight will be invaluable if you opt to work with a management company in the future. You will know what work is required for the fee as well as what repair costs should be.
One last point of advice; if you do manage yourself make sure you have very solid lease in place!
THE CONS OF SELF MANAGEMENT
Let’s face it: being a landlord can SUCK! There’s a lot that goes into property management and sometimes it’s a down and dirty job. (Having done both, I may be a bit biased on the subject.)
If managing yourself, be prepared for every sob story and excuse for why your tenant is not able to pay rent on time. Weepy eyed, they will come to you begging for compassion. Tenants will ask for leniency “just this one time” and ask that you drop the late fees. They will make you feel like an unmerciful, heartless curmudgeon if you don’t give in… even though they are the ones not holding up their end of the contract.
Bad luck certainly happens and you will need to be prepared to use your best judgement. There were times I gave in and saw tenants work doubly hard to square up with me. But there were others who came month after month with new stories as they get further and further behind. It’s really hard to toe the hard line that needs to be toed when they know you have the power to grant leniency. A property manager will be able to avoid many of these issues. On time rent collection is part of their job, and the tenants know that, too.
Property management requires being on call 24/7 and emergency repairs are tough to deal with when you have other commitments. As the landlord, you will get calls late at night or on the weekend that require immediate attention. You will have to drop everything and go take care of the problem. I once got a call while out to dinner with friends that one of my units was flooding. A tenant had flushed a second floor toilet before leaving for work and left it overflowing for ten hours. Not only did I have to immediately leave the fun evening with friends, I spent the next several hours just containing the situation. Then spent next several days dealing with the aftermath. Are you able to handle something like that?
PROFESSIONAL PROPERTY MANAGERS
I started by managing my own properties. Then, I slowly started managing other people’s properties and eventually sold the property management business. Having been on all sides, I now choose to pay managers on all of my properties. And I typically encourage all investors to do the same. In addition to the convenience and peace of mind of someone else dealing with the tenants, showing vacant units, handling the repairs, and a multitude of other services, a good property manager can maximize rents and minimize vacancies. These gains often outweigh the small savings you would enjoy by managing yourself. Factor in the time you save and you will almost always come out ahead.
Where and how will you market your vacancies? A property management firm that is established in your area will be proactively contacted by prospective tenants looking for a place to live. This increased visibility means your property will likely rent faster. And most they may be able to rent for a higher rate than you could on their own. If they fill a vacancy one month earlier and even for just $25-50 more per month that will most likely cover their entire fees for the year.
What about unit turnover? Sometimes tenants will leave the place a wreck. It can require multiple truckloads of junk hauled to the dump, carpet replacement, painting, and other repairs before it is ready for the next tenant. How long will it take you to complete that work? If you are trying to do it yourself in evenings and weekends when you aren’t working your full-time job, it could take a very long time. By doing it yourself you will save some money. But you have to compare that to the costs of having a longer vacancy.
Time is money. The faster your unit is leased up, the sooner you are making money again. Even if you are personally hiring people to do all the work, it will still likely take you longer and cost you more than it will take a good property manager. They commonly have their own dedicated maintenance crews and subcontractors already lined up for expedited unit turnover.
If your property management company has a dedicated maintenance crew, that can also add a lot of cost savings in other ways too that make up for their fee. If there’s a small repair like a leaky faucet their maintenance crew can take care of it for much less than a plumber’s service call. Unless you are going to do all of the repair work yourself, a property manager will probably save you more than their fee by getting work done cheaply.
SUMMING IT UP
So now we know the pros and cons of self management as well as other advantages of professional property managers. Now the decision is yours to make. As a general rule I recommend using a property manager. But there are exceptions to every rule.
4 Reasons I May Recommend Self Managing
- You want to learn
- You have the time
- You need to bootstrap and save money to purchase your next property quicker
- Your properties achieve high rent with little to no maintenance
If you check off one, or preferably more than one, off that list then you should consider managing your own properties. Outside of that I always recommend hiring a property manager.
Making it Passive
If your goal of investing in real estate is passive income generation, then hire a property manager. If you are doing all the work it is not passive. You will have to take the time you could have spent with friends or family in order to take care of things at your properties. The challenges and time commitment will grow as you accumulate more and more properties. Eventually growing to the point where you will either have to hire a property manager, or leave your job and become a full-time property manager yourself. A quality property manager makes it a passive investment. All while often saving you more than you pay them. And you don’t have all the headaches and frustrations of being a landlord. Keep your free time free to enjoy life!