Real Estate Deal Analysis & Advice

The Biggest Mistake I Made as a New Investor (& How You Can Avoid It)

Expertise: Commercial Real Estate, Personal Finance, Real Estate Marketing, Business Management, Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
230 Articles Written
newbie-mistake

The biggest mistake I made as a new investor was not hiring a property management company. When I purchased my first single-family home, I had no idea the amount of work that came with it.

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As you may have heard, tenants can be a headache. They aren’t all troublesome, but most of them can be. Yes, a management company charges a fee from the gross rent, but the peace of mind it gives you is worth the money and time. You can always make more money — but not more time.

Distancing Yourself

I once told a tenant to feel free to call me. That was a very bad idea. Every little thing that happened, I got a call. Most of the calls were outside the realm of my management of the property. In fact, they were usually personal matters. I do not have time to be a shrink for tenants. This is why it’s good to have a property management company.

Related: The 6 Most Common Mistakes New Investors Make (Including Thinking It’s Easy!)

Being an investor, an owner, and a property manager generally proves too many hats to wear. Now that I have a management company, I can just oversee them and delegate tasks to them. That way, I can focus less on micromanaging the properties I already own and more time purchasing new properties. Focusing on higher value activities is what drives business.

Other People’s Problems

Some people actually enjoy being involved in other people’s crises, and often those people make good property managers. They actually want to hear about their tenants’ problems. To them, it’s like watching a talk show. I am not one of those people. I love investing, but that does not include hearing about why your cousin’s dog destroyed the carpet in your guest room. Or how your nephew doesn’t have a job. Or how your sister is dating the wrong guy again.

Related: The Rookie Landlording Mistake Most New Investors Make

Investors invest. Property managers manage properties. That requires solving the everyday issues that occur on a property, which necessitates having the time to listen to tenants’ problems.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Investors: Do you hire out management for your properties? Why or why not?

Let me know with a comment!

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
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    Bryce Ewing Rental Property Investor from Lincoln, NE
    Replied over 4 years ago
    I agree with most of this! I am a 20 year old intern at s property management LLC here in Lincoln that has mostly low income housing. The amount of drama and damage reports I handle is ridiculous. I feel like the owner is losing a large amount of money, but it’s part of the game I suppose. I have had a great experience and learned how to be a landlord at such a young age. I will probably manage my own properties in the future because I plan on buying in higher income areas, or renting to middle-upper class college students who have financial backing by their parents. I have found these students pay on time much more often than low income families, and they are willing to rent the same quality of homes.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied over 4 years ago
    Hi Bryce, you are seeing first hand what my comment (the top comment) is talking about. And you instinctively are moving up scale to avoid drama and the need for a PM. A PM is only “the” solution when you haven’t thought about avoiding this problem in the first place. In other words, The need for a PM is mainly NOT because the owner does not have time. I have a day job and no time as well, yet i self manage 34 rentals. So why do I not need a PM? Because I thought about why one needs a PM and bought houses that had characteristics that lead to low effort and low numbers of touches per year. Bryce offers student housing as one tactic to get rent paid on time. There are many other tactics, some I tipped above.
    Andrew Lee Rental Property Investor from Cleveland, TN
    Replied over 3 years ago
    Bryce, I think you’re on the right track. I’m a university professor at a private college, and I bought rentals in a nice nearby neighborhood to rent out to the college students. Usually my tenants end up having first been top students in my classes, so I know their character and maturity. It’s worked well for 6 years now and I have a wait list of students wanting to move in as the current batch graduates. So far it’s been consistently low-maintenance for me doing the management myself.
    G. Brian Davis from Baltimore, MD
    Replied almost 3 years ago
    I’ve been on both sides of that coin. I’ve not hired a property manager (and then wasn’t available enough to do a good job managing my units), and I’ve hired a bad property manager. A good property manager is worth their weight in gold!
    Grant Arias
    Replied almost 3 years ago
    Hi Sterling, I was able to get involved in a multi-family deal with about 20 residents. It is absolutely a balance you need to find and if you are looking to keep investing do not give them your number! I believe we got lucky and we entered into a high end private university down in Texas. The rents are not very high but a little higher and it weeds out most drama residents. I am definitely not the most experienced in this but I already see the difference.
    Eugene Gutierrez Rental Property Investor
    Replied 8 months ago
    Great article. In the long run in your investor journey I would agree with all your points. Being your own property manager is too much. However, in the short run, I think there is a lot of experience and knowledge to be gained by an owner/investor by getting their hands dirty managing their investment. Someone once told me that you can learn a lot if you walk a mile in someone else's shoes. Clearly, the experience you gain managing your own property will help you to become very qualified as to what to look for when selecting a property manager. There are many people that think they are property managers that are really not qualified. I own many buildings and we have many property managers. I think the experience one gains in the early stage managing in their properties will better equipped them to manage their managers. We stend a lot of time overseeing our property managers, providing standards and procedures to them and collaborating with them to optimize or minimize wherever possible.