Tips on managing: management or no management company?

Question

Question guys,

I am venturing into the rental realm and I had a question to ask about landlord-ing. Is it better to go with a management company, or to just manage the property yourself? I know this is a REALLY subjective question but I am bringing this topic up because the fees management companies charge are a bit ridiculous. How is anyone suppose to make money when a management company charged 1 month rent AND a monthly fee?

I've been doing a bit of analysis and the cash flow on the property looks decent even when factoring things like the 50% rule, but this is under the assumption of not having a management company.

Any help would be appreciated.

Michael Wentzel · Answer

@Justin Moon Type property management in the search forum above and you'll probably find 1000 threads. Even if you do plan to manage them yourself, I would encourage you to factor in the 10% for property management when you're analyzing deals. That way you can pay yourself for your time or have the option to bring in a property manager as your portfolio grows.

Mike

Andy Robison · Answer

For myself. I just started my journey and I plan on managing my first 5ish properties just to get a handle on how it all worksntogether . that being said. Whenever I run numbers I always include going rates for property management because I know down the road I do not want to be a property manager. If the numbers do not look good with a management fee included its not a deal for me.

Ed O. · Answer

@Justin Moon

You'd probably be best soaking up a few different books on the subject and coming up with your own plan. Seeing what successful people are doing and then using your own modified version of it would be the best advice I could give you.

I know Brandon Turner is always talking about the BP guide for new investors. That would be beneficial I'm sure.

1. Evictions - it's up to you. Some people start the eviction within a day or 2 of nonpayment. Some wait a month or months. Each situation can be examined closer. For instance, if they tell you they can pay on the 10th, because that's the next day they will have the $, then it makes sense to go with it. If the tenth hits and they don't pay.. again that's your call. At that point they had the money and made the promise, but chose not to pay you. It's up to you to decide what to do. If a unit is inferior or it's the winter months (much tougher to fill units) I might give a little more slack.

2. Screening - look at the credit - do you think they will pay you after seeing their payment history? Most renters do not have stellar credit. Income, is it reliable and sufficient to pay all of their bills, feed the mouths in the home and then pay you? Did they just start their job? Most landlords want to see 3x rent as a person's income or household income as a minimum. After all, if money is tight, they pick feeding themselves and their kids over paying the man.. can you blame them?

It's all about assessing and determining the risk with each application. If they need to move tomorrow - probably a bad tenant, probably not gonna rent to them.

Justin Moon · Answer

Ed,

What about from a personal perspective? I apologize if I came off as unclear, but I was looking for advice on how to manage each point when managing the property myself. For instance, I have never evicted anyone before, not have I ever run a background check.

Ed O. · Answer

@Justin Moon

Be in control as much as possible.

Set and manage expectations.

Watch every penny. Understand every charge and make sure you ask about anything you don't fully understand. Be sure not to take a position of, "you're screwing me," until you know all of the facts.

Set a low unauthorized repair threshold until you are comfortable with the manger - $2-$300 max.

Make sure your manager can handle you telling him or her, this is BS, this did not go right.

Also remember that without precise direction and explanation on the things you ask for, you could be part of the reason something goes wrong.

For someone in your position, if you want to buy now, learn some of the management and then pass off the management role to a manager, perhaps you could find someone to manage and teach you at the same time for a reduced fee until they are managing full time.

The right manager may be tough to find. I made 15 calls before finding one that I wanted to work with that also wanted my units, who also had reasonable fees.

Justin Moon · Answer

@ed o.

Any tips on how to manage effectively? THe biggest things that come to mind are screening, background checks, contracts, delayed payments and evictions if if it happens.

Ed O. · Answer

It depends on too many variables.

I think anyone wanting to own income properties should manage their own for at least a little while, just to get a feeling for how things work and to develop their preferences.

If you can make more money with your time than you can save by managing then it's time to find a manager.

That being said, even with having a manager, you have to manage the manger as well, especially early on, when your establishing boundaries and preferences, etc.

Darren Sager · Answer

Welcome to BP @Justin Moon Your question has been debated a number of times here on the BP forums and it all comes down to personal preference.  My thoughts are that if you're investing close to where you live then manage the properties yourself.  If you set up the tenants from the get go and have them understand that they're responsible for certain items and you're responsible for others, it sets the tone for how your relationship works as landlord and tenant.  If you do this effectively you can save yourself time which in turn saves yourself money by making it easier to manage the properties and not give that money away to a third party.  Those are my thoughts on the matter.  Hope it helps!

Tips on managing: management or no management company?

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