Using a Property Manager - bad idea?

68 Replies

I'm young and trying to learn as much about real estate property rental investing as possible. Like a lot of first time investors, I'm looking to break in through multi-family properties. 

I reached out to my grandpa (50 years of RE experience and once owned 70 properties across the US) and sent him a deal analysis I calculated using the BP calculator. While members on BP said it was a good investment, my grandpa said it wan't because it was a couple hours away from where I live. 

He then went on to tell me how I don't want to use property managers because they can be lazy and gradually loosen their grip on tenants. But many podcasts and forums and webinar videos here mention using property managers. 

Is it not wise to use a property manager for my first investment purchase? Is it not wise to use them at all? Using property managers has been a part of my long term goal to own multiple investment properties across the states.

Sounds like you have a mentor there, willing to give you free advice and help you out, who you know won't try to screw you. I would listen more to what he says than what a bunch of people on the internet you don't even know say. He knows the area and even though RE has changed a lot since he started, hes probably forgotten more about it than you have learned so far. 

I personally think people should manage their own properties starting out so they understand the nuances and will know if they are getting a bad deal or bad service from a PM company if they decided to hire one later on. I would also start a little smaller before jumping into a multifamily several hours away. Your grandpa may even be able to fund a deal for you and walk you through the process. 

Hey Kyle,

This is an excellent question that I am currently re-assessing myself. We recently rehabbed and rented out our first property 1/2 way across the US.  Our property is in Nashville and we are located in Seattle, so we didn't even entertain the idea of managing the property ourselves. However, having worked with our current Property Managers for just under 6 months now, I am reconsidering this decision. Here is my advice:

  • If you use a Property Management company, make sure you feel 100% confident they are the right fit. My husband and I interviewed 3 management companies (which is about all that time allowed for before our move); I wasn't completely confident with the management company we went with, but they were the most financially reasonable by far. As a note, they were $500 up front and 10% per month with no charge to re-list the unit when the tenants move out. The 10% monthly is very standard, but the up front and re-list fees are where you will see the most variation; most being 100% of first months rent. We liked the idea that this management company would not be incentivized to fill the unit with shorter term leases to pop us yearly for the re-listing. 
  • Ideally you can manage on your own property. We have quickly learned that they contact us for any little thing; much like a tenant would anyways! Even living 2,000 miles away, we could probably handle the needs of our tenants quicker than adding in a middle man. The communication loop is tenant > Property Manager > landlord (us) > Property Manager > tenant / fix. It has been our quick experience that it is far less efficient. 

With the high level addressed, here is where we have seen value and where we expected to see value but havent:

  • Value: They handled all the listings and showings. We did our own pictures, as we did not like the ones they captured. While this was a value add for us as we focused on the logistics of our cross country move, if you have the time to dedicate to a listing, I believe that's the way to go!  They also did the background checks, which you could also do yourself for less than the up-front fee they charge. 
  • Lack of value add: The communication loop is inefficient. Ultimately, we are still making the decision on what to do when an issue arises; adding in a Management company adds a layer of complexity. In addition, in our experience, the management company has not treated our tenants to the level of care that we would like. This to me is far worse than just a "lack of value add", but more so a "value reduction". Which is why, IF you chose to go the management route, finding the right one is so key! 

All in all, with our experience so far, we will likely manage our next property on our own; no matter the miles. My advice for you would be to try self managing first; if time, energy or interest doesn't allow for that to run smoothly, THEN look for the right management company to partner with!

On the first property, it's really better to manage it yourself. Due to size and location we have been changing over from self-management to property managers. What we find is that turnover takes longer and is more expensive with a property manager. After all, even for the most simple of repairs, a property manager is going to call a contractor. When a unit is vacant, I was quite used to showing properties on weekends and evenings. With a property manager, they are open during business hours. Finally, when it comes to screening tenants, I generally tried to get it done in 24 hours. My property managers take a few days. It all adds up to higher costs and a higher vacancy rate. It's not just the fee that you have to consider. All that said, I'm relieved to be using property managers these days. It saves me a ton of grief. However, we are big enough now that we can afford to. When we were starting out, it would have severely cut into the cash flow.

