Landlording & Rental Properties

Opinion: New Investors Should Absolutely Self-Manage Their Properties

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The common advice from many real estate investors is to hire a professional property manager to handle your investment properties from day one. I wholeheartedly disagree!

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Louis L’Amour once wrote, “You are your own best teacher. My advice is to question all things. Seek for answers, and when you find what seems to be an answer, question that, too.”

Let me ask this: If you had $100,000 to invest in the stock market, would you rather:

  • Invest it with an investment advisor who knows little to nothing about the stock market and outsources its investment recommendations?
  • Invest it with someone who has experience and understands stock investing, having invested their own money in stocks?

Experience Is the Ultimate Teacher

For me, I want the experience. And there is no experience like experience gained from actually doing something.

In my day job as a law enforcement officer, I have items on my duty belt that are “less lethal” options for controlling a subject or subjects. Two of these are oleoresin capsicum pepper spray (OC for short) and a taser.

OC is designed to incapacitate a subject when sprayed in the face and eyes by creating a burning sensation. Alternatively, a taser shoots two barbed projectiles into a subject’s skin that are then electrified with 50,000 volts. This is designed to incapacitate major muscle groups.

It is encouraged that you only carry these items if you have experienced the effects of their use. This purposefully happens during training, so that you can fully understand how each affects a person.

I have been sprayed with OC and tased with a taser, and I can tell you that neither one is a pleasurable experience! I did not take someone’s word about the effects of each, either; instead, I experienced those effects myself. By experiencing the effects each creates, in my opinion, it has allowed me to better understand how and when to utilize the options.

closeup of key in lock on door

Arguments for Not Managing Your Investment Properties as a New Investor

For the new investor, it is my opinion that managing your own property is just as important as the effort you put into finding and analyzing that first deal.

Argument #1: Professional management is the best way to protect your investment.

Prior to purchasing a property, I researched rental agreements and located one that I could cannibalize much of and shape into something specific to my situation. This research alone caused me to look at dozens of rental agreements and glean information from many of them. I found numerous important items that I would never have thought about had I simply hired a property manager to manage my investment.

I obtained the lease from a local property management company. They had managed a property we purchased prior to our acquisition. I was disappointed with the quality of the lease this professional management company used. It had nothing in there about broken glass, excessive moisture, unlicensed vehicles, or doing mechanical work on vehicles. It didn’t indicate who pays for minor plumbing issues either, just to name a few things.

Related: My Biggest Property Management Nightmare

Why This Logic Is Flawed

The management company’s lease would not protect my investment property in the manner I wanted to protect it. Had I not looked into rental agreements on my own, I would not have known this.

This is why I believe that, in order to be successful at anything—I mean truly successful—one must understand at least the basics. I am not saying one needs to be an expert in every facet of every aspect. But at a minimum, it is prudent to be able to recognize what is right from wrong.

As a new investor, when you are contemplating hiring a management company, ask yourself a few of the following questions:

  1. Is the lease agreement they use going to adequately protect you as the property owner?
  2. How do they advertise or fill vacant units?
  3. Does your application (or theirs) properly screen out tenants who are not a good fit for your investment?
  4. Is the background check comprehensive, and is it legal?
  5. How often will they inspect units, and what are they going to look for when they do?
  6. What type of lease violations (if any) are they willing to work with the tenant to rectify, and what type will they move for eviction on?
  7. Finally, what type of maintenance or upgrades will they do and when? Which will provide the best bang for your buck? Which add little to no value but make your property more desirable to rent?

bright apartment with lots of windows and natural light and all light colored walls, furniture, cabinetry

Argument #2: Your time is too valuable to spend on management tasks.

Another common justification for not managing your own property is that “your time is too valuable” (or some other similar statement).

I understand the concept that “time is money.” However, when viewed under the “totality of the circumstances” concept (as in a law enforcement investigation), your time may be cheaper than you think.

What price do you put on education? Education, in part, is exactly what you are getting when you manage your own property.

Why This Logic Is Flawed

I sometimes hear the argument that it is often cheaper to have a plumber respond to plunge a toilet than to do it yourself. My plumber would charge a service call plus a minimum rate to do that. My bill would likely be $60 for the service call, plus at least a half-hour or $40 labor, for a total of $100 to plunge or snake a toilet.

