When to get a property manager?

Investor · Muskegon, MI · Member since 2014 · 71 posts · 29 votes

Hi everyone! I currently own 3 rentals in Toledo OH and I live in Michigan within 15 mins of my rentals. I'd also like to grow my portfolio without burning myself out. I'm just wondering when is a good point to get a property management company to manage my properties. Is there a cash flow formula? I have a family, and I love my full time job, so I don't necessarily like running around fixing toilets. :)

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Ryan Pyle

Multifamily Investor · Toledo, OH · Member since 2008 · 296 posts · 308 votes

10y

Jim, in my opinion you can go a long way before needing a PM. The key is placing good tenants in your properties. For the most part, once a unit is filled there is little to do to manage the property. If you don't want to fix toilets (I certainly don't) then send a plumber to do it. That's what a PM would do, so either way you'll be paying for it. Plus you'll be paying a PM 10% (or whatever you negotiate) off the top.

I used to say I'd hire a PM once I got to 20 units. Then it was 40. I'm now at 213 and still self-managing. I have a full-time maintenance man plus live-in maintenance guys at two of my larger apartment buildings.

Again, they key is being patient and putting good tenants in your units. Good tenants need very little management and require very little interaction.

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Patrick LiskaPro Member
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
There is no formula as to when to have a PM. i live in NJ and have properties in PA, kinda made sense for me to do it, but i started with a PM on my first house. i made sure the houses could support the PM. Most PM companies will want 10% of the rent collected and then will also charge for lawn maint. and snow removal per month. i suggest talking to a couple of them, seeing what they charge, whats included/ not included and what the not included will run you. Then look and see if the property can support a PM and still make you money.
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Ryan Pyle
Multifamily Investor · Toledo, OH · Member since 2008 · 296 posts · 308 votes
10y
Jim, in my opinion you can go a long way before needing a PM. The key is placing good tenants in your properties. For the most part, once a unit is filled there is little to do to manage the property. If you don't want to fix toilets (I certainly don't) then send a plumber to do it. That's what a PM would do, so either way you'll be paying for it. Plus you'll be paying a PM 10% (or whatever you negotiate) off the top.
I used to say I'd hire a PM once I got to 20 units. Then it was 40. I'm now at 213 and still self-managing. I have a full-time maintenance man plus live-in maintenance guys at two of my larger apartment buildings.
Again, they key is being patient and putting good tenants in your units. Good tenants need very little management and require very little interaction.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
@Jim Zatko congrats on having a few b&h rentals in your backyard and a full-time job! I self-manage about 3 dozen doors. Do you really run around fixing toilets all the time? For me I especially like to fix the toilets! A little flapper, fill valve or chain adjustment that takes me a few minutes, gets me inside the property interacting with my customers and saves me a $150 plumbing bill is exactly why I do it! Do you earn more than $150/ 30mins at your day job? I 'fixed' 3 wall heaters the other day by cleaning them. Saved me over $600 in 90 minutes. Plus I got to see the inside and interact with my resident. Maybe an extreme DIYer like me isn't best to offer advice on this lol.
Here's when I will hire a PM: when our goals align. I am charged the most when I am down in the current model. I am charged an override on repairs and for vacancy-filling. I know that's when the PM works, but aren't they 'happy' when I have repairs and vacancy?
@Ryan Pyle- 213 units, self managed? You are crushing it! Well done!
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Scott C.
Bronx, NY · Member since 2014 · 25 posts · 34 votes
10y
You're going to get opinions all over the map. The 'formula' that works for me probably won't work for you. We don't know how often you fix toilets and how long that takes per incident, what your cash flow is, if you have higher end or lower end rentals, etc. Unfortunately, those and others are the variables that go in the 'formula'. It's not as simple as cash flow.
And you have to consider how much your time is worth and what is that time best spent on. If you spend 5 hours per month of your 'free' time on PM, is that worth more than the $xxx (10%) of your cash flow that goes out the door to PM that month? Or would you really rather spend your time building your portfolio? We cannot answer that for you.
Also consider it takes time to find and hire the right PM, and sometimes you have to try a few before you find one you like or one you don't have to constantly stay on top of.
Personally, I have PM for all my properties because I'm a long distance investor.
Good luck!
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Pauline Frost
Buffalo, NY · Member since 2016 · 1 post · 0 votes
10y
Same question, bugging in my mind. I enjoyed this forum. I have seen both sides: to have a PM or not. I've learned a lot, Thank you!
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
10y
There is a simple method, as Scott pointed out. Calculate what your time is worth and figure out what it costs you to self-manage. Maintenance, tracking financials, marketing, screening, signing leases, etc. If your time is worth $50 an hour and you spend two hours a month (averaged out over a year) per unit, it might be cheaper to hire a PM at $100 per unit. Let them deal with the headaches and you can use that free time with family, earning more money, or finding new Investments.
Despite all the PM bashing you hear on BP, there are professionals out there that will manage your rental better than you and possibly increase your ROI or cash flow AFTER you pay their fees! There is also the issue of how well you can manage. Many, many owners kill themselves trying to self mnage and it costs them much more in the long run than if they had hired a PM. I can name hundreds of very wealthy investors that have never managed a single rental because they understand the value of their time and the limitations of their abilities.
