Landlording & Rental Properties

Why I Fired Property Management—And Began to Manage My Own Investments

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Business Management
32 Articles Written
self-manage-property

When my partner and I bought our first investment property in 2008 in the city, our initial plan was to hire a management company. At that time, we had a management operation in the suburbs where we managed around 400 units and a couple million square feet of commercial space.

The new location was away from our existing management operation and in an area that wasn’t all too familiar for us. Based on that, we didn’t want to deal with the everyday hassle of managing the property. We wanted to hire professionals who could handle them for us.

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Services That Property Management Offers

We planned to hire a property manager who could take care of these rental properties, allowing us not to be the "evil landlords." We hoped to focus on our existing management and sit back and collect checks from our new found teammates in these managers. First, let me give you some bullet points about the services that these property management companies offer:

  • They take care of finding and placing tenants in your investment property.
  • They take the emergency and repair calls from the tenants.
  • They coordinate with the handymen to get the repair fixed.
  • They carry out regular inspections of the property to ensure that the tenants are taking good care of them.
  • They take action against the tenants if they aren’t paying rent or adhering to the terms and conditions of the contract.
  • They handle the eviction process if necessary.
  • They collect monthly rents and deposit in your account.

So, basically they do it all and for that, you pay them a monthly fee. Based on the time it would take us and the learning curve we thought there was at the time, we felt it was a no brainer.

Related: The Dirty Truth About Property Management Only Experience Will Teach You

I know this sounds perfect on paper, but only if we could have found a good enough property management company to carry out this job. We met few companies and property managers, and they sound very enthusiastic out the gate, but when we tried them for some time, we weren’t satisfied. We were finding ourselves managing the property managers and still looking at every detail.

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No One Cares About Your Properties Like You Do

Eventually, we figured out that we won’t be able to find any management company that cares about our properties the way we do and has the insight or maybe even the expertise that we quickly picked up on. We wanted to grow quickly in this area, and we knew the goals we wanted to achieve. At that time, we were forced to make a decision of leaving our properties in the hands of people we were struggling to trust or taking the plunge and do it ourselves. We chose the latter.

We built a management company around our Chicago operation. We opened a small office on the South side just to have a spot that the tenants and our new management team could go to. We quickly realized that we are far better off handling the management piece ourselves. There’s no one who cares and knows our property better than us at that point.

We bought it for a reason, we built it out of a certain way for a reason, and we put the tenant in there that we thought was best for a reason. No one knows that block or no one cares about that block the way we do in that sense.

The fact of the matter is that most of these property management companies do not have a vested interest because most of them don't own any of the properties in that neighborhood. I still often meet property managers who don't even own property or ever have. They are just doing their jobs of managing it. They'll fix it, they'll bill you—but at the end of the day, they won't be committed to finding quality tenants or ensuring that the property is being treated well. They won't be on their toes to help you make profits or inform you about good market conditions such as appreciation.

Related: Investors: Believe Me, You CAN’T Afford Property Management. Here’s Why.

Conclusion

I am not saying that you have to start managing your investment property and stop trusting others. But you need to ensure that they have some vested interest and understand your objectives. Meet them, check their properties, talk to their customers, and decide. Most importantly, fire them if you feel they aren’t able to live up to their commitments or costing you money. You need to create your own boundaries and stick to them. Keep in touch with them on a regular basis and double check if you feel something isn’t right.

I can’t take credit for this quote I heard on BiggerPockets, but it sticks in my mind:

“An average investment with a great property manager is far better than a great investment with a bad property manager. “ —Johnny C.

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

Are you working with property managers?

