Factoring in Property Management is Overrated
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
9yTo each his own. Some people like creating jobs for themselves, and others prefer passive income. If you want to do your own property management, go for it. But, many of us prefer to spend our time not having to deal with tenants, contractors, HOAs, etc. For us, having a property manager is an easy decision.
Btw, you can use this same argument to avoid ever hiring employees in your business. Pretty hard to scale up if you're not willing to hire people to support your business efforts... But again, perhaps you just want to create a job for yourself and don't care about scaling/passivity. In that case, you can certainly do everything yourself.
86 Replies
- 9yAnthony GaydenPro MemberRental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
Did you create yet another thread to declare that you don't like property management? There are already too many just like it on these forums.
Get over it.
Those of us who use property management aren't going to suddenly change because of anything you or anyone else has to say.
- 9yBrandon SturgillBusiness MemberReal Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
@Lee G. It's a necessity if you want to grow to the point where your rental income covers expenses and frees time to work on other ventures, family, etc....at 10% it a bargain once you have scaled up. Otherwise, why not pay yourself the 10%.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
To each his own. Some people like creating jobs for themselves, and others prefer passive income. If you want to do your own property management, go for it. But, many of us prefer to spend our time not having to deal with tenants, contractors, HOAs, etc. For us, having a property manager is an easy decision.
Btw, you can use this same argument to avoid ever hiring employees in your business. Pretty hard to scale up if you're not willing to hire people to support your business efforts... But again, perhaps you just want to create a job for yourself and don't care about scaling/passivity. In that case, you can certainly do everything yourself.
- 9yLee G.Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votesOP
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Originally posted by @Anthony Gayden:
Did you create yet another thread to declare that you don't like property management? There are already too many just like it on these forums.
Get over it.
Those of us who use property management aren't going to suddenly change because of anything you or anyone else has to say.
- Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes9yI'm thinking ahead to the day I have hundreds of units. Managing my own rentals isn't scalable. What happens when you have too many units to handle, but you never factored a PM in your numbers in the beginning? Then you're kind of stuck. My biggest goal in life is to have my money working for me while I live my life. The way I see it if I hire a PM I bought an Asset, if I don't then I bought a Job.
- 9yLee G.Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votesOP
i agree that not answering calls is better than answering. Just to be clear, I don't pick up a hammer so I dBut answering an email, text or phone call, in my opinion, isn't work.
Originally posted by @J Scott:To each his own. Some people like u creating jobs for themselves, and others prefer passive income. If you want to do your own property management, go for it. But, many of us prefer to spend our time not having to deal with tenants, contractors, HOAs, etc. For us, having a property manager is an easy decision.
Btw, you can use this same argument to avoid ever hiring employees in your business. Pretty hard to scale up if you're not willing to hire people to support your business efforts... But again, perhaps you just want to create a job for yourself and don't care about scaling/passivity. In that case, you can certainly do everything yourself.
- 9yLee G.Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votesOP
Great responses. One response to some of you is that I think it's a myth that real estate is passive. People talk bout it like you just can to push a button and go sit on a beach while the money comes in. I don't buy that. I think that is typical millennial fantasy and you see people like that all the time who tell you about their latest get-rich schemes.
I would agree that if you are guying large complexes or have 30-50 units, there is no question, some assistance is necessary. But how many people on this site are in that category? That is why I think using a blanket statement that you should factor in Property Management is too general.
You can have real estate be your side hustle and still turn out very well in the end by having solid processes for 10-20 properties that you accumulate over your investing career. I guess if your the personality type that can't handle people, then hire a property management. But couldn't you argue that being good with people is key to a successful real estate business so I would think the tenant management part would be handled as almost an afterthought.
Further, couldn't you argue that having good processes is the key to a successful real estate business. Getting good at the tenant level is great practice at getting good with people and processes.
I should have mentioned that my investment strategy was SFRs.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Originally posted by @Lee G.:
One response to some of you is that I think it's a myth that real estate is passive. People talk bout it like you just can to push a button and go sit on a beach while the money comes in. I don't buy that.
Just because you don't buy it doesn't mean it's not true. I own a bunch of single family rentals. Other than five minutes a month of accounting and an occasional phone call with my property manager or a contractor, I never think about my rentals.
You say that you can't go sit on a beach while the money comes in, but that's pretty much what we do. My kids got out of school three weeks ago and I haven't been in my home state since. We won't be back for several more weeks.
If there's an issue with one of my rentals, I'll get a phone call and then go back to what I was doing, knowing that i have someone I trust handling things.
And btw, I own several businesses, each with partners, employees or trusted people who can follow processes handle things while I'm away...whether that be for three days or three months.
I've spent my career learning how to build and automate businesses. While it may sound like a myth to you, is a reality for many of us. But again, that's your choice...
