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Posted over 9 years ago

The Case for Managing Your Rentals Yourself

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Property management can put the fear of God into even the most thick-skinned real estate investor. Angry tenants who find rent deadlines to be optional, leaky toilets that wait until midnight to start leaking, tenants who treat their your home like dumpster and the like can shorten the life of any budding entrepreneur as much as a pack-a-day, McDonald's-based lifestyle can.

Yet at the same time, we all know that owning properties is the road to long term wealth. The easy way to resolve this matter for many investors is to hire a property management company. I am here to recommend that you don't. 

My experience may have biased me, but it should also serve as an example of what can happen with a management company. One six unit property we owned in Salem, Oregon was actually cash flowing pretty well. However, it was far from our office in Eugene, Oregon, so we decided to hire a property management company. Almost overnight the expenses tripled and the property bled from then on out. It wasn't until we threw a fit over a $1200 extermination fee (yes, you read that right), that they let us out of our contract.

Later, we bought a 29 unit apartment in Kansas City and hired a different property management company. Needless to say, the expenses were out of control. One time we were billed $100 for "showing the tenant how to use the thermostat". We kept asking them to show us the Craigslist ads they were posting and they just said "no one in this demographic uses Craigslist", which we found to be completely false when we eventually took over the building. I'm not sure if it was when we walked into several vacant units with the heat on at 75 degrees in the middle of winter or when they asked for us to allow them to debit our account at will for the operating shortfalls that we finally decided to kick them out. 

And I've heard plenty of other horror stories. One investor got robbed of $60,000 by his manager, another had to fly out from the West Coast to personally oversee getting the property up and running again and so on.

Now, there are certainly good property managers out there. I've known buy and hold investors that have had success with property managers. We even still have one manager for a 12 unit building we have because it has a HAP contract which we aren't authorized to oversee. And he does a good job. 

But even if you find a quality manager, I still think it is worth managing yourself, at least at the beginning. Once you've grown to large, you can always hire employees to oversee the management angle (and you to oversee them). Here's why:

  1. Avoid Possible Fraud 
  2. While we've had plenty of bad management, we have luckily not been victims of fraud. But it is by no means unheard of for management companies to receive kickbacks from contractors or pocket the rents from supposedly vacant units.

  3. Control 
  4. It is much easier to make decisions and execute them yourself or through employees than through a third party property management company.

  5. Save Money
  6. Most property management companies charge something like 10 percent of collected income and the first month’s rent. Doing it yourself would save that expense.

  7. Gain Experience 
  8. Understanding the ends and outs of property management is very useful for real estate investors. It will further give you a perspective on the locations you’re buying in and around and that should help you fine tune your investing criteria. And in general, it will give you a fuller experience of the real estate business. 

  9. You Care More Than Anyone Else 
  10. This is the big one (that is true with employees as well). No one will ever care as much about your properties as you do. And the effort that goes into making those properties perform will reflect that.

Lastly, just experiencing property management well help you understand the business going forward. If you do decide to hire a property management company later, you will have an idea of what it is that they do. It will be easier to call them out if they aren't getting the job done and things of that nature. It's very difficult to demand results when you aren't confident as to what those results should be. 

So while very few people want to be a landlord, I think it's a critical experience for any buy and hold real estate investor. After all, no one said real estate investment was easy.

Image courtesy of FreeDigitalPhotos.net



Comments (5)

  1. No one cares more about the property than you is the best reason to manage yourself. In terms of getting a home rented quickly, I see management companies fail. Some do a great job, but they are the few who take weekend and evening calls from prospective tenants. 

    Things do move slower down here in Georgia, which is why the good companies are so much better than the average companies. My surrounding area outside of Savannah has mostly people who "buy" a home and have to lease it for a few years because they paid way too much and have to move every 4 years for the military. They don't focus on choosing the best management company, are happy with mediocrity, and don't manage the manager. I do use management companies for my 3 homes, but I have to manage the manager and tell them specific things I want done and how to handle things. They really are not used to people who are this hands-on, but hopefully they can learn things that they wouldn't with their other clients.


    1. Part of me wants to start my own management company ( 3 year license requirement in Georgia) and just steam roll the competition, but I want to set my sights higher. It is so tempting though, but like I said, most home tax payers here don't care who they hire, which is the issue. Most of these property managers all have a couple staff assistants who work for them and just kind of do enough to get by and don't take great photos of the home, use poor listings, don't make themselves available outside mon-fri 9-5pm, don't go the extra mile, and their advertising to get new clients is almost non-existant.

      1. Hey @Scott Stevens

         I'm not sure about Georgia but here in Florida as long as you're managing your own properties you don't need a licence. Also, you don't need a licence if you do not perform certain functions. In FL, as long as you don't negotiate leases, market properties, or collect rent you can perform the day to day functions of maintaining a property. I recommend a realtor to do the actual rental marketing and lease negotiation and, with the owners direction to the realtor I am to be the point of contact. I then advise the owner to set up a direct pay system for rents and I manage all the rest for them. I have been doing this here in South Florida for a while and am now buying my own properties in Jacksonville where I plan to replicate it for my own properties as well as for some of my associates who are investing there with me.


  2. Yes! Nobody cares more than me. Nobody can make as informed a decision as me. I manage my own properties and manage some for others and I don't know how the other owners can be making money. I am very fair to them, but I take 10-12 percent of the top of their income and charge them for repairs and maintenance. For me, the difference is if you own the building. MAYBE, when my buildings are paid off, I will pay someone else to manage them.


  3. I like it and agree every investor should do Managment at some point and understand it very well , but at some point you have to delegate the Managment to either an outside company or to employees otherwise their is too much to do and you can't keep growing. Managing the manager is a real thing you will need to learn.

    And one more note, lots of people say real estate is easy, they are just never correct about real estate being easy. :)