When to get a property manager?
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Multifamily Investor · Toledo, OH · Member since 2008 · 296 posts · 308 votes
10yJim, 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.
49 Replies
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
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.
Besides, that's only part of the picture. Competing with PM owned properties for top tenants. Realizing that the PM hasn't stepped foot in the property for an extended period of time, which has lead to avoidable maintenance. competing with the PM owned properties for priority of maintenance people.
Obviously 100% of PM's aren't bad but when the vast majority of investors feel a certain way there is probably a reason. Not unlike some dude getting divorced 5 times and still blaming it on the spouse. If the idea that PMs are bad didn't get so prolific by accident.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
Originally posted by @David Faulkner:
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 ...
yeah, I was agreeing with you. I don't buy the numbers. Even if it isn't PM owned best case scenario he just sorted by best performance in 2015 and gave that info. not an accurate view of the average scenario.
- Lake Jackson, TX · Member since 2013 · 119 posts · 34 votes10y
Ive had a pm since day one i was 21 yrs old didnt know how to rent property i was going to rent it for 500 when i heard about a company that could rent it for 700. I contacted them and 11 yrs later im still using them now. Im currently started self managing this year so as soon as my tenants dont renew lease im taking over management. Ive been more than happy they kept my houses rented out they charge 10% and half first month. I have always worked out of town and it worked perfect for me the only thing i do is overlook repairs or do them my self
- Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes10y
To give you some perspective, my wife and I own 48 units (11 buildings) within 2 miles of each other. My wife handles the leasing which takes more than 90% of the total management time. Most of the time I spend is "voluntary" - tweaking documents, researching re-fi options, talking with my contractors, etc. My total time commitment is 2-3 hours per week for the 48 units. I do have a part time sub contractor who handles all maintenance, and a lawn and snow company that handles that. I use 2 heating companies and a loyal electrician who's been with us from the start.
So this is to sort of illustrate that "middle ground" of you being the "head" of your own management company but saving at least some of the 10% management fee. You do have to have people you trust, and (maybe most important), stay the hell out of their way. (hard for me, but I get better every time one of them quits! haha!) You still have the leasing activities (placing ads, showing units, screening tenants, occasional evictions, handling move outs, etc.) but a highly organized file system and "punch list" collection should keep those activities manageable. And if you do hire someone else, they'll just charge you one month's rent for every tenant placed. So if you go that route, make sure you add 7% to whatever your vacancy rate is when doing the numbers for a prospective purchase (example 5% vacancy + 7% leasing fee for each apartment each year = 12% total "vacancy" rate)
- Panama, Panama · Member since 2016 · 10 posts · 3 votes10y
I don't think you need a property manager for 3 property's. You can easily pull a off a full time job, managing 3 property's and spending time with your family, especially if the property's are near by. My dad and grand father together maintain over 20 units between each other.
The company i work for here in Panama city Panama does offer that service but its mostly used for people who live abroad. Its harder for them to manage and we ensure they get paid and that the tenants have everything in order.
Honestly no one can tell you when to get one its entirely up to you. Cheers.
- Property Manager & Investor · Gilbert, AZ · Member since 2016 · 37 posts · 41 votes10y
@Jacob Sampson @David Faulkner
Great detective work guys, why would I charge myself a management fee if I owned the property AND own PM company? Additionally, you think I am going to go back and alter accounting over the last year? You obviously don't understand PM software on a large scale. Come on guys, you're smarter than that.
Self managing can be very good for certain scenarios. I actually recommend my friends and family to do it because they have a resource they can learn from, ME. Saying it's a 100% guarantee to lose money and you should never do it is irresponsible and you are not helping young investors.
It's like this, I don't mow my lawn anymore. You know why? It's not worth my time. Can I mow i and save the money? Of course, but it isn't worth the $100 to me anymore. Everyone hits a point where their time is better spent elsewhere. So Jacob and David, maybe someday you will hit that point ;)
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
I agree with your primary point. Also, you seem like a reasonable dude, I wish you PMed in my area. Just for clarification, so as not to appear, totally, unintelligent.
1. I don't think it is uncommon for owners of PM companies to turn their own properties over to their business and treat them exactly the same as any client property (bookkeeping wise). So charging yourself the fee would make sense. It would come back to you as income, either way and not cause you to have 1 process for some properties and another process for other properties.
