DIY Landlords What would it take for you to turn your property over to a Manager

46 Replies

Hey Folks,

I have several friends who have properties that they manage themselves.  I am trying to build my portfolio as a property manager but most are unwilling to turn over their properties because they do not see the value in having a property manager.  Even as a licensed real estate agent I have a property manager for my property in Washington State given I live in Florida.  The convienence of not having to worry about it is worth the 8% monthly fee.  My company here in Jacksonville charges 10% but that comes with the appfolio web access and a trusted list of vendors and handymen.  I truly believe that our setup is worth it but most folks are unwilling to turnover their properties.  What would it take as DIY landlords for you to turn over your place.  Honestly is having a property manager worth your money?

Thanks,

Nick

Nick, interesting question.  My husband and I have been DIY for the last five years.  We like being investing in the community, knowing our tenants, and being able to manage our costs closely.  We are just now starting to turn some of our properties over to a manager, on a trial basis, because we anticipate moving out of the area in the next few years.

One things that makes us more willing is the fatigue of constant turnover.  We are more apt to accept a borderline applicant than keep the unit empty for longer than a week, and we pay the consequences of that.  So you may want to approach landlords right after they have had a rash of turnovers.

Another thing that is driving our decision is that we like some of our properties more than others.  Some may cash flow and look great on paper, but my husband hates being there and doesn't' understand why they are desirable.  Those are easiest to hand over.  Approach large DIY landlords, ask them if they will turn over their two least favorite properties to you at their next turnover on a trial basis, and see if they see enough value add more.

Lastly, demonstrate how you can help them contain costs.  The management fee, regardless of the percentage, is a big deal.  If we pay that AND experience more vacancy, more turnover, more maintenance costs, it's a big risk.  Show them how you can get more rent, how much you hustle to get places rented, how you can get mtc problems handled cheaper, and how much longer tenants stay.

Good topic Nick, I struggle with the fee model. Most get paid when there is turnover and they find new tenants. That leaves no incentive to keep tenants in my units. 

On a recent bigger pockets podcast the guest talked about paying her property manager a percentage of gross rent with bonuses for low turnover. No additional fee for finding a tenant. That would be something I'd be more interested in because the property managers goals wild be aligned with mine.

I like the model that @Brie Schmidt mentioned in the recent podcast about providing incentives to the property manager

-bonus paid for getting tenant to renew or stay in unit

-bonus paid if turnover has no gap (old tenant out/new tenant in the next day)

I think the current property management structure is outdated and a new one that provides incentives for the property managers to do a good job will benefit all parties involved!

Hi Nicholas,

Around here, PM's charge 8% plus a fee to rerent a unit, usually one half to one month's rent, so I look at it as handing over 1.5-2 months' worth or rent on each unit every year.  Then if there is a repair needed, they will go fix it or hire someone to fix it, and that will cost more than me heading over and fixing it myself.  We have been at this for 2.5 years now and I have rarely had to call in a contractor, and those instances will be even less often once my husband is able to quit his job and run this with me.  There will come a time though when we will have too many units to effectively manage on our own.  At that time I will look for a PM with lower turn over rates or some type of guarantee, and who will allow us to perform maintenance if needed rather than paying someone else to do it.  At this point, showing units and dealing with tire kickers and no shows are my least favorite RE activities, but I am learning as I go and it is getting easier!

Kelly

Scale!

Our plan since the outset has been once we reach sufficient scale (30 - 50 units) that we could command better rates, we would engage a PM.   

However, as we approach our target, and have been interviewing PMs, we are now leaning hiring personnel and having the PM function in-house.

Originally posted by @Nicholas Cotroneo :

The convienence of not having to worry about it is worth the 8% monthly fee.  My company here in Jacksonville charges 10% but that comes with the appfolio web access and a trusted list of vendors and handymen. ...Honestly is having a property manager worth your money?