That is $100 that I could keep in my pocket for less than an hour’s worth of time. Is it fun to go fix a clogged toilet? Absolutely not—but it is part of the education.

Over time, I learned the real distinction between what to subcontract out to others and what to do myself. Don't get me wrong… if you legitimately do not have the time or if a task is beyond your abilities, then yes, it is prudent to call a plumber, HVAC tech, or contractor. But let's face it, if you are not busy, you can save actual dollars, as well as "educate" yourself.

Think of it this way the next time you hear the argument that your time is worth more. Imagine you go to your local convenience store, and they have a special: XYZ product for $1.25 each or two for $2.00. The concept is to get the customer to buy more because it is a perceived “good deal.”

If you were planning to buy two of that product, then congratulations! You saved 50 cents. If you planned to only buy one and bought two because of the amazing sale, then you just lost 75 cents!

In other words, if you were not doing anything actually productive, you lost money by subbing out a property management issue. If you were busy working for $150 an hour and had to stop and plunge the toilet, then you lost $50.

Common sense goes a long way in figuring out what your time is worth!

Related: Professional Property Management vs. Self-Management: A Look at the Pros & Cons

4 Tax Tips for Rental Property Owners

Argument #3: Property management companies are run by professionals, who know how to do everything better than you.

A third common misconception is that the property management company employs professionals who know far better than you, the investor, about how to manage your investment. The reality is that those same property managers were not born with experience. They learned it—just as you will!

Why This Logic Is Flawed

Guess what? The property management company you hire is likely not going to go fix a clogged toilet, either. They are going to call a plumber—the same thing you could have done.

As I stated earlier, I recently purchased property that was being managed by one of the "premier" property management companies in my area. Yet, the property was not properly maintained and the upgrades were done by a contractor who was obviously the cheapest—not one who was hired for the quality of work.

Face it, many management companies have dozens and dozens of properties per manager. How much time do you think they are going to devote to your property?

What’s more, often property managers know little to nothing about proper maintenance. They have no clue what is a good repair job or what isn’t. They either hire someone to fix the problem or have an on-staff maintenance person fix the issue.

Disclaimer: New Investors, Read This!

Ultimately (as I have stated several times in my articles), there is no hard and fast rule for any one thing in real estate. Find a way that works for you, and move forward with it. Just make sure you understand the “why” and “what” of it.

At some point in my investing career, I hope to have enough properties that it is feasible to hire a company to manage my investments. I imagine it happening eventually, as I have recently obtained my real estate license and am looking to build a portfolio of managed properties.

Remember, I am not advocating that you should always manage your properties. What I am advocating is that, as a new investor, you should start out managing your own properties. Then, move on and move up as your experience dictates.

Once you understand how to manage a property, you will know what to look for in a property management company, which in turn will help protect your investment.

Ben Franklin said it best, “An investment in knowledge pays the best interest.”

Have you self-managed? Have you hired a property management company? Which method do you prefer and why?

Share in a comment below!

 

