Can You Afford Property Management...?!

Question

This is an article I published on the blog yesterday - almost 100 comments today.

I guess it hit a nerve lol

Might be a worthwhile read for you guys...

Gabe G. · Answer

I agree. If you have leveraged properties, there just isn't really the money there for property management and cash flow. Sure you can turn over the home to PM, but it's a huge hit to your cash flow, if you are only making a 100 a month per unit without PM, you will be lucky to be break even with PM. When I buy a house, i always factor in 50 percent operating expenses to account 10 percent for management, however, every time I talk to a PM, I just can't pull the trigger(small 8 SFH and 1 duplex portfolio). The difference is about 100 dollars(maybe more after all the fees) per unit hit to my cash flow. It's the difference of maybe me clearing 200 a unit or me self managing and clearing nearly 300 a unit. That's a huge difference on a small portfolio. If I could find  a PM I could trust, that would do me 8 percent gross, and no fee for renewals, and 1/2 month rent for lease ups, with no up charges, except for eviction. It would seriously, make me consider it. But can't find that deal.  Now if you have paid off properties, you probably can afford PM but it's still expensive. But without that mortgage that frees up cash flow, to be able to decide whether it's a good trade off for your time.   Alternatively, if you grow to 50-60 units, you may be able to bring your employee on full time, that will make sense.

But especially the first 5 years or so as you trying to grow the portfolio, property management, really isn't an option.

Rob K. · Answer

I have some properties I self manage and some properties I pay a property manager 7-8% for full service.

With property in an SDRIA, having a property manager is a must unless you are comfortable creating an audit issue.

For me, what is missing in this conversation is you really can't determine whether property management is too expensive without first honestly putting a value on your own time managing your property. Only then is it appropriate in my view to make a statement that it is to expensive by comparing it to the value of the time you are freeing up for yourself.

True, most property managers will not treat the property as an owner would, but that is a trade off one makes in any situation where tasks are delegated. Accepting delegation is accepting that the task will not be performed the way you would do it.

As "expensive" as property managers are, they are still mostly cheaper than employees!

Melissa Gittens · Answer

I would have say that there are deifnitely pros and cons to property managers. I think that when investors have reached a certain level within there investing there is a definite need for a GOOD property manager, who actually knows what they are doing and are worth every percentage you end up having to pay them.

Dawn Brenengen · Answer

This is why blanket statements don't work.  There are properties that no one wants to manage and will take more work than a third party is willing to do to get it there.  There are also properties that are very attractive for a manager to take into their portfolios.  There are managers who are terrible.  There are large companies that are terrible, and there are mom and pop companies that are terrible.  There are also good ones.  Brandon's problem with finding proper PM is that he has two options in his area.  I am a PART time real estate investor, and I do just fine.  I am also partly invested in the stock market, oil etc.  Just because I don't invest for a living makes me no less of an investor.  Each of these things fall on a spectrum.  There are no black and white answers.

Jeff B. · Answer

re: You can't afford a PM.

If you buy into a cash flow of $1.95 (hyperbole) then you're premise is self-evident and from what I've been seeing on BP, that tends to be a norm - - buying into anything so I have something in RE.

Hopefully, after reading, reading, reading, most will soon discover that RE profits are derived from buying smart (and that doesn't require flipping, wholesaling, or massive discounts).  I'm a buy&hold, MFU investor and that created a nice cash flow that no SFR will ever match,  not even a half-dozen of them (ie my MFU is 6 units).  The economy of scale ensures "the sum of the parts is greater than the whole".

I was desirous of expanding out of state (which would require a PM) but creating my own PM Co became an issue.  I want absolute control so that the maintenance is commensurate with the property value.

The cost per se of a PM can be managed - - the quality of their effort is a bigger problem, which you did mention :)

Christine Kankowski · Answer

There are definite pros and cons, I agree.  I am a property manager, but also managed my own properties before I became one.  I have a few problems which could have been avoided, if I knew then what I know not, about laws, dealing with non-paying tenants, etc.

In my out of state areas, I pay to have the homes rented for me, but I manage some of them myself when they have long term leases and excellent credit tenants.

In my lower economic areas, which actually produce more cash flow, I have a property manager and he is well worth the money.

Jeff B. · Answer

Please tag me when posted :)

Craig E. · Answer

Good article.   Next to "Turnkey Myths Debunked."

Scott Pigman · Answer

Oh Ben you are a click bait master and wizard level forum troll and yes your points hit close to home.

I moved from Maryland to Texas a little over a year ago and rented out my home back there and I have a PM. I think he's a good PM but to be honest he makes more off my house than I do -- he makes his 10% regardless; I get stuck paying for the new oven. He certainly doesn't have to spend much time managing the property most months.

On the other hand, given the turmoil of moving twice in one year -- once into a rental and again into a house we bought, learning our way around a new city, and not knowing who to call when there's a problem because usually I would have either fixed it myself or ignored the problem when I lived there, I'm not sure I would self-manage that property if I did have the chance to do it over again. It's not a cash-flow deal, it's a hold-on-until-the-value-improves deal. I'm probably going to sell it next year while I can still get the capital gains exemption and after some development in the area is completed which I believe will bring the value up.

If I buy more property out of state (I'm considering it) I will try to manage it myself. What would be useful would be to find a property manager who's willing to work a la carte, "I'll pay you $50 every three months to inspect the property to make sure nothing's leaking and to replace the air filters"

Elizabeth Colegrove · Answer

You beat me to it! I was actually writing a very similar article! I totally agree that property management is way to expensive. It would cost over $15,000 to have someone manage my houses.

Can You Afford Property Management...?!

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