 The answer differs for different landlords.  For me, it is not worth 10% for someone else to manage my properties and for me to wonder if the $250 repair fee charged could have been done for $100 if I had been managing it.  And as mentioned earlier, I hate the fee model of paying one month's rent for placing a new tenant.

So, honestly, it is not worth it right now.

Maybe in the future when I have 99 doors, it might be worth it to let a PM deal with all the problems.  But not now.  And even when I have that many doors, like Roy N said, I will be able to dictate better terms for myself, or it will probably be more cost efficient to hire someone to work solely with my properties.

I agree with @Kelly N.  I'll give you my internal thoughts about a PM. My husband and I manage all of our own properties while both working full-time jobs and I don't really see much for a property manager to do at this point. We don't have that many units, but thus far have intentionally bought rentals in areas that are desirable and have fixed up all of our units so they themselves are desirable; therefore they rent easily. I can post on Craigslist and have any unit rented within 1-2 group showings. Because our units are fixed up and we have good tenants who take care of their apartments, we don't get a lot of maintenance calls. When we do, my husband is very handy, so he will go over and can usually fix most anything on a weeknight or weekend. I also encourage all of my tenants to pay rent through a free software that automatically debits it from their bank account to ours so we don't have to worry about  that either. All in all, there's just not enough work to justify 10% for a PM. 

As we continue to grow, this may not be a reality anymore, but the type of rentals and tenants will stay the same.  Because of this, if one day we decide to be more hands off and decide to hire a PM, I can tell you that it would be very attractive to me if they came to me with a lower rate due to the types of properties I have since I know it's less work than another investor's properties might be, and a flat rate at that, to take care of everything. Just like tenants like to pay a little more for an apt that includes heat, I also don't want to worry about every little call that may result in a fee. A flat fee would be an easy thing to budget for and an easier thing for me to swallow. 

It seems to me the biggest factors prompting a desire for property management are: those that aren't handy, number of units, age (I imagine I will have a PM when I'm older and tired and can't crawl through the attic anymore :), out of state investors, and those who own properties in less nice areas.  

Hope that helps! 

Great topic, I'm interested in seeing what people have to say about it. At this time I only have 22 units and I'm doing good with them, but at some point I know I'll have to consider a PM.

@Shannon Sadik what free software do you use for the ach payments?

@James Wise

 I use https://cozy.co/  The only drawback is that they pull the rent from the tenant's bank account on the 1st (no earlier) and it takes a few business days to actually get into my bank account so you have to float the mortgage a few days. However, I have complained about this to Customer Service (why on earth they designed it this way I don't know) and they said they have several new updates planned to roll out this summer. It's brand new, so I'm hopeful about what's to come. I mean, it's free! :) 

@Nicholas Cotroneo

I think you need to set yourself apart from the average or "perceived average" property manager.

Some of the biggest complaints I hear from other landlords is that PM's just put warm bodies in the property, then collect another full months' placement fee 3 months later.  Another one is that the PM is not fast enough filling vacancies.  Also, the perceived repair costs as being sky high because some PM's make a cut on each repair.

I would not charge another placement fee if a tenant does not stay 12 months.  Also, you need to explain the value.  I can save you money on repairs because I have my own maintenance people, have relationships with local businesses, can fix small problems from turning into major issues, etc. You should show the value of your product, including the real time online status that you will provide.

I almost signed up with one several years back but it had a clause in it that stated that I can only fire them in the month of December.  That was a deal killer; I need accountability.  I don't need to lose money for 12 months before I can take action.

DIY's may find it difficult to give up control.  You may find tired landlords by searching through eviction records.

Also, you may want to consider that your friends don't want to mix business with friendship.

i have two rental houses in b class areas. Growing up my parents allways had around 2 to 4 rentals. With a good house, in a good neighborhood, with good tenants(due to screening) i feel there isn't much to do to justify paying someone else 10% a month. I do think it is worth it to hire out someone to do the legwork of placing a good tennant though....well worth one months rent. 

Also as mentioned above Scale!  I already plan to outsource one property when i aquire my 6th one.

