For those unfamiliar with real estate investing, the thought of doing so can be as tantalizing as this:
Rental Income – (Mortgage + Expenses) = Profit
What is not often factored into the equation above is the actual property management—or what one could call landlord duties.
On the face of it, managing a property may seem like a breeze. But don’t be fooled. It is nothing like shooting fish in a barrel. Looking for tenants to lease the houses, chasing rental payments, and addressing the maintenance aspect can be nothing short of time-consuming—if not overwhelming. Investors really need to consider all the factors before deciding what to do vis-a-vis property management vs. self-management.
Property management vs. self-management
Whether one owns property or is interested in buying a property, there are two options for managing. One can either DIY (self-manage) the property or appoint a third-party professional (property manager) to look after the property. The question of which is the better option has no right or wrong answer. It all depends on an individual investor’s circumstances.
To best tackle this question, perhaps it would be nice to outline the advantages and disadvantages associated with each, then the final decision is up to the investor.
More on property management from BiggerPockets
The pros of self-management
The best thing about DIY-ing property management is saving on management fees. And for those that believe in the saying, “If you want something done well, do it yourself,” dipping their toes into self-management will suit them well. They will feel better that they can manage it better than anyone else could.
Self-managing the property also means having a bigger say in tenant selection. The landlord can personally evaluate the application forms and speak with the potential renters. Since the property is theirs, they will go the extra length to ensure it is tenanted. Meanwhile, property managers with multiple properties to manage may be spread too thin, with your property possibly not always the top priority.
The cons of self-management
Managing a property is not the easiest of tasks. It calls for a good amount of commitment on the part of the owner due to the need to carry out constant management tasks like chasing late payments, ensuring the welfare of the tenants, performing regular inspections, and so on.
An experienced property manager is privy to up-to-date, vital information necessary to run the business smoothly. Depending on the investor’s experience, this may prevent them from making informed decisions, which could have an effect on not just their revenue but could also carry legal implications.
Property managers have access to a wealth of real estate resources that are key to the effective marketing of the property. This is not something that one can say of self-management, which could ultimately impact rental returns.
The pros of property management
A property manager may come as an added cost to the list of overheads, but one of their biggest selling points is that they make work easier and minimize stress for investors. Property managers have a good understanding of the market and are well aware of the nuts and bolts of property management.
Emotion is always bound to get in the way of owners when it comes to handling some critical situations. Still, property managers can be reliable in handling deviant tenants and any damage to the property.
Property managers usually oversee the management of multiple properties, which has led many of them to either take up or team up with professional maintenance services. This eliminates the process to “outsource” labor every time there is an issue. Ultimately, good maintenance management bodes well for the bottom line.
Here are more services that a property management company offers:
- They take care of finding and placing tenants in the 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 property inspections to ensure that the tenants are taking good care of their units.
- 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 them into the landlord’s account.
So, basically, they do it all, and they are paid a monthly fee for that. This may appeal to newbie investors since they would not have to learn the ropes. However, this is contingent on finding a good enough property management company to carry out this job.
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The cons of property management
No matter how professional, there is always the chance that a property manager will not manage the rental property well, particularly when overseeing multiple properties.
When entrusting the rental to a property manager, it could end up in the hands of someone incompetent or dishonest. Some could overcharge for maintenance, and others might even collect extra money from tenants to line their own pockets.
There is always the question of cost when it comes to hiring a property manager. They take a cut from the rental income, and a professional management company will usually pocket 5%–10% of the rent per unit they manage, in addition to other fees.
Others charge a placement fee for every new tenant they bring on board, which often equals one month’s rent. Additional costs for maintenance might also be levied, so these are all things to consider, and the investor needs to be on the same page with their property manager before entering into an agreement.
The bottom line: No one cares about your properties like you do
If the investor is lucky enough to find a property management company that meets their expectations and runs the rental smoothly, that is ideal!
But that is not always the case. It can be difficult to find a management company that cares about the property the way you do. You buy your property for a reason, it was built out a certain way for a reason, and you chose the best tenants for a reason. No one knows your property and its surrounding area better than you do. After all, you did your due diligence in investing in this property.
The fact of the matter is that most of these property management companies do not have a vested interest because most of them do not own any of the property in that neighborhood—or do not own property at all or ever have.
They are just doing their jobs of managing it. They’ll fix it, they’ll send the bill—but at the end of the day, they may not be committed to finding quality tenants or ensuring that the property is treated well. They will not be on their toes to help increase profits or inform owners about good market conditions such as appreciation. They are likely only going to care about continuing to receive their stable paycheck.
Don’t feel like you have to start managing your investment property and stop trusting others. But ensure that your chosen property manager has some vested interest and understands your objectives. You should plan to meet with them regularly, check the property, talk to customers, and decide what’s best for you.
Most importantly, you do not need to put up with property managers that you are not satisfied with or those costing the business too much money. Create boundaries and stick to them, keep in touch with the property manager regularly, and follow through if something does not feel right.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.