Buying & Selling Houses

Should You Hire a Property Manager? Here’s What to Consider

Expertise: Landlording & Rental Properties
25 Articles Written
indecision

When you purchase an investment property, you have two management options: property management or self-management.

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Regardless of what you decide to go with, rental management includes all tasks related to rent, tenants, property maintenance and repairs, business operations, and more.

Hiring a property management company means you will pay a percentage of your monthly rental income (usually 7–10 percent) to someone else to fill vacancies, respond to maintenance requests, collect rent, and get the property ready for the next tenant after a lease ends.

A Note on Self-Management

Rather than paying a property management company to complete these tasks, some investors choose to retain that management fee as profit and perform all the rental management duties themselves.

Self-managing rental property is a great way to stay connected to your portfolio and your tenants. And if you have long-term tenants and low maintenance (read: new) properties, the job can be fairly easy.

On the surface level, self-management seems pretty straight forward: collect rent, coordinate maintenance and repairs, and find new renters when the current tenants want to move out. Simple, right?

RELATED: What Does a Property Manager Do? Here’s the Job Description

But below that shiny surface of easy landlording are the nitty-gritty details of rental management. What happens when you have a problem tenant? Or when the rent is always late? Or if the rent doesn’t show up at all this month? What about when your tenant decides to move out when you have a vacation planned? Or when a renter drives through the front of the house, leaving you to coordinate a major repair?

It’s in situations like these that deferring the hard work to your property manager pays off. Property managers specialize in the the day-to-day operations of maintaining a profitable rental property and the once-in-awhile nightmare rental scenarios.

Even if you don’t have nightmare renters, a couple middle-of-the-night maintenance calls can suddenly be worth paying 10 percent of the rental income to a property manager to handle.

Here’s a look at some rental management tasks that you may encounter with your investment property. You need to consider these situations when you decide between self-management or property management for your investment portfolio.

Related: Understanding The Basics Of Property Management

Evictions

When you encounter a renter who fails to pay rent or violates another lease term, you need to move forward with the eviction process. But you must follow your state’s law for legal evictions or you could be subject to fines or worse—like owing your rule-breaking tenant money!

To begin an eviction, you must first identify the lease violations and give your renter the opportunity to fix them. For example, if the tenant has failed to pay rent on the due date, you provide a “cure or quit” notice, giving the tenant official notice to pay rent or move out. If the tenant does not pay rent or move out on the specified date, you can file for an eviction. Each of these steps takes time and energy, either from you or your property manager.  

If the eviction goes to court, you will have to take the time to show up to the hearing and then follow through with the ruling.

Evictions are a long legal process. A property manager will be trained on your state’s laws about completing an eviction legally and effectively. Plus, your property manager will be obligated to follow the lease in a clear black-and-white fashion and won’t give in to excuses or sob stories from your renters.

Vacancies

When your tenant moves out, you need to put a new one in place with as little down time as possible. Vacancies are one of the scariest prospects to your bottom line and can be one of the biggest cash flow killers to your real estate investment.

There are several tactics you can employ to avoid rental vacancies, including managing lease expirations rather than waiting for a tenant to send you a notice to end tenancy.

A lot of states only require a renter to give 30 days’ notice for intent to vacate. However, a month might not be long enough to find another tenant to move into the vacant property. Instead of waiting for a renter to send a 30-day notice, a smart landlord or manager will contact the renter 60 to 90 days prior to a lease expiration date to find out the renter’s plan to renew or move. If the renter is planning on moving, you will have extra time to market the property.

sell-or-rent-house

If you only have one property and one lease, staying on top of lease expirations is fairly easy. But the more properties and lease agreements you are maintaining, the more time you will need to devote to following up with the tenants to avoid vacancies.

Other ways to avoid rental vacancy include promoting renewals, marketing the property effectively, screening your tenants, and staying on top of turnover tasks.