Only you can determine what self-management is costing you and whether a PM is worth it.
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Darryl D.
Detroit, MI · Member since 2014 · 42 posts · 19 votes
10y
I think the formula comes from what takes up most of your time by managing these tenants, in the last few months, what took up more time than what you are willing to allocate?
If it's maintenance, get a good general maintenance guy (that uses email) and a simple property management app (i started working on one tenantsq.com but, not enough time in the day to finish...) that's geared towards a small amount of rentals, cozy seems like a decent one
If it's communication, may want to simplify that and maybe only communicate via emails so you can check it on your time opposed to them blowing up your phone.
I think, its a lot you can do before going to property management, i think you move to that once you want to be hands off completely. If that's your case, get someone to manage :)
3 Reply
Phil Earley
Property Manager · Cumming, GA · Member since 2015 · 261 posts · 199 votes
10y
Generally, when you wish you had more time to work on building your business, rather than simply maintaining it, you have a very good indication that it’s time to bring in help.
Once I learned or got over the hurdle of doing everything myself, leveraging the expertise of others is when my business took off.....my golf game got better too:)
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Kevin Kroll
Investor · North Augusta, SC · Member since 2015 · 52 posts · 14 votes
10y
I self manage, and if the concern is time constraints I'd focus on building systems that minimize your time commitment before looking at a PM. Stuff like:
- online payments so not having to go to bank to cash checks
- online applications
- e signature leases
- directory of contacts (plumber, electrician, appliance repair, etc)
Always be thinking in terms of absolute costs. As an example it might not seem appealing to offer current tenants a $200 incentive to perform weekly "open house" showings from noon-2pm on Saturday until re-rented, but when compared to paying 1 months rent of $1000 to a PM it sounds pretty good!
Likewise, if you are doing 5 turns a year, where you'd be paying $5k to a PM for performing the turns, you could alternatively set up digital locks, and allow self showings, keeping the $5k in reserve to cover potential damage associated with this approach.
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Jim Zatko
OP
Investor · Muskegon, MI · Member since 2014 · 71 posts · 29 votes
10y
Thanks everyone! I agree, I probably don't need a property management company at this stage, or ever. All my houses are in a very desirable school district and they rent out very fast. So I don't need a manager to find a Tennant. And if I really don't want to fix toilets, I can always pay someone... It's still cheaper than paying a PM monthly plus maintenance. Thanks for the reality check. :)
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Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
You get a PM when you are tired of making a profit.
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Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Not unlike AT&T, the only fans of PMs are PMs.
0 Reply
Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
@Jim Zatko imo, this is a personal value question. We invest for profits, but at what point does it become Faustian? I'm an absentee landlord and DIY is just not a viable option and I too don't want to be cutting the grass or changing toilets.
There is a middle ground between DIY and PM - - develop a maintenance team where you pay by job bid or $$/hr. I'm fortunate to have friends local to the units in the trades and pay them for services. Yeah, it reduces profits but increases the quality of my life without becoming Faust per se.
I still do all the (clerical work, inspections and signing of leases)[*], but that's not a burden for me at this point
Using a PM? Definitely when investing out-of-state; what other choice is reasonable? Otherwise, when your personal life takes a giant hit via [*] above.
1 Reply
Jim Zatko
OP
Investor · Muskegon, MI · Member since 2014 · 71 posts · 29 votes
10y
I agree, I have a decent amount of connections where I can call people out to houses if need be and I probably should go that route. I'm just thinking if I get 20-30 houses, will I be on the phone every day taking calls and calling contractors. If that's the case, I might be able to work out a system, where I give my handyman's number to my tenants, and they call him directly.
JIM
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Alan Morrison
Grand Blanc, MI · Member since 2015 · 24 posts · 13 votes
10y
I asked this question to one of the elderly veterans at my local REI club. Her answer was exactly fifteen. While, I am sure any literal exact answer is bound to be mostly incorrect, perhaps this could give you incentive to acquire more deals!
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Jeff Robert
Real Estate Agent · Grand Rapids, MI · Member since 2016 · 127 posts · 56 votes
10y
Originally posted by @Jacob Sampson:

You get a PM when you are tired of making a profit.
If you aren't making a profit with a PM, then you paid too much for the house.
2 Reply
Peter Lohmann
Property Manager · Columbus, OH · Member since 2012 · 309 posts · 275 votes
10y
Despite all the PM bashing you hear on BP, there are professionals out there that will manage your rental better than you and possibly increase your ROI or cash flow AFTER you pay their fees!
Yep.
If you aren't making a profit with a PM, then you paid too much for the house.
Yep.
That said, I recommend you delay getting a PM until you can't take it anymore. It will give you an understanding and appreciation for what they do when you finally get one. Quality PM is going to cost you around $100 to $150/mo per unit all-in (mgmt fees, leasing fees, markups, etc etc). Beware those offering very low management fees. It's not sustainable and they are sacrificing something. It's like buying cheap tools - sure, they'll work. For a while. But they will break when you're relying on them most.
1 Reply
Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Originally posted by @Jeff Robert:

