Landlording & Rental Properties

The Biggest Landlording Mistake I Ever Made

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
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My biggest landlording mistake isn’t an uncommon one. It is one that at least 50% of investors continue to make—and not just first timers, either. Some experienced and relatively successful income property investors still fall prey to this pitfall, too.

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No, it wasn’t skipping due diligence, property inspections, or foregoing title or property insurance. It wasn’t even getting the numbers on the deal wrong. It was self-managing my rental properties.

Related: The 3 Dumbest Mistakes Buy & Hold Real Estate Investors Make

Why Self-Managing is the Wrong Move for Landlords

It’s not that I couldn’t manage my rental properties. It wasn’t even that I couldn’t do a good job at it. Here are some of the reasons I decided it wasn’t right for me and don’t believe it is the smartest or most profitable route for most real estate investors.

Managing Contractors

Without question, finding and managing contractors is one of the most trying jobs in real estate. Even highly successful investors can struggle to find solid contractors and manage them effectively. It’s not a “set it and forget it” item, either. They are constantly changing and need different types of supervision and engagement at different stages of any given project.

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Maintenance Requests & Tenant Correspondence

You might get really lucky on your first property or maybe even your second. But sooner or later you are going to get tenants that are a lot of work. Either the renter is just really needy, the property requires a lot of upkeep, or both. Expect at least one in three of your units to require really intensive and responsive management. That’s true even if you are buying brand new construction, vet prospective tenants very well, and your renters all have 700 credit scores.

No matter the cause, you can’t afford to slack off here. It is an area of huge financial and legal risk and responsibility. If you aren’t providing hyper-responsive and friendly customer service, you aren’t going to last long. Word gets around fast in the online world we live in today, and it always stays up on the web.

Related: 10 Lethal Mistakes to Avoid on Your First Real Estate Investment

Being Too Busy

Between having to be constantly available to tenants—24 hours a day, 7 days a week, 365 days a year—and having to stay on top of your contractors just as much, there isn’t much time to breathe or take a day off. If you are already retired and have no plans to travel, have the family over on the holidays, and never get sick, that may not be a problem for you. Still, this is time spent simply managing a few units. It doesn’t count time you need to spend to go find new deals and new tenants or to stay on top of the right times to sell and augment your investment portfolio. It’s not healthy, and certainly doesn’t allow you to reach your full potential in life.

Being Too Personally Involved

For some, the idea of personally having a hand in rehabbing properties, underwriting tenant applications, keeping the landscaping manicured, and helping others when they can’t pay the rent is really appealing. However, there is a big gap between this ideal and the reality.

Being too personally involved almost always means a lack of privacy, taking on extra risk, and failing to be objective in investing. You won’t make the best calls on property acquisitions, tenants, and exits. You’ll make big blunders on renovations, repairs, and dealing with other people. It’s inevitable. We are all human.

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Summary

Like me, most new investors completely blow the math on outsourcing to professional property management. You see an expense. That may be one month of rent, 10% of the gross monthly rent, both—or more. But not having professional management is far more costly. Good property management is a part of the investment. It should always be budgeted for, even if you want to try the DIY route first.

Do the real and full math on the liability and the cost of juggling multiple full-time roles, the stress, and the lost time you could’ve spend on higher value business activities and quality time with family. It can suck the joy out of the business. Give it a try yourself and you’ll quickly figure that out.

For those who are getting into real estate investing for truly passive income, wealth protection, profit, and having a life, delegating out property management is highly recommended.

Do you think self-managing is a good idea when starting out (or anytime, really)? Why or why not?

Comment below!

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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    Matt Potts from Minersville, Pennsylvania
    Replied almost 2 years ago
    I manage my first rental property but am already a seasoned business manager. I understand the importance of responding to tenant calls as soon as possible, and enjoying the expectations of an unknown problem that arises suddenly. This is my job, and I attempt to acquire additional units with a niche in property management and assisting out of town investors. If you have little patience with people and are judgmental to the core, avoid self-management. I’m a handy man, so I don’t need to include contractors at every stage of the process either.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied almost 2 years ago
    I can’t say I agree on this one. I’ve seen so many terrible property managers that I don’t think you can say one is necessarily better than the other. So much depends on your situation and goals.
    Brad Richardson
    Replied almost 2 years ago
    What is the typical property management charge (i.e. 1 month, 1/2 month rent) for renting to a new tenant?
    Stephen Horn from Wichita, Kansas
    Replied over 1 year ago
    This is kinda absurd. If you already take very good care of your properties you have less maintenance worry to begin with. Be proactive and KNOW your property. Around here it would cost me over $5000/year for a management company out of $28,800 in gross rent. Everyone’s situation is completely different due to location, margins, talents, time, competences. So yes, to me, saving 5 thousand dollars a year is worth taking a few phone calls for a plugged drain or two…to which I simply text my plumber (tenant charged). Make no mistake, very few PM companies have YOUR business profits on their mind.
    Amy Pfaffman
    Replied over 1 year ago
    Since I bought my first properties in a far-away city, I didn’t even see it as a choice to hire a property manager. I found a good one who I really trust. He has a small operation, so I know he and his office manager and his handyman are handling everything themselves. That said, he’s not perfect. He’s done (or not done) some things that ended up costing me money, but those are lessons learned that I shouldn’t have to learn again. I’d rather have someone I trust ethically than someone who catches every detail. Since, like someone above said, no one will care about my investments as much as I do, I keep a close eye on everything my property manager does, actively participate in decisions, and even inspect my properties personally. That shows both the tenant and the property manager that I’m paying attention. So far, so good (though not without some issues). I recommend personally visiting your properties at least once a year, no matter how far away you live.