- Fort Lauderdale, FL · Member since 2016 · 214 posts · 95 votes9y
Originally posted by @Lee G.:
Why have a middle man who you pay 10% of rents??
10% isn't worth my time to do the manual labor, or middle man contractors.
- Fort Lauderdale, FL · Member since 2016 · 214 posts · 95 votes9y
Originally posted by @J Scott:
Originally posted by @Lee G.:
One response to some of you is that I think it's a myth that real estate is passive. People talk bout it like you just can to push a button and go sit on a beach while the money comes in. I don't buy that.
Just because you don't buy it doesn't mean it's not true. I own a bunch of single family rentals. Other than five minutes a month of accounting and an occasional phone call with my property manager or a contractor, I never think about my rentals.
Same. I always describe it as : "it's nothing more than an excel spread sheet, & an occasional phone call for approval of a repair."
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
One last thing...
You're talking about taking an active role in a business for 10% cash on cash returns (the cost of doing it yourself versus hiring a manager). I can think of 20 businesses I can start today where my cash on cash return would be greater than 10% if I were to take an active role in the business.
It would make no sense to devote my time to earning 10% cash on cash when I could use that same time to be earning more. So, not only does it not make sense from a lifestyle standpoint, it also doesn't make sense from a financial metrics standpoint.
At least not for me. But again, that's your choice.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9yMost of this just depends on how much you value your time. And it matters how much you've scaled your unit count. If you have a few units, sure, it's an occasional call. If it's 24+ units odds are something is always coming up for rent. Properties don't show themselves so it's more than "picking up a phone". So there's a practical time issue that comes up for some of us. It might be a "choice" on how we want to spend our time. The other practical matter is that there are plenty of investment property buyers like me who will factor in property management when it comes time to buy. So when you want to sell (if you self-manage) and you price it without property management factored in, you limit you buyer pool. You're also competing (when it comes to pricing) with cap-rates (on the commercial front) that do factor in property management. And, for me, if I'm buying I have a huge preference to review *actuals* from a 3rd party property manager. I'm sure they could go fudge the books but it's more effort that a single-owner manipulating their spreadsheet. My assumption is that PMs also develop a brand so if they sautéed the books to artistically lower expenses (to increase NOI) it would get around. I don't take a 3rd party PMs data as biblical but I do weight it more than the owner provided data. The worse thing you can do is buy something based on it being only interesting if you do the property management. Maybe you'll love doing it, maybe you won't, but it's nice to have the flexibility.
- Member since 2016 · 13k+ posts · 12k+ votes9y
You also need to keep in mind that many landlords are deathly afraid of having to deal directly with tenants. There are a large number that do not even feel comfortable telling their tenants they are the owner. Read through all the posts regarding how to deal with tenants paying late. They have zero management skills. These investors can not manage tenants and are far better off with a professional doing the job. If not it is unlikely they would/could survive in this business. For them hiring a PM is not a question of choice it is a necessity. In reality they have entered into a business they are not competent enough to operate on their own.
Time wise managing a PM should be about the same as self managing properties. If a investor is not staying on top of their PM they are going to end up far worse off than had they self managed. Either way this defiantly is not a business for arm chair investors.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Originally posted by :
Time wise managing a PM should be about the same as self managing properties.
Definitely don't agree with this. If your tenants are staying multiple years, paying on time and then the units are in decent shape when they leave, it's a safe assumption that your managers are doing a good job. There are very few management issues that can be hidden for any length of time in this business. Once you find a good manager, spending a couple minutes a month reviewing the financials should be able to indicate if there's a problem or not (if there is, find a new manager).
I would spend more time showing a property to two or three prospective tenants than I currently spend per year managing my managers (a few hours per year). If you're spending more than a few hours per year managing your managers, you should find a better management company.
Btw, I end up paying about between 13-14% of my gross income to my managers, and it's a well worth it. If you're trying to find a manager at less than 10% (for fewer than 30 units), that could necessitate additional management overhead, as you've probably hired a smaller firm that won't be as well staffed and responsive as the larger property management companies.
- Investor · Massillon, OH · Member since 2015 · 266 posts · 156 votes9y
I have a friend who self manages I think 120 units. He has a tenant that handles the calls and sets up work orders, showings etc.
He has 2 guys that are full time handymen. Anything they don't do the other guy farms out. He said he uses some good software. I'm sure he's spending less in house than if he went 3rd party. I'm also sure he can scale it up.
I still think you should factor for management, just as an extra buffer. If a deal won't pass with management in the mix, pass on the deal. I say this as a person with more deals than funds.
Definitely food for thought, and I agree you can do it for less money and probably better. Just easier to vet a company and pay than to build a whole team.
- Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes9y
I think it just depends on your personality or what you want to focus on.
