Choosing a Management Style for your Property
☎️ 💵 🔨 Sharing a post on management style as there is much discussion about passive versus active income as well as the different approaches on handling property management.
A helpful way to look at management of your property can be separated into 3 tiers:
1st Tier - This approach consists of doing everything related to your property yourself including showings, leases, & maintenance requests. Time can be stretched thin on this approach as it is difficult to scale when you are also collecting rent in person, doing snow removal, & taking all maintenance requests. This approach would require some basic handyman knowledge & may save money out of pocket, but the opportunity cost of time may be lost. This can be thought of as the old school style that many landlords utilized before the availability of all the tools today.
2nd Tier - This approach combines elements of both passive & active approaches & has become possible in more recent years with all the advances in technology that make it easier to manage properties such as online listings, rent collection, smart phones, property software for accounting, etc. You can handle the majority of requests through your phone & utilize 3rd party contractors for items such as lawn care, plumbing, HVAC, & general maintenance. A tenant can inform you of a particular issue which you can then inform the appropriate contractor of & have them coordinate with the tenant directly. In this approach you can still control certain items that are important to you such as listing & showing the property to potential applicants, doing the leases, & handling all communication during tenancy.
3rd Tier - This approach relies on a much more passive role when it comes to management as you are hiring a 3rd party company. In this case it is crucial to have weekly, monthly, or quarterly reviews with your management company depending on the size of the property & the strategy being used. This comes at a cost, but can be efficient for those that are not full time real estate investors or do not have the interest in managing properties in any form.
A critical point to note is that the type of property that you are targeting can also determine the labor intensiveness of management. Inverting this equation & thinking about what type of tenant you would like to attract will allow you to position the property to appeal to those applicants & help in determining the type of management that may work best for you.
Also when choosing to self manage any commercial properties such as those that are 5 units & above I would strongly recommend including a management fee such as 10% as part of your cost as your commercial lender as well as a prospective buyer will assess the property this way. If this fee is omitted in your cost you are potentially decreasing the value of your own property & your returns will be lower than originally assessed in your underwriting.