@Peter M.

Thanks for the concise answer! Pretty much everything I've read and heard says people should manage their first property themselves. Makes total sense. Starting smaller and closer is what my grandpa told me to do as well. Glad to have confirmation here on BP

@Rachel Fourquet

Can't thank you enough for effort you put into this write up! 

First thing that stood out to me was that some PM companies will charge you for obtaining new tenants. Can definitely see where they would be incentivized to find short term tenants. Don't like this idea!

What stood out to me the most was the ineffective line of communication from tenant to PM to you guys. Is this how all PM companies work? If you are fielding this many calls from one rental property, how to investors with dozens of properties scattered across the states handle them?!

Tenants can be needy and tough to deal with, which is why investors hire property managers.

Do you have an idea how you would manage a long distance property on your own now?

@Eric Adobo

"A good property with an OK property manager is a Grand Slam."

Can you explain this a little? Assuming you mean the property itself is such a good investment a so-so PM doesn't really have too much effect.

@Rhonda Wilson

Thanks for confirming what others have told me about managing the first property. It sounds like Property managers will do everything a little less efficiently and with a higher cost than self managing, but there really isn't a choice if you have several properties?

And while they do save you time and energy, they eat into cash flow and profits a little bit. But they are still worth it.

Originally posted by @Kyle Marek :

@Eric Adobo

"A good property with an OK property manager is a Grand Slam."

Can you explain this a little? Assuming you mean the property itself is such a good investment a so-so PM doesn't really have too much effect.

 You got it. 

You can expect a manager to only do so much. 

The best n brightest don't do property mgmt. The pay just isn't there. 

I find the best situation is get a buy /sell  👦 who also does property mgmt for you. His staff is fine.  I don't mean he peRsonally has to do it all. 

@Kyle Marek Yes, exactly. I like my property managers and I appreciate the work that they do for me. ATM, I have two tenants with eviction hearings coming up and my property manager will be the one going to court not me. Thank heavens! We are at more than 30 doors now, so our scale helps us to do okay even if we are making less per door. 

Another advantage of managing the first one yourself is that you gain really good hands on experience. Later on, even when you have property managers, you still have to give them direction and that personal experience helps a lot.

@Rhonda Wilson

That is nice they go to court for you! Do you pay an extra fee for them to do this?

But yes thank you I have gathered that the personal experience is invaluable for future managing of properties.

Do you have a different PM for each unit? All through PM companies? Not sure if private property managers are a thing or not...

@Kyle Marek Listen to grandpa ...if I had to pay a property manager I would not even bother . I guess I’m greedy but I am not okay with potentially splitting profits with a person that didn’t take on risk put up any of the their money or put In the time to get the property . They are notoriously corrupt and incompetent plus they are very pricey . I don’t give a crap what any one says on here the truth is no one will ever watch over your investment better than YOU will .. that’s a fact

@Kyle Marek This property manager doesn't charge me extra to go to court. 

I have properties in two states, so I have one manager in each state. With having a lot of properties under one PM, I've found that I'm able to negotiate a lower rate. 

I guess I have a very different perspective than most of you on this, which is fine.  Everyone has their own way of running their properties and businesses. 

We have a property manager for our SFHs.  They are worth every dollar we pay.  They deal with applications, background checks, bill collection, evictions, plumbing issues, HVAC issues, electrical issues;  basically you name it, they deal with it.  Here's what I deal with. . .receiving the rent payments from them, and receiving emails notifying me of the problems that arise and the cost associated.  That's it.  Since they are high volume managers, they have licensed plumbers/electricians/HVAC/handymen available daily, and for rates that are better than what I can find.

So let's play out a scenario - toilet overflows at 5 pm on a Sunday.  Do I want to get that phone call?  Do I want to spend my scarce free time fixing it myself or making 5 phone calls trying to get it rectified at likely a higher fee for the service call with a plumber?  Or do I want it handled by someone else so I can spend time at home with the family?  Easy answer.