My PM's are worth their weight in gold and I would rather spend my time managing my property managers than managing my tenants. My PM's more than make up the 10% I pay them in increased rent because of their pulse on the market, their marketing ability and connection to the community, etc. It usually comes down to the value of time-how much is your time worth and how do you want to spend it?
- Real Estate Investor · Charlotte, NC · Member since 2016 · 92 posts · 103 votes9y
Originally posted by @Lee G.:
Is factoring in property management into your investment spreadsheet overrated?
Cons of property management: I always care about my property more than property manager, lower ROI, and the probability you lose touch with what is going on in your properties.
I believe part of building the team is to have a great ppl you can call who will take care of tenant issues. Why have a middle man who you pay 10% of rents?? Further you have the risk of them screwing you.
I've been a landlord for over 7 years and find it easy. I am not handy, but I know how to pick up the phone and call someone to handle it. From a cost-benefit perspective, I don't think it makes sense. its really not difficult to handle tenant calls! With technology advances even in the last 10 years, being a landlord (if you utilize basic modern technology ) is even easier.
Am I completely off? With 10% of rents I'm saving, it gives me a margin for error to not have to penny pinch my plumbers and handymen.
Based on the fact that you've been a landlord for seven years and have one property, managing it yourself might make sense. However, if you ever decide to scale up, you'll realize the benefit of having a PM. I have 82 units and work 60-70 hours a week in the corporate world. This would not be possible without my PM.
From a cost/benefit perspective, I think you have it backwards. I've mentioned it before, but I believe self managing to save money is penny wise and pound foolish. I find it far easier to increase my income than it is to cut my expenses. Focus your time on strategy and sourcing new acquisitions, not day to day operations.
- Dallas, TX · Member since 2016 · 1k+ posts · 745 votes9y
Originally posted by @Lee G.:
Is factoring in property management into your investment spreadsheet overrated?
Cons of property management: I always care about my property more than property manager, lower ROI, and the probability you lose touch with what is going on in your properties.
I believe part of building the team is to have a great ppl you can call who will take care of tenant issues. Why have a middle man who you pay 10% of rents?? Further you have the risk of them screwing you.
I've been a landlord for over 7 years and find it easy. I am not handy, but I know how to pick up the phone and call someone to handle it. From a cost-benefit perspective, I don't think it makes sense. its really not difficult to handle tenant calls! With technology advances even in the last 10 years, being a landlord (if you utilize basic modern technology ) is even easier.
Am I completely off? With 10% of rents I'm saving, it gives me a margin for error to not have to penny pinch my plumbers and handymen.
The point of factoring in the 10% for property management is if you scale up, then you might well be forced to hire a property manager. If you have included 'property management' as a line item in all of your purchases, then when it comes time to get a property manager, then there will be money in your budget to do so.
IF you want to do your own property management and 'pocket' the 10%, especially early on as an investor, more power to you. In fact that is mostly what my wife and I do. (we hire out the leasing of our units and manage the rest). If there are maintenance calls, repairs, cleaning (we outsource most items when doing a make ready), painting etc we either do it ourselves or find individuals who can do those projects for us.
If you dont factor in property management when you make the purchase, end of the day you will find that you have bought a job.
- 9yLee G.Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votesOP
I entered property management into my spreadsheet on a property I purchased earlier this year and it reduced my ROI by 3%. If you compound 3% higher return on all investments over a 30 year period, we are talking a lot of money.
I think the counter I'm hearing from you is that because of the time factor, instead of having 10 investments making 14%, you could have 15 properties making 11%.
By doing your own property management, you are only improving the return on properties you own, at the sacrifice of additional properties.
I think I follow your logic. There could be something to be said for have 10 properties instead of 15 from a lifestyle standpoint. (Remember I'm using these small numbers for argument sake, it's the relative point I'm trying to make.)
Originally posted by @J Scott:
Originally posted by :
Time wise managing a PM should be about the same as self managing properties.
Definitely don't agree with this. If your tenants are staying multiple years, paying on time and then the units are in decent shape when they leave, it's a safe assumption that your managers are doing a good job. There are very few management issues that can be hidden for any length of time in this business. Once you find a good manager, spending a couple minutes a month reviewing the financials should be able to indicate if there's a problem or not (if there is, find a new manager).
I would spend more time showing a property to two or three prospective tenants than I currently spend per year managing my managers (a few hours per year). If you're spending more than a few hours per year managing your managers, you should find a better management company.
Btw, I end up paying about between 13-14% of my gross income to my managers, and it's a well worth it. If you're trying to find a manager at less than 10% (for fewer than 30 units), that could necessitate additional management overhead, as you've probably hired a smaller firm that won't be as well staffed and responsive as the larger property management companies.