Great advice everyone, I am taking notes like crazy.  From what I can gather is added value is more important than peace of mind.  Out of town landlords and people with multiple rentals are best targets and yes friends might want to just be friends and not involved in business. I guess that's my Italian side coming out. 

The placement discussion is interesting.  My broker is teaching me that very diligent screening regardless of whether it is placement and management or just placement is key.  I love the idea of not charging a re-placement fee if the tenant leaves before 12 months. Keep your customers loyal. 

Catastrophe control is another thing property managers can bring to the table.  I sat and listened to a colleague of mine talk about how his tenants managed to cause 40K of damage to his house and because he was stationed out of the country he could do nothing about it. 

Thanks for all the great advice!

I cannot imagine a circumstance where we would hire a property manager. 

  1.  We live and invest in a small town (under 2500 population). There is no management company located closer than 40 miles, so I have great doubts of their effectiveness in our town.
  2.  We know our tenants and they know us. We like that.
  3.  The people at City Hall, police, utility companies know us and our rentals. If there are any issues, we will be notified sooner rather than later.
  4.  9 rentals are not too many for us to handle ourselves.
  5.  These houses are ours, and we want control of them. We want to decide who lives there and who does repairs and maintenance.

@Nicholas Cotroneo I think this was a good question to ask on this forum, and just from the brief responses you've received thus far; if I were in your position, I would do two main things:

1. Add value by providing services that are not customary for PM's and/or do a few things that most PM's charge additionally for, but you would NOT charge for, and;

2. I would likely NOT look to try and persuade those who currently are DIY owners to all of a sudden see value in hiring me to perform that job. I liken it to trying to get someone to change their political affiliation (I know, different situation, but still something people are passionate about). Can it be done? Sure, but how long would it take? And, I don't think it would be anything I said that could convince them, it would be them coming to that decision on their own.

Look for those people who see value in hiring a PM and are too busy and/or have no time/desire/nor inclination to go and fix things at their property, and the other little minutiae that transpires from renting out a property. While some properties may be self-sufficient and have great tenants that don't cause a ruckus and pay rent on time; all you need is one that is time consuming and calls weekly/monthly for random reasons, and I assure you, there will be someone who would hire you to take those calls and duties off their hands.

There are always going to be those who prefer to keep a hands-on/DIY approach, and there is nothing wrong with that; however, you going after their business will take some time, when you could be using your efforts/energy in finding those who would happily pay for your services; especially if you set yourself apart from the masses and deliver top-notch service. Just my opinion.

Best of luck to you and your new venture!

I think a lot of people gave good replies.  I think just being flexible gives you a huge leg up and the large companies that are very resistant to any "standard contract" modifications.  Find what the owners value and show them how you can deliver it.  My personnel experience w/ PMs has been disappointment about screening, speed, costs, vacancy, etc. so I am not a big fan.  I don't see the cost being worth someone advertising and doing the bare minimum.

I don't have lot of properties (4 SFH) they are easy to rent with 1-2 open houses, and my tenants/prospects are all self-directed through Buildium to apply, screen, and pay rent online so I can't really see needing a PM right now for any of that - and I kinda like doing it. We put alot of work into the houses up front, and I'm happy to show them to people - people want them and easy tenants are easy to find.

But my husband and I travel alot.  What I need is someone that can coordinate property maintenance issues for me.  I would be happy to pay for that as a stand alone service, but I don't know of anyone in my area that does it.  So far this year I've had one backed up basement drain, one A/C call and one leaky garage roof (on a roof we were planning on replacing next year anyway) but I worry about "what if" if I"m gone for a week.

I would love to find a property manager that could customize their services - and maybe as we get bigger, or get multis, that role could expand.

I think I get turned off to a PM when I look at their website or Craigslist ads, and they are unprofessional and unappealing.  Or, when I drive past a house with a For Rent sign and it's being offered by a Property Management Company and the lawn needs to be mowed, there are full garbage cans up by the garage, the gutters are falling off the house... you get the picture.  It makes me think my property would be neglected just like that if I turned it over.

