What's holding landlord's back from hiring a property manager?

36 Replies

Greetings BP community,

What are some reasons that make landlord's delay hiring a property manager? What are the things you would need to see in order to justify the ROI of management?

Looking forward to hearing your feedback!

@Richard Cole :

. the number one reason is having to pay 8 to 12 percent fee.
. poor track record with other landlords
. bad references
. inability to manage property property
. low rental rates in area

The fees would be one hangup. Another would be a lack of visibility into their operations. Some landlords get frustrated by poor communication from their property managers, especially if they don't understand the rationale behind a manager's decision. That's why it's such a gift to have a good property manager who communicates well.

Other landlords only make marginal cash flow, so a manager's fees would cut out their profits. It depends on the area, the property, and the landlord.

Most provide crap service and those that don't are way to expensive.  Throw in the fact that most are direct competitors with me (they own there own rentals) and it is a non starter.  

Guess whose properties get rent ready first or who gets the A+ tenants?  Somehow it is always the properties that the PM owns.

@Richard Cole

Cost. My class B properties are fairly easy to rent and are 2001 and newer mostly. What am I paying 10% and a tenant placement fee for? I’ve gone months without needing to do any maintenance or having calls. That would have cost me $1,000 for the PM to do nothing.

The biggest reasons I often hear from potential clients are the cost, or they bought too high. Foolishly, a lot of people see a property manager as a cost instead of a value add. I have clients who hired us and we knew the market well and increased their rents 25% in a year. That more than offset our 10% cost. I have other clients who asked me personally about buying a certain property and I told them no, too expensive (what other broker does that BTW???). Then I called up the new buyer about management and they say, "I want to, but I can't afford one, I am barely cash flowing now."

Not all managers are good, but a good manager is arguably the most important part of your real estate team. 

@jacobsampson - AS a property manager and Owner of rentals myself, I dont consider myself a competitor.  I wouldn't put someone in a clients house , that I wouldn't put in my own.  Regarding repairs, It is very rare that the exact same problem is happening at both homes where we have to fight over vendors.  If both homes are vacant, The applicant decides where they want to live. THere is no steering from my part to get my rentals done first. 

I do think many owners dont wantt o give up the control of the property- selecting tenants, etc. and I see that as a main reason to not hire a PM. 

Also, I dont think they see the benefits- for example ,i Have about 6 families with approve applications, just waiting for a house to become available. WE have people on hold waiting to get in there at a moments notice.  Super quick turnaround on rentals with minimal vacancy, because we manage so many rentals. 

obviously giving up a huge percentage of my profits is the main issue , the other is that it’s not really necessary if your local to your investments. The reality is no one or company is going to take care or look after your investments better than you will . Think of it this way ....If I only get to keep 25% of the rents I’m sure as $&@ not going to split that with a company that posts a notice on the door or calls a handyman when I’m the shmuck who paid all the money did all the work and took all the risk to get the property as mine

The biggest issue is cost and control.  If your focus is solely on the growth of the portfolio it can make sense as you only have so many hours in the day.  Just be upfront about expectations and have everything in writing as you would with a tenant.  

@Richard Cole

I usually see exactly that. Usually a lot of owners can not justify the 8% vs self management.

I consider the 8% vs your time/efficiency. Especially if you are up there in units.

I have dealt with several property management companies, I personally have had very mixed results.  The properties I am local to, we have one with a property mgmt company that I am not thrilled with, but they offer a buffer between me and a tenant when the tenant breaks something that they should pay for but that they don't "think" they should have to, the mgmt company is a neutral third-party to act as a judge who should pay. The other property, we manage ourselves b/c we overhauled the house and know the lack of issues it has, and can manage any repairs ourselves instead of overpaying for repairs, or just paying for repairs we can do ourselves in general.

Aside from cost it is previous bad experience.  Once you have a bad experience you are cautious about hiring someone.  And it isn't just the PM, it is everyone in the office including if you hire a dimwit to answer the phone. couple of things I don't want to hear from a PM. Call me back after 8pm (routinely),  who do you want me to call for that (when I provided a vendor list). That charge is for pest removal (from a company not on the list).

 From my tenants I called them but they never answer the phone, I told the person answering the phone the problem but she didn't understand too well. The office is always closed. 