Time is money.  The cost of time it would take to manage the properties by me exceeds what we pay per month.   If your time is not as valuable as the cash outlay to a property manager, then by all means manage it yourself.  Each investor/company has to make that decision themselves.  

@Kyle Marek Just do it myself ,but I’m only an hour away from them . I’m small scale so I can do that ..these guys with big portfolios and long distances don’t have much choice . Keep In mInd There are good property managers but unfortunately from what I gather on here the majority are not . Browse the landlord section and you’ll find a common theme with major problems due to the property manager being grossly incompetent

Agree with @Eric Adobo that it depends.

My experience with PMs is there is a lot of variation in the industry with communication, competence, trustworthiness, etc. I've fired PMs that I thought were a good choice but really I was sold a bill of goods. I've had PMs that were good for years fall apart and become bad (had to fire them then). But the PMs I have now are doing ok.

You're either managing your properties or you're managing your PM. It's one or the other. Make sure they know you're watching by asking questions on repairs, leasing, or whatever from time to time. Call them on occasion. Let them know if you're unhappy with something they managed. Let them know if you appreciate the job they're doing. Send them a gift card at xmas if they're doing ok. They will be shocked and super appreciative. They'll do even a better job going forward. 

I started out managing my own properties. I was not very good at it. I think my tenants appreciate having a real estate professional managing the properties they live in. There's value there. If I'm a tenant, I'd more often than not rather deal with a professional than an owner.

I see a lot of people on this thread indicating reasons not to hire PMs. How about all the reasons you may want to hire a PM (like @Rhonda Wilson  PM going to court for her)?

There are a lot of legal ramifications in leasing and managing real property. How about the Fair Housing Act? Better be sure you know what your doing before you market property and downselect applicants (protected classes). Do you know the eviction process for your state inside & out? Better know that too. How much are you legally allowed to collect as security deposit? How are you to hold that deposit during the lease and what are the requirements for returning the deposit after the tenant moves out? What about any local sales tax you may be obligated to assess and collect from the tenant? Do you need a business license for your city? 

You can learn all these things and manage your own property if you want. I agree that it is even good to do it for awhile so you know what a PM should be doing for you if you do choose to outsource this. But you don't have to.

But don't think a good PM is too expensive or not valuable. They do a hard job and should free the owner's time up to do other things....like finding more deals, spending time with family, getting a good nights sleep, having a career outside of real estate investing, international travel, etc.

Good luck to you.

@Michael S.

Thanks for some insight into the positives. For me, I've been envisioning my role, as time passes, in owning a property as you have described; get rent checks, get emails notifying me of the problems and costs associated. I would not want tenants calling me for every little thing. If you have several SFHs in the same area and one property manager that tends to all of them, that seems infinitely better than having a different PM for each property if they were dispersed.

It sounds like you have a great PM company. Curious as to how and why you chose them? 

@Dave G.   Yes! There is a lot of variation in PMs. I find that different managers have different strengths. My Oregon manager is quite knowledgeable on landlord-tenant law and does a great job with problem tenants. OTOH, they are not as proficient at getting repairs done at the lowest cost. That department seems to go to their "usual guy" in any area and they are expensive! I've had to push them to get new contractors and more bids for major jobs.

@Kyle Marek The PMs I know cover an area of maybe 1 hour driving radius. 

@Kyle Marek I currently self-manage and am scared to take the leap into property Management. I feel that no one will care as much as I do. That’s ok if they do a good job. I know to scale to a lot of units, I will have to one day. But will be be a challenge to find a good management company.

@Ben Dao  

Sounds like you've started the right way by self-managing to get experience of what to expect from a PM. You are correct in that they will never care as much as you do (no vested interest). 

Even if it is a rocky transition when you decide to transition to using PMs someday, sounds like once you find that right PM and treat them right life your time will free up considerably, which is worth it to me.