I agree with most of the posters... 

1. I feel someone else won't have the urgency to rent out the property quickly (no loss of rent from one tenant to another tenant)  We almost always have our new tenants moving in the 1st of the month when the last tenants moved out the day before. 

2. The markup for your "Trusted" contractors and whether or not you're over paying them.

3. Collecting the rent isn't really worth the 8%-10% a management company charges.

I like the idea of a strict gross percentage of rent.. 

No re-renting fees if the tenant breaks the lease. 

I would also suggest coming up with a list of repair costs for basic repair visits.

I'm thinking I may well hire a property manager before the next time I go on a long vacation. I'm able to see that repairs get done when I do that, but the rents almost never get paid one time, and at least one tenant picks that time not to pay at all. 

I might add, I'll probably use the real estate agent that I bought most of my property from in the first place. Her husband does most of my handyman work anyhow. 

@Nicholas Cotroneo

Sorry. I will never do it.

I learned the hard way that no one will ever manage your properties better than you do yourself.  And it's unreasonable to expect them to.  Also, if I did I'd lose lots of money and missed opportunity to further develop my property management experience.

Best of luck.

From a landlord perspective property management is expensive.  In a lot of cases placing an tenant and managing the property could be 50%(or even more) of the profit from the property.

Even though it is costly from a landlord's point of view, it doesn't mean a property manager is making a ton of money.

The first step is determining whether you can actually make enough money doing it and how many units you would need to manage to get a good balance between scaling your business and giving customers/properties enough time.  Would scale up to a certain point let you hire an assistant?

It might be a good idea to tweak your compensation structure so that you are aligned with the landlord.  One simple change would be to only charge the renters agent split and add the just over 4% to the monthly charges.

For me it all comes down to my time and how I want to spend it.  When I was in my early 20's, managing my own properties was not a big deal at all because I had a ton of free time.

Now that I am in my early 30s I have different responsibilities and goals.  My time is better spent growing my business as a realtor and investor up here in Connecticut.

There is a ton of value in the time a good property manager can free up for you. 

I believe that all real estate professionals, including property managers, add value.  The question is whether the value they add is worth the expense.

The pricing structure needs to change.  I have said, and believe, the same of agents.  There is nothing about a property manager's job (or an agent's job) that could not be done on a fee-for-service basis.  The 10% monthly fee is quite simply excessive, except in the worst neighborhoods or most challenging properties.  And the rental fee (which here is typically one month's rent) is frankly absurd.

Other points:

1.  My properties are local. Turning them over to a manager would LESSEN not increase, my peace of mind;

2. The "trusted list of vendors and handymen" makes my alarm bells go off.  At the very least, such an offering adds no value to me, and my suspicion is that I might end up paying the idiot brother-in-law of the manager an exorbitant rate.  I'll keep my own contractors, thanks; 

3.  Likewise, appfolio web access is NOT a value add.  Managing myself, I don't have any need of such a thing.  If a web portal is necessary for me to feel comfortable with how my properties are being managed, then it is a cost of doing business for you, not a service to me.

In summary, then:

Fee-for-service model with meaningful value-add.  And I'm not seeing it.

Hey @Nicholas Cotroneo , welcome to BP.  It would be hard for me to turn control of my local rentals to someone else.  If I were to consider it here are things I would want.  Proof of bonding, I dont want you taking $50K of my money and skipping out.  I want to know that you understand what needs fixed and what just needs painted over and how do either at a reasonable price.  I want to know that I will not be the last apartment that you put someone in, that you friends get theirs filled first.  I want good accounting and prompt payments.  if I call I want you to be able to tell me who has and who has not paid in the last 10 days, and when my check will be in.  I do not want to hear about a problem tenant when he is 3 months behind, no more than 15 days at the worst.  Finally when I call I want to talk to you or a competent live person who can answer my questions now, or call back that day with answers.

 Does that help?

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