Originally posted by @Jacob Sampson:
You get a PM when you are tired of making a profit.
If you aren't making a profit with a PM, then you paid too much for the house.
That's possible, there seem to be countless reasons not to use a property manager.
1. I would be willing to bet that If I questioned 1000 investors greater than 60% would be somewhere between "I hate property managers" all the way up to "ehhh".
2. If a PM has their own properties or the owners of the PM do, then there is, absolutely, a conflict of interest. So, even if I am profitable, I'm probably losing margin to the best tenants ending up with the PM owned properties and the PM owned properties getting priority service.
3. Taking 50%-100% of first months rent for new tenants, then charging a marketing fee for posting an ad on Craigstist, taking 6%-10% to answer the 2 calls a year I might get per SFH... I'll pass.
OK, maybe not countless reasons, but there are 3 that I think are significant.
1 Reply
Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Originally posted by @Peter Lohmann:

Despite all the PM bashing you hear on BP, there are professionals out there that will manage your rental better than you and possibly increase your ROI or cash flow AFTER you pay their fees!
Yep.
If you aren't making a profit with a PM, then you paid too much for the house.
Yep.
That said, I recommend you delay getting a PM until you can't take it anymore. It will give you an understanding and appreciation for what they do when you finally get one. Quality PM is going to cost you around $100 to $150/mo per unit all-in (mgmt fees, leasing fees, markups, etc etc). Beware those offering very low management fees. It's not sustainable and they are sacrificing something. It's like buying cheap tools - sure, they'll work. For a while. But they will break when you're relying on them most.
I will need to do a search on BP to see how many non-PMs are pro PM.
I would be interested in running some numbers by you, off-line or at least private message. I'm certain, I'm not over paying but also, there are other issues, stated in my post above, that go beyond whether or not I can remain profitable.
0 Reply
David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
By and large, PMs are totally worthless ... actually less than worthless because they cost you money in more ways than you could imagine and take more time to manage them than it would to manage your tenants. So, with that said, the 3 times you should consider getting a PM are:
1) When you want to lose money.
2) When your portfolio gets big enough to support a fulltime PM that only works for you. Then you build your own PM company, train a PM on your systems, and take on other clients if you like.
3) Never
Otherwise, if you aren't willing or able to endure the hassles of managing rental properties, then don't invest in rental properties. Not what you want to hear, but just tryin' to keep it real.
3 Reply
Tyson Hill
Property Manager & Investor · Gilbert, AZ · Member since 2016 · 37 posts · 41 votes
10y
The blanket statements of how PM's are a guaranteed way to lose money is absurd. No doubt there are some bad companies out there, but if you got hosed on a bad PM, that's equally a reflection on you, as well as the PM. Put the time and effort to get the right one.
In Phoenix, most (not all) self managers are small time investors who have an average income, and have the time to do it. The big timers, for the most part, don't have the time nor do they want to deal with it. Do you think $75-$100 a month on a SFH is going to scare off a big time investor or someone who makes 250k + a year? Of course not. It's the penny pinchers that get bent.
To those that said it's a guarantee to lose money if you hire a PM. Read this report and tell me how this investor is losing money. I've got plenty more that are just like this. I don't mark up bills, no leasing fee, no vacancy fee, just flat fair price so the investor knows what to expect each month. There are plenty of good people and companies that do the same. When you make comments to those new investors who are really trying to learn, you are doing them a disservice. Be fair about it.
Report is hard to read: $14000 income, $680 total expense (repairs and management).
4 Reply
Steve A.
Specialist · Triad, NC · Member since 2013 · 38 posts · 24 votes
10y
Not so fast...
Premium Property Management Really IS Worth it: Here's What it Can Do For You
https://www.biggerpockets.com/renewsblog/2016/01/2...
2 Reply
David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
Originally posted by @Tyson Hill:

Report is hard to read: $14000 income, $680 total expense (repairs and management).
I'm sure that the owner of 2526 E Hampton Ave, Mesa AZ would be thrilled that you are sharing their personal financial information in public forum.
1 Reply
Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Originally posted by @David Faulkner:

Originally posted by @Tyson Hill:
Report is hard to read: $14000 income, $680 total expense (repairs and management).
I'm sure that the owner of 2526 E Hampton Ave, Mesa AZ would be thrilled that you are sharing their personal financial information in public forum.
it's likely, his own property or the property of one of the owners of the PM.
0 Reply
David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
Originally posted by @Jacob Sampson:

Originally posted by @David Faulkner:
Originally posted by @Tyson Hill:

Report is hard to read: $14000 income, $680 total expense (repairs and management).
I'm sure that the owner of 2526 E Hampton Ave, Mesa AZ would be thrilled that you are sharing their personal financial information in public forum.
it's likely, his own property or the property of one of the owners of the PM.
If that were the case, then how exactly would that help to illustrate the value of hiring a PM over self managing? Thank you for helping to make my point ...
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