One of the biggest decisions a real estate investor has to make is whether to self-manage their investment property or hire a property management company. When it comes to rental properties, one thing is certain: poor rental management (either by you or someone else) can turn even the “best investment” into a bottomless money pit.
To help you figure out what is the best fit for you and your situation, let’s explore both options.
What are the Responsibilities of a Property Manager?
Property managers oversee a variety of activities, including:
- Emergency repairs and follow-up
- Routine maintenance and repairs
- Marketing and leasing
- Tenant screening and background checks
- Rent collection
- Eviction
- Team building
1. Emergency repairs and follow-up
If the dishwasher at your property starts leaking late at night, the property manager must be available. They are the ones who speak with the tenant, assess the problem, call someone to repair the issue, and make sure the work is done correctly. When deciding if you want to self-manage, ask yourself if this is the type of thing you want to deal with or if you would rather have a property management company do it for you.
2. Routine maintenance & repairs
The manager of your property, either you or the person/company you hire, will be in charge of scheduling all regular maintenance visits. Regular maintenance includes landscaping, cleaning the gutters, and plumbing inspections.
3. Marketing & Leasing
One of the property manager’s most important roles is minimizing vacancies. The first objective is to keep your property well-maintained so that it is attractive and desirable for prospective tenants. Additionally, the manager (or someone on the management team) will be responsible for advertising vacancies, showing units, and ultimately leasing the property to a qualified tenant.
4. Tenant Screening & Background Checks
Your property manager should also be in charge of screening tenants, running credit and background checks, and qualifying/disqualifying prospects.
5. Rent Collection
Your property manager should collect rent owed for each property every month, deposit them in a timely manner, and document all payments.
6. Eviction
If your tenant fails to pay or violates the lease in any way, the property manager will initiate and oversee the eviction process. In many states, this is a fairly simple process that can be completed in under 45 days for a couple hundred dollars.
7. Building a Team
It’s important to have a team in place that can handle administrative tasks, routine maintenance, and emergency services in order to manage a property effectively. Some of the most obvious team members include handymen, groundskeepers and landscapers, electricians, plumbers, and masons.
If you hire a professional property manager, they will already have a team established. The benefit here is that there won’t be any delays in getting your new property into rent-ready shape. If you choose to manage your own property, building these types of relationships won’t happen overnight. It will take some time and probably a bit of trial and error.
As you’ve probably noticed, good management requires a significant amount of work. Depending on the number of properties being managed, it can even be a full-time job.
You need to answer the question: Does it make sense for me to manage my own property?
3 Benefits of Managing Your Own Investment Property
There are many benefits of managing your investment property, including:
- You care more about your property
- You can save money
- It is easier to avoid scams
1. You care more than anyone else will.
One of the biggest reasons people choose to self-manage is because nobody cares about your property as much as you do. In most cases, this is true — nobody will try harder to attract and keep great tenants than you will.
2. You can save money
Another reason you might consider self-managing is that you’ll likely save a good amount of money. Most rental management companies charge monthly fees, usually between 8-10% of the monthly rent. In other words, if you rent a property for $1000 per month, you’ll pay $100 per month ($1200 annually) to your property manager. When it comes to cash flow, those expenses can add up.
3. You can avoid scams
Unfortunately, not all property managers/management companies have the same ethical standards. For example: it is not uncommon for management companies to take a kickback from vendors. Oftentimes the vendors who offer these kickbacks also have higher prices or produce a lower quality product. Why? To pay for that kickback.
For these reasons and more, many investors choose to take matters into their own hands. However, jump in to self-manage your investment property, you should know it is not as easy as it may seem.
Are You Really the Best Property Manager In Town?
As we’ve discussed, managing your own property has many advantages, but success is not guaranteed. The truth is that self-management is not a viable option for most investors as they lead busy lives. What you need to decide if it is right for you.
Here are some questions to help you decide:
- Are you available and willing to manage your property full-time? (Note: You cannot have a full-time job.)
- Are you regularly updated on local landlord laws?