Wayne Connell is a Deputy Sheriff by night and a budding real estate entrepreneur at all other times! In 2015, Wayne and his contractor brother teamed up to purchase and develop a real estate portf...
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    Scott Trench President of BiggerPockets from Denver, CO
    Replied 8 months ago
    100% Agree. I think one caveat would be someone with a large net worth and very high income. These folks might find that the liability associated with self-managing and the return on dollars per hour spent managing is not satisfactory. I think it’s an immense advantage for a new landlord with less than $1M in net worth to self-manage a few rentals for a few years, however.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Scott, Thanks for reading and you are exactly right in your assessment. Someone who is already independently wealthy would likely be money ahead to outsource property management even if they are new to the real estate investment world. Wayne
    Ruth Lyons Realtor from Highland, MD
    Replied 8 months ago
    Thanks for the post. Your points are valid and insightful. I hired a property manager for my first property and quickly realized that it was not worth it. They simply called me when a tenant called them and it took longer and cost more to get any issues resolved. Instead, I found and developed good relationships with licensed, qualified go-to guys for plumbing, electrical work and HVAC. They respond when I call and I appreciate them personally and financially. I use technology to screen tenants and did what you did with regard to researching leases and coming up with one that fits my business. Plus, I think it helps my business to self-manage. Tenants like to interact with an approachable caring property owner rather than dealing with an impersonal property management company.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Ruth, I have done the same thing regarding sub-contractors. Another thing I do is pay them quickly and often the same day they do the work. I have found that they are way more apt to answer the phone and try to accommodate me when they know they will be paid quickly and I do not try to negotiate the price! In my opinion the tenant screening process is key to whether you have a successful rental experience or not. I have passed up numerous potential renters trying to ensure the one I place in my investment property checks all the boxes. We have a hard and fast rule that we let it set empty if we cant find one. I am not saying we will never have an issue but to date we have not. Thanks for reading! Wayne
    Isaac Agbolosoo Rental Property Investor from Grosse ile
    Replied 8 months ago
    1000% agree.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Isaac, Thank you for the comment! Wayne
    Mark JOhnson Investor
    Replied 8 months ago
    Wow. Someone who knows what they are talking about on Bigger Pockets who isn’t just going with the flow of what others teach. Wayne, Thanks for sharing your thoughts with the community. We think much alike.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Mark, Apparently I do not know how to post replies, you can disregard the comment intended for Isaac. Thank you for your kind words. I am a firm believer in doing what works for you, which may not necessarily be what works for everyone else. Good luck with your real estate ventures! Wayne
    Alaa Hosn
    Replied 8 months ago
    Great article ! Do you mind sharing the rental agreement sample you have Thank you
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Alaa, Please send me your email and I will send you a copy of what we use in Nebraska. I appreciate you reading the article! Wayne
    Charmonda Hatcher
    Replied 8 months ago
    I 100% agree. As a teacher, I know the best way for me to understand a concept for my students is to be able to do it. I cannot teach my kids who to recognize present and perfect participles if I don’t know how to do it myself. Same thing applies. I want to learn first how to manage properties before I pay someone else to do it.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Charmonda, Excellent analogy! I agree completely. Learning to do something before farming it out to others to do is far more valuable than just reading about it in a book! Thank you for reading. Wayne
    Ronald Rohde Attorney from Dallas, TX
    Replied 8 months ago
    Be sure to find the right team members like a lawyer and CPA too. They can teach you how to understand your needs in future projects after you learn what the scope is.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Ronald, Excellent point! There is a “process” involved in managing any type of property and a good attorney and CPA can go a long way in making that process better. Thanks for the comments. Wayne
    James Free Rental Property Investor from Fort Collins, CO
    Replied 8 months ago
    These conversations never seem to talk about the difference between high-end and low-end rentals. In my experience, there is a huge difference in management difficulty depending on your tenant class. At the low end, you need professionals to screen and to absorb the burden of dealing with difficult people and “professional tenants.” At the high end, you tend to see tenants who care for the property as if they own it and present very few problems. I’m glad I hired management for my low-end properties, and I’m glad I’m not paying management to do virtually nothing for my high-end properties.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    James, You make an excellent observation. My experience has been with with B class properties in rural areas so I have not experienced rental management at the low end of the scale. While I still firmly believe that you can and should experience managing your own properties, especially if it is just one or two, I cannot discount your comments. I think your point is an excellent example that no one thing works for every situation. As you pointed out there can be a vast difference in managing from one end of the scale to the other. Thank you for your comments! Wayne