2. It's hard for me to believe the example you provided represents an average scenario. That appears to be nearly a best case scenario. Was there no maintenance for the entire year? I recognize that may be on a different report because, if you aren't marking up for labor that expense would be incurred whether or not a PM is used.
3. For as much vitriol as there is towards PMs there must be significantly more bad ones than good. Which is unfortunate.
- Property Manager & Investor · Gilbert, AZ · Member since 2016 · 37 posts · 41 votes10y
1. My own properties are managed within my company, but I don't charge anything. Seems counterproductive.
2. No doubt, this was biased report I provided. And there was not single repair all year :) The point was to illustrate that having a PM is not a guarantee to lose money. I have properties that perform great and others that struggle a little more. But that is usually a result of age, location, deferred maintenance by owner, etc.
3. You are correct sir. There is no doubt that there are way more bad PM's than good ones. But I have to stand up for the ones that do it right. Iv'e seen a few on BP that I can tell know what they are doing and have integrity. @Nathan Gesner
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes10y
@Jacob Sampson makes an interesting statement: "Obviously 100% of PM's aren't bad but when the vast majority of investors feel a certain way there is probably a reason."
Jacob, where did you get your data? I assume it's based on your interaction with BP members. I see others making the same statements and I'm curious how you could make such statements without actual data. What percentage of BP members actually own investment property? How many of actual investors have ever used a property manager? You and David seem to have experience. Do you have actual experience with property managers that your disdain is based on? Most importantly, how many successful investors have experience with a property manager and is their view positive or negative?
In my personal experience and from what I have read online, most investors have never used a property manager. A large percentage of them lose tons of money because they don't have procedures in place, they get tired of maintaining the home, they let in bad tenants with sob stories, and they can't keep up on market rates. This is where I get the majority of my business!
There are owners that use a PM and have bad experiences, but whose fault is that? When a Landlord has a bad tenant, do you blame the tenant or the Landlord that failed to properly screen or enforce policies? I have met many owners on BP and in real life that speak badly about property managers. But when you dig into their story, it turns out they just picked someone from the phone book or the grabbed the manager with the lowest fees. Save a dime to spend a dollar. On the flip side, I know a lot of smart investors that do their research to find a solid manager. They are very happy, they are making money, and they enjoy investments because they can focus on investing and not unclogging a toilet.
I have personal experience with hundreds of owners. About 50% live outside the area and do not know how to manage from a distance, nor do they want to. Most of them make big bucks as engineers, doctors, directors of marketing, electricians, attorneys, pilots, etc. They outsource because I can manage it better and they can focus on making money and enjoying life. It's the same reason people hire brokers to handle their stocks and bonds.
My remaining owners live close enough that they could self manage. But most of them suck at dealing with people, reading the market, maintaining policies, etc. They hire me to do what they know they cannot. It enables them to stay in the game while maintaining their sanity and doing other things. As I've said many times, about 75% of the owners I work for are making more money after hiring me than they did while self-managing and that does not take into consideration what their time was worth. Here are a couple quick examples:
1. I picked up a four-plex where the owner was struggling. In two months I kicked out all four of his tenants for not paying rent (one was his own son). He had lost about $6,000 this year alone. I've placed good tenants in each unit and he's now making about $500 more a month after paying my fees.
2. An owner hired me to find her a new tenant and then she would manage it. She would normally fly down from Alaska to inspect, clean, repair, market, and get a new tenant under contract. These trips cost her thousands of dollars, but she was like you and didn't want to pay a property manager for something she could do herself. I let her bad-mouth my profession and agreed to help her. I quickly discovered she had two houses in town and both were well below market with deferred maintenance. I gave a soft pitch of my abilities and asked her to give me a chance. She earned an additional $2,800 her first year, after paying my fees and making my recommended renovations. Her second year she earned over $7,000 after paying my fees.
Should I call these owners and let them know they are being robbed blind? ;)
The DIY Landlord Book4.7248 Reviews - Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
I agree with you. There are good PM's and bad. My point was, it appears, based on anecdotal evidence (which is the same evidence you provided), that the PM industry, has at a minimum, a perception problem. Not unlike the guy that gets divorced 5 times and still has no idea that the problem might be from within.
At least admit that when the owners of a PM have there own properties there is a conflict of interest there. Sure, most of the time maybe nothing dishonest occurs but if the going ever gets tough for them then...just maybe.