- Are you able to manage contractors to ensure they are doing high-level work?
- Are you able to run your tenant credit and perform background checks?
- Do you honestly believe you are the most qualified person to manage your property?
If you answered no to these questions, you may consider hiring a professional property manager. (We’ll discuss the details of how to do this below).
Advantages of Hiring a Great Property Management Company
Hiring a professional management company is the key to success for many real estate investors. This is true for many reasons, such as:
- The ability to invest in the best markets nationwide and make more money
- Enjoy passive monthly income
- Navigating unprecedented situations
1. Invest in the best markets and make more money
It’s likely that you live in a market with a high entry point, making it not the best market to invest in right now. If you want to buy cash-flowing properties that have a high chance of appreciation, what can you do?
Option 1: Cross your fingers and hope the real estate market improves in your area. Option 2: Invest outside of your neighborhood or the state and hire an experienced property manager or management company in the local market.
2. Investment income is passive, giving you the means to live life on your terms
After you close on your new investment property, your work is done. From now on, your property manager will handle day-to-day operations and emergency services. To recap, these services include:
- Emergency repairs and follow-up
- Routine maintenance & repairs
- Marketing & Leasing
- Tenant Screening & Background Checks
- Rent Collection
- Eviction
3. Navigating unprecedented situations
COVID-19 Nationwide Eviction Moratorium: Your property management company works directly with tenants to negotiate rent payments
On September 4, 2020, the CDC issued a nationwide eviction moratorium in light of the ongoing pandemic. Renters who have experienced income loss due to COVID-19 could not be evicted for unpaid rent through the end of the year. Meanwhile, the government had yet to develop a second version of a CARES-like relief package to help tenants and landlords through this tough time.
Some self-managing property owners had a tough time collecting rents during this time. Utilizing property managers with more expertise and systems in place to even collect partial payments can save property owners a lot of time and money. A professional property manager can also provide some much-needed support during times of uncertainty.
These are just a few reasons why it’s essential to consider hiring a good local property manager for each investment property. If you are interested in doing so, the next big question you’ll need to answer is: How do I find a good property manager that I can trust?
Finding a Good Property Management Company
When evaluating a property management company, review its reputation by talking with another landlord who has worked with the company and asking for honest feedback. If you don’t have anyone to talk to, go to Google and search [“Company Name” + Reviews], and see what comes up. Within a few minutes, you should, at least, have a good idea of whether or not tenants are happy with a property manager.
According to Kathy Fettke: “If a company is well known in the area, has a good reputation among both landlords and tenants and has a stable base of clients, then you can be fairly confident in choosing that company.”
Once you have found several highly recommended property managers, here are some questions to ask to make sure they are the right fit for you:
- How long have they been in business?
- Can they provide references?
- What type of properties do they generally manage?
- Do they specialize in residential properties?
- Do they work 14 hours a day, 7 days a week?
- Do they work in the same area as your properties?
- What are their fees?
- Is there a leasing fee?
- How do they market properties and rentals?
- How long will it take for them to fill a vacant house?
- What is the turnaround time for sales and rentals?
- How often do they check on properties?
- What vendors and service providers do they work with?
- Have they evicted tenants, and if so, what is their process?
- Do they issue monthly and annual statements?
Final Thoughts
Managing your rental properties can save you money, and it’s also the only way you can completely avoid the possibility of getting scammed. However, self-management is difficult and time-consuming, and it can also limit your profit potential in a number of ways. When making a decision, consider 1) the number of properties purchased will be dependent upon how much time you have to manage them, 2) you will only be able to purchase properties nearby, which might not be the most profitable market, and 3) to make more cash flow, you will eventually need to hire outside help anyways.
If you plan to own only one or two rental properties and are local, self-managing might be a good option. However, if you are like most investors who want to build a real estate portfolio in some of the best rental property locations, you’ll want to hire a property management company.
One final thought. Would you rather spend your time to save a little money or spend a little money to save a lot of time? The choice is yours.
