Why I Have to Use Property Managers

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If you work full-time like I do and you chose to be an active real estate investor, you will likely face tough decisions every week. One area in which I see new investors struggle, and where experienced investors have strong opinions is the use of property management.

As one of the experienced investors, I know for sure that if I managed my properties myself I could do a better job, save some money, collect more rent, and produce a better return on my capital.  However, I work full time, invest in a market 3 hours away, and travel for a living, so while I might produce a better return on my capital, I would produce a horrible return on my time! If I didn’t have a full-time job, I would absolutely manage my own properties.

I would literally be working 24/7 if I tried to do property management across our portfolio from 3 hours away and between flights and client meetings. Additionally, I would lose out on the opportunity to cherry pick the best deals to add to my portfolio by focusing on creating relationships, writing offers, and even taking a break once and a while, because my time would be spent on management.

Let me be very clear.  I use property managers because I have to, not because I want to.  That said, I focus on managing expectations, tracking key metrics, asking hard questions, and performing non-scheduled visits to see what is going on.

If you work full-time, invest in a market that is more than an hour from home, and have family commitments, I wouldn’t even try to manage your properties by yourself.  Even if you were successful, you would be saving a few hundred to a couple of thousand dollars a year; however, you would be wasting time that could be better spent finding the next deal that earns you tens of thousands of dollars in equity, or maybe spending valuable time with the family.

Before you say anything, I know most property managers suck, and it can be hard to find, train, and work with these kinds of firms.  I also know firing people and switching companies is not easy, but that is a cost of doing business when you manage a portfolio of properties several hours from home.

Over the past ten years, I have fired more property management companies than I care to admit, but all of them have enabled me to focus on adding tremendous deals to my portfolio because I have time to focus on the next deal, not the last move-in, eviction, or section 8 inspection.

If you’re like me, I suggest you stop fighting the “should I or shouldn’t I?” question and just go hire a property manager. Be diligent and make a sound pick with the data you have, and then manage your manager — especially in the first 90 days — as that is when the learning begins.  I believe you will know in the first 90 days if you made a good choice.

Good Investing

Photo: John Snape

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About Author

Michael Zuber is an active buy-and-hold real estate investor who still has a full-time job. Michael is not an agent or broker, and simply uses the internet and agent relationships to drive his business. He currently averages at least one deal a month and has developed laser focus on his 5 step process.

13 Comments

  1. Very well organized article on why you have to use a property management company. It is an argument that does not leave much leeway in negotiating about. Time management is a weak area for many people and time wasters is a very strong area for most people. While in the military I used to watch individuals spend 4 hours trying to figure a way out of doing a particular job. If they would have just did the work, it would only have taken them about 30 minutes to do. Instead they spent 4 hours of their valuable time trying to avoid the work.

  2. Mike,

    I have been following your posts and looked at your website and have found it all very insightful for someone like myself who is just getting started. I have a couple questions, if you don’t mind answering. When factoring in property management, is there a “rough” number you have found that holds fairly accurate for calculating operating expenses in SFH in regards to gross income? Such as 30%-40% expenses. Secondly, what are your thoughts if I have spent a year full-time, in Utah building my team, creating systems and buying properties but am desperately trying to move back to Lake Tahoe. Do you think the distance will be more of a challenge than I think it will be? Thanks for your feedback and, as always, your willingness to share your expertise and be so helpful.

    Can’t thank you enough. Matt

    • Matt

      Love to answer questions.

      1) If you were a newbie and had no relationships I would assume 10%. I don’t pay that but if I had to plan a number I would use 10%

      2) I would use 30% unless a Brand New house or you did a great remodel/make ready and then I would go to 25%

      3) Hard to say. Depends on your team. I will be hard to manage and monitor from that far away. I know I couldn’t have done it early in my career as I fired a bunch of team members because of my surprise inspections and follow ups. That said I feel fairly comfortable I could live anywhere in the world now and monitor my team.

      Good Investing

  3. Have you thought about hiring one or two full-time people to manage your portfolio for you? I would guess it would be cheaper and you’d get the same or better results.

    • HI Steve

      I think about this every year but then I look at all the extra over head of running a small business (in California) when you have “Employees” and I run away scared!!!

      Plus it helps I get tremendous rates on my Management Services. Frankly I wouldn’t do the work for the rate I pay :-) Nice being a big fish sometimes

      Good Investing

  4. Mike,

    I use PM for many of the reasons you talked about. I still spend a considerable amount of time managing my managers, but its one person vs multiple tenants.