I feel like you actively ignore what is really happening. Like if I held up a piece of paper in front of you with actual data you would start moving your head from side to side or up and down, keeping the paper out of your direct line of sight.
- Property Manager & Investor · Gilbert, AZ · Member since 2016 · 37 posts · 41 votes10y
@Jacob Sampson You keep making the point "conflict of interest" if the owner of a PM has rental houses of their own. Completely a false statement. When I market properties, it's on an individual basis. If I own property "A" and someone calls to see property "B", I show and try to rent "B." No conflict of interest whatsoever.
Secondly, the fact that I am an investor too makes my relationship with my clients that much stronger. We are all in the game together. I can speak from both sides of the fence, not just the PM side. Nothing against property managers who don't invest, but they just don't look at managing the same as I do.
- Rental Property Investor · Enterprise, AL · Member since 2015 · 39 posts · 10 votes10y
Interesting thread! I own two SFRs in TN, and am currently in Alaska. I have pretty much used a PM since day one, and have yet to not show a great profit at the end of the year, even after replacing A/C units, windows (to include frame), siding, fences, etc. if you are losing $$ after a small percentage fee, you bought wrong. After the 10% fee (went down to 8% when I added the second SFR), I was still clearing $150/mo profit per SFR. I honestly believe PMs are like any other profession, you may be able to save some $$ doing it yourself, but do you have the skills and time? I work on my own vehicles sometimes, but if it is a big job, I take it to a pro. I don't want the hassle of answering the phone at 1am for a burst pipe, or a broken A/C, so I pay for a service. I found a company that charges $250 fee to find a tenant, including background and credit checks. No partial rent fees, nothing after the $250 initial fee. After that, it's a set 8% of rent collected. Anything they collect after that is mailbox money. Any issues with tenants, they handle it.
- Real Estate Broker · Anchorage, AK · Member since 2015 · 170 posts · 46 votes10y
I think when you reach the point it's no longer fun and overwhelming.
Also, if you want to run it like a business vs. running it like a hobby in your spare time. If you want a business, get a PM. If you enjoy it and it doesn't consume all your spare time, keep doing it.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
Originally posted by @Tyson Hill:
@Jacob Sampson You keep making the point "conflict of interest" if the owner of a PM has rental houses of their own. Completely a false statement. When I market properties, it's on an individual basis. If I own property "A" and someone calls to see property "B", I show and try to rent "B." No conflict of interest whatsoever.
Secondly, the fact that I am an investor too makes my relationship with my clients that much stronger. We are all in the game together. I can speak from both sides of the fence, not just the PM side. Nothing against property managers who don't invest, but they just don't look at managing the same as I do.
Just because you wouldn't act inapropriately on the conflict of interest doesn't mean one doesn't exist. The existance of a conflict does not garauntee the wrong will be done. But it is a risk that all involved in a business agreement should be aware of, so they can decide if the risk is acceptable.
It isn't always as simple as "I would like to look at property B" Sometimes it's "do you have any 3/2 homes available in area B". Well, if there is a chance that both you and a client own an acceptable home in the right area, that is a conflict of interest. Even if you chose to always side with the client in those scenarios doesn't negate the fact that there does exist a conflict of interest. You just happen to be an honest person and so the existance of that risk doesn't hurt your client.
No doubt your experience is valueable to your clients. My realtor also owns rental properties and has owned a construction company so her insight is absolutely invaluable to me. We have openly discussed the idea that there could come a situation in which we are competing for the same property, she has stated that in those rare occasions she will give me the first right of refusal. Problem solved and I couldn't be happier with my realtor. I think I could have the same relationship with a quality PM. I'm not aware of any in my area.
I definately admit that I started this thread of by taking a huge dump on the PM industry. You called me out and I acknowledge that you are correct, my blanket statement was not accurate. Based on the original question of this thread, it's hard to know exactly when someone should get a PM. What I can ad is, here are some pitfalls/factors to be aware of when making that decision and when evaluating specific PMs. I apologize to you and all quality PMs. I wish one of you would move to my area.
