The Pros and Cons of Hiring a Property Manager

Today we’re talking property managers. My God, these are some of the hardest-working, most under-appreciated people in our industry.

We’re going to do a deep dive. Watch the video below or read on to learn how to hire the right manager for your rental properties and the reasons you’ll be happy you did.

OK, it’s absolutely true. I think property managers have some of the toughest jobs out there. And you get absolutely no pats on the back for being a property manager.

It’s very rare you’re going to pick up the phone and say, “Hey, Tim, nothing’s wrong. Just want to make sure you know you’re doing a great job!”

Most of the time when you’re communicating with your property manager, something has hit the fan. You’re dealing with an issue.

I think it’s pretty obvious that not all property managers are cut from the same cloth. There are a lot of great, fantastic property managers out there. And there are some that are just… not so much.

What I’d like to do is talk about some of the pros and cons of hiring a property manager and some of the things to look out for when hiring a manager.

What to Look for When Hiring a Property Manager

1. Integrity

This is going to sound kind of highfalutin and wishy-washy but the first thing is integrity. Although, it’s not something you can really screen for on a job application. It’s just something where you have to meet the person, you have to gel with them, and you really need to get referrals from other people.

Anytime I’ve ever looked for property managers in a given area, I’ve interviewed multiple managers. It’s not to be pedantic or annoying. It’s legitimately to try to find somebody that you gel with.

You might find a manager who is a perfectly good manager, but you and him or her just don’t see eye to eye or your personalities don’t jive. That might just not be the property manager for you.

Try to talk to a few of them, find ones you feel that you connect with, and get referrals from other people that they have integrity and that they’re honest. Because at the end of the day, this person better be honest, because they’re managing probably your most expensive asset—kind of a big deal.

2. Familiarity With Property Type

Are they familiar with the asset type that you have? If you have managers who only do student rental investing and you’re asking them to manage a retail strip plaza or you’re asking them to manage an office building, it might not be the perfect fit. So, try to figure out what their area of expertise is and make sure that they know the area and the asset type.

I was in student rentals for a number of years. Still own a couple today. And the student rental game is somewhat different than the normal multi-rise apartment game. The managers that are in that area often times specialize in student rentals. They understand how to deal with students. And ultimately, that’s going to be key for you when you’re hiring a manager to look after your investment. You want to know that they’re an expert in that area.

3. Flexibility

I can’t tell you how many times I’ve had managers that have been difficult in adopting the systems I wanted them to adopt in the management of my properties. So, what I asked them to do is to upload the financial statements into a cloud drive. And I would have them get fed into my accounting system.

Another thing is he would have his own bank accounts, and he liked to move money from his bank account and then pay out what’s left over to me. I didn’t like that system as much. I’d rather that he put all of the rent into our business account, and from our business account, we allowed him to have access to a small management account. (I say small because we’d only keep a certain amount of money in there.)

Anything above a certain amount or certain repair, he’d have to get an OK from us. Anything below that, he could utilize that amount. He could take money out and spend it on certain things that were under that threshold that we needed done. That worked out for us.

So, having that flexibility was just extremely important to us. And I’ve had managers in the past that just won’t budge on things. And if that doesn’t work for you, find a different person again.

This is somebody that’s managing one of your most expensive assets. You want to feel comfortable, and you want to feel that they’re serving you.

So, that’s three of many things I look for in a property manager.

Pros of Hiring a Property Manager

In terms of why you would want a property manager, a couple of things come to mind fairly easily.

1. Save Time and Preserve Energy

A manager ultimately is going to save you time and energy. If you add the most value through finding properties, or acquiring them, or doing something else (maybe you have an actual day job), then having a manager is probably worth it to you.

2. Avoid Headaches

Another thing is stress. It’s very stressful to manage properties. That’s why these people are in the business of it.

To the average person—even the average investor—it can really take a toll on them. It’s stressful to have properties that they’re worrying about and getting that call at 2 or 3 a.m.

Instead, hiring a manager and delegating that to professionals might be the best thing.

3. Enable Growth

Another reason you hire a property management company is because you might be scaling your business. And when you do scale your business, you might be able to utilize that manager to look after multiple properties. If they’re looking after multiple properties, you can start having economies of scale, where the percentage that you’re paying in management goes down.

4. Get the Inside Scoop

Another big reason I like property managers is that they have their finger on the pulse of your market and your building. If you do manage your property (and even if you do routine inspections), you’re not going to get a good feel all the time for things that are happening at the building. So, having a manager there that actually is doing this for you is great.

You’ll know if something’s wrong, you’ll know if there are issues with tenants, you’ll know what’s happening in the building. You’re just informed, and that’s crucial.

Property managers have this wealth of knowledge that people don’t tap into. Before I even buy a property, if I’m in a market that I’m not familiar with (or I’m only somewhat familiar with), I will go into that market, look for the property managers, and actually take them out to coffee and talk to them about the market.

I’ll say, “Hey, I’m looking at buying this property. I’m looking at these type of rents. What do you think?”

And oftentimes, they’ll tell you right away: “I think this is too high. I think this is too low. Oh, you know what? You could probably get a few hundred more for each of these suites.”

They are a great piece of knowledge because they see what’s happening in that market—even more so than some brokers—because they’re the ones dealing directly with tenants. They see where deals are falling from the leasing perspective. And that’s crucial information for yourself. You really need to take advantage of that!

Cons of Hiring a Property Manager

You’ve probably gathered by now, I’m a little biased. I do like outsourcing management. I think if you hire them properly and you maintain a good relationship, they’re such an asset. But there are some cons with management, too.

1. Cost

The first con is the obvious cost. Depending on the market, it can be as low as 4 percent of the gross income of the property (the gross rent) all the way up to 12 percent. So, you really have to take that into consideration.

Oftentimes what people forget, though, there’s the percentage management fee and in addition to that, there’s leasing up costs. When and if they’re going out to find new tenants for you, that could run up to a month’s rent or half a month’s rent. And those numbers can actually really start adding up—that 4 percent all of a sudden is 7 percent if you do the calculation over the year.

It’s definitely something to think about. But if you can manage that cost, it’s just another expense item. It’s a tax-deductible expense, obviously, running through the business. And again, in my opinion, I think it’s worth it.

And one of the reasons I think that is especially with commercial properties—offices, apartment buildings. They’re being underwritten assuming that there is property management. Most people don’t think 100-unit buildings or 50-unit buildings are being managed by Tom, the owner—as great of a guy as Tom might be.

2. Oversight

Now, the other thing that might be perceived as a con is the fact that this person is not going to love your baby as much as you do. That’s just the reality of it.

It’s your property. It is a totally different type of relationship when you own something as opposed to manage something. So, it’s something just to keep in mind. Even if the person is a good manager, they might go that extra mile, but they won’t manage it or care about the asset in the same way you do.

In my opinion, that may be perceived as a con, but I think it’s just a reality that can be managed. And the real thing about that is you have to manage the manager. You’re technically the asset manager. So, you’re managing the property manager, and you’re making sure that that relationship is good.

You’re not disrespectful to that person. You’re honest. If you have a good working relationship, good things happen.

I can’t tell you how many times over the years I’ve had a property manager that gave me a little bit of a golden nugget in a market. They found out an owner was potentially selling or there’s a conflict with ownership. And that’s what happens when you have these good relationships: You get rewarded. Over time, you’ll get little pieces of market information that ultimately might result in a purchase for yourself.

So, be good to the managers. They’re good to us. The good ones, they are doing God’s work out there.

Do you use property management for your rentals? Why or why not?

Comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.