Should You Hire a Property Manager?
A topic of hot debate is whether a real estate investor should hire a property manager to handle the day-to-day property management of their properties. I have seen arguments for both sides, but I tend to believe that for most investors it's better not to hire a property manager.
What a Property manager Does?
A property manager generally is in charge of the day-to-day activities of a property. This includes showing the property to prospective tenants, collecting rents, answering phone calls, coordinating repairs, paying bills, etc. Property managers will charge a fee of 5% to 10% of gross rents collected for their services. This fee pays for rent collection, phone calls, and paying bills. Most other services are in addition to the 10% fee. For example, if you have a leaky faucet, the property manager will field the complaint and then hire a plumber to go do the work. The owner is responsible for the plumber’s charges.
The reason I don’t believe most real estate investors should use property managers is because answering the phone and farming out the labor to subcontractors is the easy part of the job. I’m not sure it is worth 10% of my gross rents to have someone answer the phone, and pay my bills. The hard part is mowing grass, painting, cleaning, fixing toilets, repairing, and did I mention painting. None of these tasks are covered by the property manager’s fee. Property managers simply subcontract out these tasks and pass the bill along to the owner. If you are a young investor trying to get ahead, then it’s probably best to save the fees and do as much as you can to keep your expenses to a minimum. Besides, managing the property on a day-to-day basis is a great way for a new investor to really learn the business.
Bad Property Managers
No one else will take of your property as well as you do. If I am going to invest a couple hundred thousand dollars on an asset, I want to know that someone is keeping a close eye on it and will keep it in great shape. I have heard several horror stories about a property management group in my town that charges low rates, but has very poor service and does hardly any maintenance on their properties. They don’t paint the units in between tenants, clean, or remove trash. I just rented to a tenant the other day that commented on the stinch that was coming from a rental that this property manager was showing to him the day before. The property manager had not bothered to do any cleaning before showing the property. Not only did this scare the prospective tenant away, but it is not good for the long-term viability of the property.
When to Use a Property Manager
I do not think all property managers are bad. There are some situations I can think of when using a property manager is a good idea. One is if you inherit a property and you don’t really have any interest in managing properties. Another is if you are moving away for a few years and do not want to sell your house. However, I would be sure to screen property managers and make sure you get a good one that will take care of your property.
Comments (4)
Michael - Buying in your "circle of competence" as you call it, is probably the best piece of advice you could give to anyone new to real estate. Anything too far away tends to be difficult to oversee directly, or difficult to oversee the overseers.
Joshua Dorkin, over 15 years ago
Josh, Thanks for the comment. I agree with you on the importance of screening the property management company. Some of the property manager I've seen hardly do anything. Deanna, I agree with you that it is about impossible to manage a rental from far away. I'd definitely use a property manager if I found myself owning a property in Hawaii. You might try going around the area you are going to buy in and look at what property managers are in that area. Then independently find out who the owns several of these properties and talk to them about their property manager. You could look at property tax records to see who owns the properties. The word of mouth referral would be a good start. Also, talk to renters about the property manager. They will tell what kind of service they provide (be sure to take it with a grain of salt). I tend to buy properties within my circle of competence. Which right now is residential real estate within 30 minutes of where I live. I'm very familiar with this market and I like being close to my properties to keep an eye on them. Thanks, Michael
Michael Rogers, over 15 years ago
I too agree with your entire post, especially if the rental property is in your area. What about investors that purchase outside their local area? What kind of screening process would you recommend? In the state of Hawaii it is required by law to have an on island management company if the owner does not reside on the island. This is for protection of both the owner and the consumer. In addition to screening ask your Realtor for recommendations, you should be able to do this for any type of vendor that relates to real property, from title companies to plumbing contractors and make sure they have used these companies or know of people who have.
Deanna Stover, over 15 years ago
Michael - I agree with you 100% in your look at property managers.I think the most important part of your post is the last sentence, where you emphasize the screening of these companies. If you get stuck with a bad management company, you could find yourself in a heap of trouble! Thanks for sharing!
Joshua Dorkin, over 15 years ago