Related: How to Choose the Right Rental Property Manager

Raising the Rent

If you have great tenants, the idea of raising the rent can be daunting. It’s not uncommon to ignore the annual re-evaluation of fair market rent when you have a tenancy that is going smoothly. But neglecting a routine rent increase can mean that your property suddenly falls hundreds of dollars behind fair market rent. So when you do decide to implement a rent increase that is above 10 percent, your tenants will be hit with sticker shock, and you’ll suddenly become the target of their anxiety, stress, anger, and frustration.

To avoid extreme rent increases that could price your current renters out of the property, I always advise that you build routine rent increases into the lease agreement. I am talking about $25 each year. A $25 rent increase once a year is easier for most people’s budgets to accommodate, compared with a $100 rent increase once every four to five years.

Regardless of routine or one-time increases, you may have to deal with pushback from tenants when rent increases are discussed.

In order to keep your investment profitable, you will need to raise the rent on your tenants at some point. You need to decide if you want to have these conversations with tenants or if you would rather defer the responsibility to a property manager.  

Final Thoughts

Managing evictions, vacancies, and rent prices are some of the biggest tasks a property manager can take on to help alleviate your responsibilities.

If you started investing in real estate but have lost your motivation to continue to build your portfolio, you might consider hiring a property manager to handle the time-draining tasks involved in self-managing your investments. You need to assess how your time plays into your rental analysis for providing a profitable return on your investment.

Are you considering using a property manager? If so, which tasks are looking forward to NOT doing?

Share below!