    Jason

  5. Good arguments for using a PM. As someone looking to get back into real estate investing in a different state after a hiatus, one track I’m researching is getting licensed as a PM to learn the market, network with agents and get a better feel for repair/renovation costs in this area.

    My question to you: you say most of them suck. Having been a tenant in the past working with PM’s as well as a landlord doing it myself, I can guess some reasons why you say this, but would you care to list a few of your top grievances? It doesn’t seem like rocket science, so I’m wondering if most of them are in it for the money (quantity vs. quality) or are just low achievers. Seems to be a niche worth looking into.

    • Page,

      Very good question. Here are some that have resulted in me firing a PM.
      – Long vacancies
      -failure to address tenant concerns. Had 3 break-ins on one property without repairs made or myself being contacted. This also includes deferred maintenance. I expect repairs to be made within 2 business days of tenant’s notifying the PM.
      -failure to take action when tenants sneak pets, people or prohibited items (ie drugs) into my properties.
      -stealing money. This can be done via withholding some of the rent, making up repairs, or flat out not forwarding funds to me.
      -failure to enforce provisions of the lease, this list is to long to type out.
      -failure to address any of my concerns in a timely manner. Usually something that falls into any of the above items.
      -failure to treat tenants as human beings. A lot can be accomplished with mutual respect.

      Just a few issues. I’m sure others have many more.

  6. Something we’ve been working on is interviewing and identifying a couple of backups to go to quickly in the event that we decide to drop the PM quickly, or the PM goes out of business, etc.

    I would be very careful about investing further away than you can drive on at least a monthly basis to check on your properties. There is nothing more helpless than the poor investor who is a plane ride away from his properties when the repair bills are going through the roof, and yet another bad tenant is evicted, with all the associated legal, vacancy, and turn expenses.

    I’ve struggled with how to incent and align our PM’s interest with ours. I’m not sure it can be done. Most of the larger PMs have a maint. staff that is a profit center, and they have to keep them working or they can become a loss leader very quickly. Every hour that one of the maint guys is idle requires two hours of working at an owner’s property to just break even, so the PM is always tugged in the direction of wanting to “keep those guys working”, “stretch out the job”, etc. We also are looking closely at signing up our own maint guy, as an independent contractor, not a W2 employee (for about 60 units).

  7. Some good points being made here, especially the one about “-failure to treat tenants as human beings”. This might go hand in hand with who is choosing the career path of a PM, or the fact that the company may be a division of a real estate agency that starts employees there, not giving the PM service much attention or importance. Could it be that the profit margin is so low that it simply can’t attract talent? Again, this doesn’t seem like brain surgery, so I’m still trying to wrap my head around why this job is so hard to do well.

    Our business model might include basic repairs since we have experience in construction and doing quality work on budget, and I have worked in the architectural design field for many years, so fully understand the intricacies of working with clients who have different personalities, risk tolerance and budgets. If a PM company could be managed in the way someone in the financial industry manages a client’s investments, with the added value of providing solid shelter for people, I would think this could be a successful for all involved parties, but again, maybe I’m missing something.

    The point touched on of failing to find a PM whose interests align with the investor– this could be the key. Fully understanding what it means to be a solid PM from their perspective would seem to provide A LOT of insight into how they manage your properties.

  8. Thanks for the article Michael. If I choose not to use a property management firm, is there an average number of hours a month I can expect spend on an average property? In other words, I am trying to weigh the cost of 10% to the property manager versus the dollar value of my time? Thank you

  9. As the general manager of property management company I enjoyed your article. I am hoping that my firm is one of the good ones and not one that “sucks”. I plan to print out this article and comments and share it with my employees so that they can see what not to do. I also wanted to note that not all property management companies are bad and hopefully this article doesn’t scare too many people away from using companies like mine. There are advantages to using a property management company including:
    Professional software – We use a system that may be too expensive for owner / managers. Our software system is used for accounting, leasing, and maintenance. This allows us to track all aspects of the performance of a property and report to the owner.
    24 hour service – Do owners really want to get the call at 2:00 AM about a leaking toilet?
    Discounts – with our volume we get many discounts from vendors and service providers
    It’s what we do all day, every day – We are professionals and treat our customers, clients, and tenants with respect and care.

    I could go on with more benefits but I think this give you a good idea. I realize that it is a hard decision to turn over this much responsibility to someone you hardly know. This is one of the areas where we always get the most resistance. However the people that have chosen to go with us and give up managing their properties all seem very pleased and hopefully have more time and less worries.

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