- 9yLee G.Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votesOP
I entered property management into my spreadsheet on a property I purchased earlier this year and it reduced my ROI by 3%. If you compound 3% higher return on all investments over a 30 year period, we are talking a lot of money.
I think the counter I'm hearing from you is that because of the time factor, instead of having 10 investments making 14%, you could have 15 properties making 11%.
By doing your own property management, you are only improving the return on properties you own, at the sacrifice of additional properties.
I think I follow your logic. There could be something to be said for have 10 properties instead of 15 from a lifestyle standpoint. (Remember I'm using these small numbers for argument sake, it's the relative point I'm trying to make.) - Investor · Pueblo West, CO · Member since 2014 · 310 posts · 213 votes9y
Rental #1 rents for $2200/month or $26,400/year. If I paid a management company 10% that would be 2,640/year. I probably spend 20 hours/year on management. This equates to $132/hour. I make $80/hour at my day job. My total compensation is 80K and I work about 1,000 hours/year. I teach college and can't really hustle to make more money at my day job. As a result, I have plenty of time to do self-management. If I worked 50 hours/week, 50 weeks a year, I might consider going with property management.
I think I can comfortably self manage up to 5 properties without working too hard. Once I get above 5, I might start looking into property management.
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes9yI have 1,000 units in Texas. I live in San Diego. Should I manage my own properties? Pass. I'd rather surf or paddle board. Also, unless your goal is to be a property manager as a job, hire one to do that work. Me? I wanted to spend my time growing my business, not taking calls from winey tenants and showing apartments. But sure. If you have a small handful of single family homes near you, manage them yourself. It's good to learn all aspects of the business. But to suggest not hiring a PM is outright foolish .
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Originally posted by @Lee G.:
I think I follow your logic. There could be something to be said for have 10 properties instead of 15 from a lifestyle standpoint. (Remember I'm using these small numbers for argument sake, it's the relative point I'm trying to make.)
That's not my logic at all.
My logic is that if I pay my property manager an average of about $150 per month per property for an average of about 5 hours per month of work, that's essentially $30 per hour that I'm paying. If I were to manage the properties myself, i'd essentially be earning $30 per hour by not having to pay the manager.
As I've written many times on this forum, if a task doesn't generate at least $200 an hour for me, I would rather spend that hour with my family or doing something else that I enjoy. If I were happy making $30 per hour, I would go out and get a salaried position at $60,000 per year.
But again, that's just my personal preference. If saving $20 or $30 or $40 per hour is important to you, then by all means do your own property management. There's absolutely nothing wrong with that.
By the way, your comment about having 15 properties versus 10 properties because of the cost of property management is way off. If I were to pay $150 per month across ten properties for property management, that would equate to about $18,000 per year. So, instead of 10 properties five years from now, I could potentially have 11 properties five years from now (accounting for present value of the $18K accrued over five years and the average cost of my properties).
I'm perfectly happy reducing my property count 10% every 5 years if it means that the properties I do own are passive Investments vs active businesses. But it's nowhere near the 50% reduction you're assuming.
All that said, once again, that's just me. Your goals and situation may be different.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes9y
As a DIYer, I definitely get the premise of what you are saying, Lee. The title about factoring in a PM being overrated is probably why more self-managers aren't backing you up yet. I factor it in and pay myself at EOY if it makes tax sense.
J Scott is right about it costing 13-14% to have a PM especially if you have less than 10 SFRs. Just the fact that the Maytag Man is called for every little issue just costed 3%. LOL.
I have other reasons DIYing than just not wanting to share money. I was just told at a move-in today how much they like and appreciate me as a person. Kids show me their new teeth and give me hugs. Didn't hurt to save the $935 fill-fee I would have lost to a PM. Sounds like a little more freedom to me.
It's much easier today receiving rent, paying bills and filling units with quality people than it was just 5 years ago. I just took a 2 week vacation without a single issue, but I do deal with things from time to time. Bigger ones I would have to anyway on some level even if I had a PM.
When you've been on BP a while you will see that a PM does not and will not solve all of your landlording problems. I enjoy doing it myself for the little time it takes. When I get sick of it, I will exchange everything into a single complex with onsite mgt and find a new hobby.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes9y
Originally posted by @Jason Goretzki:
Originally posted by @Lee G.:
Why have a middle man who you pay 10% of rents??
10% isn't worth my time to do the manual labor, or middle man contractors.
Repairs and labor are additional, Jason. Skilled tradesmen with $150 minimums to come look at the tiniest of problems. Don't forget the 10% override for the PM scheduling the work. Woo-hoo!
I bought a nice apt building because the owner was so fed up paying electricians to go flip breakers and plumbers to hand-tightening sink drain traps. Most of my smalls I handle over the phone. By text. I easily save $15k a year this way.
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