For me I’m house hacking so while i would love to send tenants to a property manager and have someone take out the garbage i do it myself as i would rather keep the money in my pocket.  Besides I recently found a handy guy around the corner who manages other properties in the area so i May be looking to work with him before a property manager as the costs i hope would be significantly less. 

My other landlord friends either find a reliable tenant and give them a small discount on rent or find a handy man to take care of their properties.  This has been working for them, they own 3-4 unit buildings.

Really good self managers have a whole way of doing things that works entirely in their favor. Really good pms have their ways too. Usually, there are conflicts of interest where they make more money when you make less. I mean things like turnover frequency and maintenance.. They make more money when you make less at some points.. So, you can't expect the same returns as an excellent self manager will get.  

I won't hire a property management company because there is not one that cares more about my investments than me.  I outsource almost every other aspect of the rental properties, but when it comes to placing tenants, inspecting units, and responding to tenants I really don't trust anyone else to handle that job.  

@Richard Cole Most landlords do not operate at a scale number of units wise where they can get the management fee down to where it makes sense to outsource to a 3rd party. Financially it just simply doesn’t make sense for them. 

Cost, control, and availability.

Hubby and I self-manage 13 houses, and most of the time it takes very little of our time. Why should I pay someone to do simple tasks that usually take less than an hour/week?

These are our houses, and we want to choose who lives in them. We decide when to call a contractor, (and which one) and when to do it ourselves when there is a maintenance issue.

Finally, the only property manager we could hire in our small town has her own houses and runs the low income apartments. Her plate is full.

Cost..... control....and trust.

For me its a little of each , but mostly cost. I only have 2 SFR's and they are pretty local and I can handle 99.9% of the issues that come up, which are very rare. I'm not paying 8-10% each and every month to do nothing but collect rent. If I was not local or had lots of issues to deal with on a regular basis, then the $$ would be well spent to hire a PM

If/when I scale and there are more issues on a regular basis to deal with, then I will hire a PM...... until then, its a waste of my $$.... I can easily handle it with ZERO negative effect on any other aspect of my life.

@Richard Cole I’m new to real estate investing but have several clients with loads of experience and the consensus across the board is that in our area (rural Ohio) you cannot find someone who will do a better job managing the proper than you.

I tried looking around but locally I found nothing but horror stories. I’m not willing to sacrifice part of my income when I can do a better job than the person taking my money.

Never found a good one worth the money.

A good property manager should minimize my vacancy rate, not sit on an empty unit and collect monthly fees for that.

I've seen properties 'managed' by a 3rd party which have sat vacant for over 2 months. WTF?

Originally posted by @Kyler Cook :

@Sylvia B.

Just want to point out that you are in an excellent position to start a property management company in your town if what you say is true :)

Ha!  Thanks, but no thanks!

I manage my own property (8-plex) because most of the time it just flies solo. PM's don't clean units, vacuum, mow, or shovel snow, so those are the things I pay for or do myself. However, I am going to be moving a couple of hours away from my property next year. At that time I will hire a local realtor to just show my property when needed. I usually only show them once I have an approved application anyways, so it won't be too much. They can also do an open house type showing as well if needed (or I can). Everything else is done right here from my computer. I have a great website with pics of my units and all of the leasing information. There is also an application link they can click to fill out a Word document and email it to me. I will probably get a subscription to an online document signing app to be able to do those online as well.

Most property management company own rentals through the company or an employee there does and they fill their vacancy before the clients. Around my area we have a few that will get their units fully occupied then start to get the client’s properties rented out. Also property management companies don’t communicate with you except for the end of the month pay out, then you have to call and ask what these expenses charged are for.

  • The billing model incentives are counter to the best interest of the property owner; There is a financial incentive for property managers to churn units rather than address tenant problems.
  • Most of the "professionally managed" properties I look at to buy are not nearly as well maintained as owner operated buildings and the work is shoddy. Repairs fees charged are way higher than I can get by making a couple of phone calls to a local company and by directly hiring a handlyman additional savings can be acheived.
  • Great software is available to streamline management processes (we like Buildium)
  • If I wanted a property manager, it would be way more cost efficient to buy enough properties to hire a w-2 property manager.
  • I like managing my properties.