- Residential Real Estate Broker · San Antonio, TX · Member since 2016 · 506 posts · 311 votes10y
I'm sorry guys, but I can't hold my comments any longer. As a professional (yes, that's the term) property manager, licensed as a broker in Texas and a member of NARPM (National Assiciation of Property Managers) it is offensive to me personally when (if) these suspicions and doubts ever arise in a conversation with a client or prospect. I do what I do, and it means putting my client first. It's called fiduciary responsibility and if you as a potential client question my integrity with this intensity. I don't want your business. Good luck learning what 10 years and several thousand properties under management has tought me. I will applaud your success.
- Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes10y
You kind of answered your own question. You have a family, a full time job that you love, and you don't want to spend your time fixing toilets. The time to get a property manager is now.
- Investor · Muskegon, MI · Member since 2014 · 71 posts · 29 votes10y
WOW, this post really got a lot of action, and I appreciate all your responses. I can self manage now, i'm just looking down the road. I would like to add that i'm still considering a PM even if i own less then 10 properties. If the numbers make sense, why not? With my rentals, I'm not really concerned with monthly profit. I know you may have just spit out your food, but once I may on the mortgage and taxes and insurance, i'm making like 200 per door. That is good, but my main goal is having these houses paid off in 15 years. I'm 31 now, and id like to have 10 paid for houses by the time i'm 50. If I could make 120 per door, and not have to take a single call, it's very appealing. :) When i'm on the boat this summer taking our family vacation, I don't want to be checking my phone to see if there is a problem i need to call a contractor out to.
- Real Estate Investor · Los Angeles, CA · Member since 2008 · 80 posts · 42 votes10y
Apology accepted ;)
I agree with @Robert Melcher, ours is a business of fiduciary responsibility. While there is a potential for conflict of interest with owning an investment property in the area you manage, it's not the only one.....there are many small opportunities for a conflict along the way, and that is where integrity comes into play.
I think that property management is an easy thing to "do", but is time intensive, and not so easy to do well. Most properties that I take over from owners that are self managing have significant improvement in profit after my fee within 12 months. This is sort of my sales strategy....hire me to pay you more!
I would also agree with you that there are many mediocre PM's out there. Honestly, I don't mind....I look all the better standing next to them!
Great thread, thanks for all the comments.
- Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes10y
Judging from the fact you posed the question, I would say now.
- Investor · Mason, MI · Member since 2014 · 151 posts · 152 votes10y
Originally posted by @Jim Zatko:
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
Jim, if you have good properties with good tenants, what would there be to call you about? I self manage 81 units and see others with over 200 that do the same. A good car won't need as much maintenance and a building is no different. A good person won't require as much intervention either.
- Jericho, NY · Member since 2016 · 29 posts · 5 votes10y
I have been following this thread pretty closely and weighing the options. I have a question to the naysayers for PM. Besides the obvious reduced profits, what else can be added to the cons of hiring a PM? Sure I could put up an ad on CL myself to find tenants and look for maintenance people to help take care of the place whenever something breaks, as well as collect the rent myself every month without too much difficulty. But why can't I pay a company 100 a month to do all these things for me? The passion that is being used to argue against it seems like there is more to it than just reduced profits. What other negatives come with allowing a PM company to handle your business? I keep hearing from everybody "there are good PM's and there are bad PM's" What are examples of what a bad PM would do besides accept 100 every month?
- Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes10y
It really just depends. Here are some things to think about:
- Use of your time. What is your time worth? If you have the cash, it might be better to spend your time on making new deals, adding to your portfolio or rehabbing properties rather than spending time on managing them yourself.
- Are you a good property manager? Are you getting the highest rent you can? Are you good at screening tenants? Are you good at collecting rent and dealing with problem tenants. Often times landlords find that they are not so great at management and find that they can make more money--even after paying management fees--by handing over their properties to a good manager.
- Can they still cash flow? If rents are depressed in your area, can you get enough rent to cover the cost and still make a satisfactory profit?
- Is your personal/home life suffering due to issues with your rentals or the time you're spending on them? Sometimes giving up 10-20% of the profits is well worth getting your life back if you become obsessed with your properties.
- What's your goal? Some landlords want to buy and hold enough properties to quit their day job. When that can happen depends on your income needs and the profit from your units. I knew a landlord that had a goal of clearing $35 K from his rentals so he could "retire." Asking what that meant...he said he wanted to be his own boss and go hunting and fishing anytime he wanted. He did just that when he hit 18 units. He manages his own "full time" and spends winters in Phoenix.
As others have said, though, 3-4 units isn't much if you've got the right system in place, screen properly and take care of problems quickly before they escalate.
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