    Ruth Lyons Realtor from Highland, MD
    Replied 8 months ago
    Good points, James. My properties are B-class so I don’t often hit a snag.
    Owen Franks Attorney from St Petersburg Fl / Cambridge UK
    Replied 8 months ago
    Agreed on most points, but not on mix and matching Rental Agreements. These are legal contracts and contain much more than meets the eye. Whenever I’ve seen property managers pick and choose clauses they like, the results are never pretty. Often the results are that the Rental Agreement is invalid. Worse, I’ve seen rental agreements that are so wrong they actually prohibit a landlord from securing an eviction. In general, (in residential properties only) I find agents are usually just an extra layer of confusion to the communication. Tenant has a problem > tenant calls property manager > PM messages me > I message PM > PM messages electrician > electrician messages PM > PM messages me and tenant. Very ineffective. The best thing I ever did was fire my agents and grant my tenant the right to contact my plumber, electrician and handyman directly when there’s a problem (copying me in to the email), and I cover the call out costs. This only works with great tenants, but is very good for both parties when it works. If I ever had a tenant abusing this, I’d review it.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Owen, I think you make a valid point and I would not advocate you make up a rental agreement without ensuring it was vetted by an attorney. A few dollars up front can save you a lot on the back end. As Ronald pointed out, you need a good attorney and a CPA on your team. Thank you for the excellent comments! Wayne
    Vaughn K. from Seattle, WA
    Replied 8 months ago
    I work in an industry that has a lot of contract work… The truth is there are some key aspects of contracts that are interweaved into the agreement as a whole, as in they may reference other portions of the agreement, etc… And there are portions that are stand alone. Anybody with decent reading comprehension can figure out what is what. You want to start with a fully finished agreement that has all the basics, and if you want to tack on stand alone clauses there should be no problem there. Unless there is some specific silly law in a given area that prevents this, there is a standard clause that states “If any portion of this agreement shall be declared null and void due to a violation of the law or declared unenforceable by any court of law, the remainder of the agreement will remain in effect.” or some such similar wording. Every agreement I have uses such a clause (that is not a copy paste, just an off the top of my head version), and any agreement ever written by any decent attorney should state this as well. Bear in mind, something may be legal at the time of execution, and made illegal after the fact… In theory without such a clause the whole agreement could be declared invalid. With such a clause,in theory, an agreement can never be thrown out in its entirety. I guess total amateurs should know their limits, and definitely have an attorney check things out… But there’s nothing wrong with learning about how to do your own contract work. I’ve saved many 10s of thousands of dollars in my business by not relying on overpaid attorneys who don’t even do as thorough a job as I do.
    Owen Franks Attorney from St Petersburg Fl / Cambridge UK
    Replied 8 months ago
    The problem is you don’t know what you don’t know. E.g You might think it’s great that your tenant wants to commit to (say) a 3 year and one day lease and so just amend your old leases to say this. In my jurisdiction, you can’t do that – leases beyond 3 years must be recorded by deed or are invalid. Completely. Regardless of a clause such as you suggest, which is known as a severance clause (which is still a good idea). That’s just one example. Others include adding a fee for things that aren’t permitted. In my jurisdiction, if you demand a deposit of more than 5 weeks rent the tenant can sue for an amount up to 3 times the value of that deposit. There are many more examples. Want a clause that breaches the Fair Housing Act? Good luck using your severance clause to get out of that.
    Vaughn K. from Seattle, WA
    Replied 8 months ago
    Owen, I generally agree I suppose. Note that I said people need to know their limits and consult accordingly. In my industry I keep up on legal changes, and will update accordingly. For somebody that is serious about RE they can/should do this as well. For the person who has the gumption I would say the following is a reasonable process: Start with a professionally drafted agreement for your area. Add clauses you might want. Have it checked over by a pro. If you make changes you think might matter you can always have just the changes reviewed. Keep up on changes where you invest because you probably need to know this stuff for yourself anyway! I guess my point is that you need to use your head… You shouldn’t never use an attorney, but you don’t always need to use an attorney either. Some people seem to think they need to pay a lawyer to change the date or the address of a property or whatever. If you have a good checked over boilerplate agreement and know what’s up you can handle some stuff yourself.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Vaughn, I do have that clause in my lease that states if part of the lease is in violation of the law it is only that part that is void and not the rest of the lease. And I agree that for most instances it is often prudent to rely on common sense. Thanks for the comments! Wayne