Aside from being a landlord and real estate investor himself, Nathan founded Rentec Direct, a software company that serves the rental industry. Today he works with over 13,000 landlords and proper...
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    Christopher Smith Investor from brentwood, california
    Replied over 2 years ago
    Good balanced article that clearly points out that property management is a whole lot more than just merrily collecting rent checks. I wouldn’t even contemplated for more than a few minutes managing my properties – leave it to the competent professionals – and not just the dirty work, but the legal liability issues in states where lease laws are heavily skewed in favor of tenants. A reasonably priced and highly competent property management company is well worth it’s weight in gold in terms of saved time, avoided headaches and unnecessary worry.
    Rob Cook from Powell, WY
    Replied over 2 years ago
    Good article Nathan. We are currently doing trials on Property Management (PM) software and learning as we go. We have 3 property managers for a lot of our units currently, and appreciate having them do it for us. But, we also have nearly two dozen units we manage ourselves because there are no pro PMs available for us to utilize them. SO, I am going to look into your Solution now, Rentec Direct. We have done some experimenting with Simplyem, PropertyWare, and TenantCloud so far. Obviously good and bad points to each, including the cost for each and features. Even at our age (59) and with over 50 rental units, we are now rookies at PM! We are learning fast and gaining a sense of what we need now, so zeroing in on the best fit PM software is going to be easier going forward. We find that a lot of the typical benefits of using professional PMs is lost on us because we are so hands-on in our rental business. This makes the case for managing all of our properties, ourselves, a little stronger. BUT, we also like and appreciate the freedom and intermediation having pro PMs offers us. Not an easy answer since we do not have pro PMs to use on many units, and we are therefore forced to learn how to self-manage anyway. Easy to justify taking it all over ourselves, once we learn the ropes and get systems in place to handle it all efficiently. Onward…
    Alex Corral from Denver, Colorado
    Replied over 2 years ago
    Good article, however I disagree with the 7-10% in fees. This is more like 15-20%, once you add in the tenant placement, re-leasing fee & all the other fees.
    Christopher Smith Investor from brentwood, california
    Replied over 2 years ago
    My PM’s do 8 percent on gross rent and only as collected with no other fees of any kind. I do have multiple properties with each of them.
    Brad Shepherd Syndicator from Austin, TX
    Replied 11 months ago
    No lease up or renewal fees? Or fees if they handle an eviction? Or have to work with a contractor to get a bunch of work done?
    Casey Culver from Madison, Alabama
    Replied over 2 years ago
    Nice article. I plan on managing as many properties as I can until I no longer have time to do so. I consider myself very organized and resourceful, understand pretty well how to handle evictions and vacancies, and I’m handy enough to do the small things on my own and am also comfortable enough finding/hiring contractors for large “oh crap!” jobs. I’d like to grow until I no longer have time to manage, and then hire out the property management. My reasoning is not to be cheap, but to gain experience so that I can hold property managers to the same standard I hold myself. Is this logical? Any thoughts? I currently have a grand total of…wait for it…1 rental property lol, so I could be pretty naive here.
    Rob Cook from Powell, WY
    Replied over 2 years ago
    Casey, I think that is an excellent idea and plan. I am doing it, backward, migrating away from having professional PMs to doing more myself now, and learning as I go. Great thinking! There are no real shortcuts, and going from being hands-on to more passive, is the proper order in a perfect world.
    Costin I. Rental Property Investor from Round Rock, TX
    Replied over 2 years ago
    Our second PM we ever hired never went to the rental in 3 years of management. For any problem, we were charged a service fee on top of whatever repairman (usually his connection) invoice. Basically, just a secretary making calls and charging for everything. We got charged $45 service fee and $7 per battery to change 4 smoke detectors batteries ($73 total) at one time (part of series of other make-ready repairs). Since then, when we need to hire a PM we ask for: · The property management trade associations and/or realtor boards you belong? · The standard management contract, · The fees structure · List of references (3+ owners and 2+ tenants, including at least 2 owners not local, email and phone) · Samples of monthly and annual reports · Copy of standardized policy and procedure manual (property and employee) · Inspection list (“make-ready”) for leasing a property · Maintenance inspection list (used for periodic inspection of property). We also inquire with their references for: – What is your relationship to the property that they serve and how long have you worked with their service? – Do they do a good job screening new tenants and getting the vacancies filled quickly? – Are they available? 24 hrs a day? Weekends? – Are their communications clear and regular? – Is their reporting clear, accurate and beneficial? Do they provide routine and complete reports on a monthly basis? – What did you least like about their service? – What were their relationship/interactions with Tenant(s) like? – Do they perform as promised? – Have they suggested and implemented ideas to save money on expense since taking over? – How often do they do comparative rental surveys? – How aggressive are they with rising rents, while maintaining occupancy? – Do they follow all the rules for notices and evictions? – Is their response time to tenant comments or complaints acceptable? – Overall on a scale of one to ten, with 10 being the best, how do you rate their management? – Would you renew their contract and/or have them work on additional properties? Good luck hiring your Property Manager!
    Ernesto Correa from Vacaville, CA
    Replied about 2 years ago
    Excellent advice, especially for newbies like myself to use as a reference!
    Terrell Garren Rental Property Investor from Concord, NC
    Replied 11 months ago
    I understand PMs for remote property. I quite enjoy self managing around 20 local SFHs. After initial repairs, good tenant selection and established contractor relationships, I'm guessing I spend maybe 5 hours a week and $20K in monthly gross rents. Never had a problem call or text between 7pm and 7am in 11 years. It took a few years and my share of mistakes, but it's on auto-pilot now. The biggest ongoing annoyance is Cozy emailing me when a bank deposit is made.
    Eric Zwick Flipper from Allentown, Pennsylvania
    Replied 11 months ago
    I now manage myself after being with a PM for 4 years. Poor screening so they placed marginal tenants who only lasted a year and messed house - I want long term tenants. PM who has his own Construction company and inflates repair costs so overcharged. -- No Bids. Owner not quickly available. Quick and frequent turnover to get 1st month rental fee. Not alerting when tenants are behind in rent
    Billy Smith from Shawnee Mission, KS
    Replied 9 months ago
    I do it myself, I tell my tenants up front you are part of my family. I want them to like me without acting too goofy. Call me when something is wrong, I tell them problems don’t get better with time, or could be dangerous. I want them to call me without fearing I will flip out. When they move in the house is professional cleaned that sets the bar where I keep it. I screen heavy with my area A or B, I do not need to take a warm body they must pass normal back ground. If I give someone break and others not that is a law suit for sure all are treated the same it is business decision! You live die by your lease you might want to update every 3- or 4-years new language that covers issues that seem to pop up in this business. So, the lawyer I hire must be in trenches seeing what is going on to write a good lease. Doing a generic lease is to be avoided. I paid only $250.00 that may save me thousands.