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Mark Ainley is an investor, managing broker, and property manager with almost two decades of experience in real estate. Mark found his way into real estate by purchasing and flipping condominiums p...
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    Dan White
    Replied over 4 years ago
    The terms “professional” and Property manager should rarely be used in the same sentence. As much as we would like to delegate the property management role this is a high risk path to financial failure. For anyone planning on making rental income your primary lively-hood plan to handle this yourself or build your own organization when you have the critical mass to do so. In the event you are not interested in being involved in the management of your own properties think twice about being a “buy and hold” investor. Everyone I know that has engaged a manager to take over their properties has horror stories to tell and lots of financial struggle to dig out of the problems as well as neglected properties. Many times owners are not even aware of the lack of urgency a PM has to fill a vacancy, ie phone goes to vm after 5pm and weekends… when do you think working people most likely call and set appointments? I rent many of my places before a PM takes the time to return a vm…. Most property managers I have met own little if any property and have no idea what it takes to be successful Landlord. There are a few local companies that have their own properties and expand to 3rd party management to gain economies of scale. Although these owners have a better understanding about land lording they are often motivated to operate at that client’s expense… giving preference to their own units… billing supplies to the wrong properties etc. Before you buy your first rental property join a local landlord organization and network with seasoned landlords and learn the ropes. I have met many many people that tell me “they were a landlord once” and never again.
    Matt
    Replied over 4 years ago
    IMO people rely on a PM too much. They expect to turn the keys over to the PM and just wait for the rent checks to come flying in! That sounds great….in the perfect world. The reality is that you have to partner with your PM; what I mean is providing them a good product to lease out & being a responsive and “good” owner. I’ve even been known to place ads on craigslist and through facebook with my PM’s contact info. You must be a PROACTIVE owner.
    Gordon Cuffe Investor from Roseville, CA
    Replied over 4 years ago
    My first property manager in St Louis ended up being a crook. He ripped off at least 10 other investors that I know of so far. I am lucky as he didn’t get much money out of me. He swindled ten of thousands from a couple investors that I talked to. Finding a good property manager is almost as tough as finding gold in the hills.
    Jenny Moore Investor from Silverdale, WA
    Replied over 2 years ago
    I think this is great information. Since I own a couple of properties out of state, I have gone through several PM’s over the years. At first trusting they had my best interests in mind, then finding out it was all about extracting more money out of me. I have since found good managers, but unless I purchase more units, it would not be feasible to have a team do it for me and I don’t have the time to run them myself. However, as Mark put it, I am constantly managing the property managers. Real estate investments, as a passive income stream, isn’t really all that passive, but rewarding to those who work to make it a success.
    Christopher Smith Investor from brentwood, california
    Replied over 2 years ago
    I have a set of properties in CA and a set in OH, so I need two property managers. Both my PMs have been great service providers for many years now. They are reasonably priced (flat 8% on rent collected – no other charges), for full service management functions and they even permit me to be involved as I desire (and have time). I don’t typically get involved with much except for the setting of lease renewals (I provide input and typically give final rate approval), and then larger maintenance and repair issues. One thing I would note is that I have been tempted to switch PMs over the years because of some low ball fee structures and incentives offered by other PMs, mostly because I have multiple properties in both locations. However, I always perform some reseach when I get one of these offers and what I typically find out is that the low ballers are often not very well liked by the tenants who they have placed, sometimes they are down right despised by them. That has always ultimately detered me from switching because the last thing I need is a hostile tenant who is looking to get even with a derelict PM by taking it out on my property and my wallet. So I would say if you can find a really good PM that is reasonably priced (as I have been lucky in finding), they are worth their weight in gold. Being a PM is job I personally would never want to do.
    Steve smith
    Replied over 2 years ago
    How do you set up your own property management company for the rentals you own. Is it a separate LLC, or part of your rental LLC. How are the taxes done? I have serval rentals and manage them and do all repair work. I also have full time job. I would like to be able to create a pm company but not sure if income and tax wise if that’s what to do. Any ideas?
    Fred
    Replied over 2 years ago
    We setup one LLC to manage our properties and that is all it does is rent and do repairs. We then purchase new properties in a land trust which are owned by a second LLC. Each property managed by the property management LLC has a two page agreement signed spelling out everything our property management LLC has authourty to do. This licludes renting, collecting rent, paying the collected rent to us, authority to work with insurance company and collect claims. The property management LLC is paid 1% of rent and that is used to pay expenses of the LLC. This allows us to also have a solo 401k checkbook account for us to do loan private money. Also, allows us to be the property manager without tenants knowing who owns the property as we sign lease as manager for the property owner.
    Account Closed Rental Property Investor from Portland, OR
    Replied over 2 years ago
    YES! Thanks for writing this article and thanks BP for republishing it. I wish I’d read it before I decided to hire out management last year. The BP podcasts and blogs have a decided bias towards using management. The most successful local investors I know don’t hire it out; they started their own PM company. I ended up trying outside management for 2 months. It didn’t work out and I’m back to self-managing. Here’s my experience: https://www.biggerpockets.com/blogs/9913/63255-why-im-a-zagger-and-should-you-be-too
    Chad Peyton Rental Property Investor from Aptos, CA
    Replied over 2 years ago
    So are you managing your rentals or did you set up your own management company to do it? I would guess that it would be easy for you to do anyway based on the fact that you already own a PM company. The vast majority of investors won’t have your experience in that industry and it’s probably bad advice to tell everyone to manage their own properties. I personally don’t manage my own properties as I am geographically separated from them and honestly don’t want to deal with them. It behooves you to find a good PM, that goes without saying. However, without being bogged down in the day to day operations I can focus on growing my portfolio.
    Lee Haynes from Marquette, Michigan
    Replied about 2 years ago
    First of all – I get it, some property managers suck. But in almost EVERY case where I’ve seen bad property management is landlords simply going with the lowest priced option because they thought “we all did the same thing”. This couldn’t be further from the truth. We started our own management company because we didn’t like some of the industry standard things such as “1st months rent with every turnover”. There was no incentive to keep good tenants, so instead we offered a flat fee at a higher rate but there was no fees when vacant and no additional fees on turnover. All move in/outs inspections were included as well as the knowledge and technology that comes with it. Our customers couldn’t be happier. We make them far more money they could make themselves, and they have just about zero headaches to deal with. The reality is if you are a true investor with a growing portfolio you can either start/run your own company(with employees), or hire outside management. You can’t maximize your growth running your hundreds of units on your own. The math speaks for itself. The Master Lease idea sounds good in theory but as an experienced PM, I wouldn’t touch it and anyone who is successful doing this wouldn’t either. You are going to get newbie bottom feeders in most cases leading to even more headaches. Bottom line – expect to pay for the level of service you are looking for. Period.