    Mark K. from Staunton, Virginia
    Replied 8 months ago
    I’m a retired police officer. Thank you for your service, Wayne. I think this is the first time I’ve read a Bigger Pockets blog where both OC and taser were mentioned. Like you, I have experienced both of them as well. I currently have 9 units, 6 single family homes and a triplex. I manage the triplex and one home. The other 5 houses are out of my area, so I have property managers for them. I agree that by managing properties myself, it helps me to manage my property managers. The hard part for me is letting go of the control of the property. I’m learning how to do that though. Mark
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Mark, It is a pleasure to meet another LEO! Thank you for your comments. I agree if you have rental units out of your area it is difficult to manage many of the duties yourself and is one of the instances that hiring a property manager as a new investor, may be prudent. I have 10 doors, 3 – 2/1 duplexes, 1 – 1/1 duplex and a micro duplex (240 sq ft per side) that I rent out mainly to traveling medical professionals. Good luck on with your real estate venture! P.S., I would rather take the 5 sec ride from the taser than the OC! Wayne
    Karl B. Rental Property Investor from Los Angeles, CA
    Replied 8 months ago
    I agree 100% – self-managing will teach a new landlord a lot – including what he/she likes and doesn’t like which will help calibrate future RE purchases. And I always add, put something in your lease stating toilet and drain clogs are the responsibility of the tenant.
    Vaughn K. from Seattle, WA
    Replied 8 months ago
    I am 100% of the belief that somebody should always understand the basics about anything they are going to undertake. As you said, you don’t need to know every single minor detail of everything… But if you don’t have at least a basic idea of the major concepts, IMO you can never do a competent job of dealing with things. People will try to take you for a ride if they think they can… Sometimes out of laziness, sometimes out of their own ignorance, sometimes out of greed. If you don’t know what’s what you won’t even know you just got hustled! I’ve had mechanics suggest I spend $5K replacing a transmission on a car, when really it only needed a few hundred dollars worth of work to a sub component of the tranny… If I was a little old lady who didn’t know anything about cars, it would have cost me $4,000+ I didn’t need to spend. With houses things can be even MORE expensive! Imagine rewiring an entire house when it isn’t really needed because you don’t know that the wiring is really functionally fine, even though it may be old. Ditto plumbing. Replacing an entire hot water heater when all it needs is an element. Replacing a roof when it has 10 years left on it. There are a million things. With bad management not doing proper tenant screening, letting maintenance slide, not advertising properly and it being vacant for too long, etc etc etc are all things that can be avoided if you know what is what. Even if you sub out management, knowing that a house in XYZ neighborhood shouldn’t be vacant for 2 months when you also had a 2 months heads up the last folks were leaving… That can be expensive if you think it’s normal when it’s not. Stuff like that comes form experience. Learning the basics of management, maintenance, remodeling, etc are all things any person who is serious about investing in RE needs to learn. Learn how to deal with things first, THEN let some of it go once you know what good work/bad work looks like.
    Tracy Streich Property Manager from Tulsa- OKC Oklahoma
    Replied 8 months ago
    If you want to get into the weeds and do your own maintenance that is fine. What I have found in working with investors is that many of them do not have a clue how to snake a drain or change a garbage disposal. I managed all my own properties for many years. I know manage my own and another 450 SFR homes for others. There is really no right or wrong answer here. PM works for some and self managing works for others. I tell investors to look at the value of their time. Just like you have done. I have doctors and lawyers that make $300 hour to do their job. If you can make that much an hour it does not make a lot of sense to manage your own properties. If you do it yourself just make sure you are up to date on current local, state and federal laws that are constantly changing. If you can do it on your own you can control everything from tenants to cost and save the PM fee. If you don’t have the ability to do it your self, coordinate and be mean when you have to it is best to go with a full time PM. With that said all PM’s are NOT created equal. Screen your PM just like you would a potential tenant. Taking the time on the front end save tons of time and headache on the back end. Good Luck. I hope you grow to a point you cannot do it on your own!
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Tracy, I agree with your comments. I have recently obtained my real estate license and hope to manage properties for others. As you stated there is no one set way but I still believe learning the basics only helps make you better! Thank you for reading. Wayne
    Dave Chow Investor from KS
    Replied 8 months ago
    Could not agree more.
    Wayne Connell Rental Property Investor from Hershey, NE
    Replied 8 months ago
    Dave, Thank you for reading and the comment! Wayne