Why do people use property management companies

25 Replies

This is a question I have always had.......A property management PM takes upwards 10% of gross for receiving the rents. Bills every time for a repair and some add a rider on top of the repair. Bills a substantial amount for finding new tenants. Not to mention most PM companies have their own rentals in that area. Do you think they are goind to place the 'cream of the crop' in your units or theirs. Why would they they make good money on placing tenants.

Hopefully someone has some insight to change my view.

I am currently not using a property manager but have several good reasons why I will have to. First I invest using a Self Directed IRA and my investment needs to be passive. I cannot collect rent pay for repairs or rent the property myself without endangering the tax status of my account.

Second reason: I plan on leaving the property to my wife to provide income for the family's support in the event of my pre mature death She is ill suited to manage properties and I would prefer professional management in this case.

Third, I currently enjoy being involved with my investments but I am certain with time this will wear off. I would like to have a quality management firm in place when this happens.

A lot of people who invest aren't activity hands on with all their investments so it only makes sense to hire someone to do it for them.

I hear so many stories of investors getting out of the rental business because they hate dealing with tenants. This never makes sense to me.
Real estate has too many advantages to stop being apart of it.

At the end of the day, hiring a property manager shouldn't be taken as a light task. It could make or break your investment so proper due diligence should be taken.

I would never use a "property management" company. As the original note said about the 10% plus other charges. Secondly, a lot of them don't do a very good job. I have bought buildings where the tenants complained about the prior management.

For finding tenants, I use craigslist & email and credit/etc. checks. It is like painting, most of your efforts should be in the preparation - getting top tenant prospects. When done properly, it almost becomes set and forget for the most part. Good tenants to me are over 80% of the equation.

For repairs, the problems are often a landlord who has not done good preventitive maintenance. I buy a property, I usually pull the toilets, replace the wax rings and make sure they operate well. Slow draining sinks/tubs get attended to before renting - I often replace the undersink plumbing. Adequte water pressure ensured. Windows that stick are repaired. Taking out problematic things as someone else said - garbage disposals, dishwashers, etc. Don't get the last 3-4 months out of a tottering appliance.

I also do not buy "out of area." There are plenty of places in my area that I CAN own.

Have access to good handymen.

Managing property is a completely different activity from investing in real estate.

Property management is much less risky, but the profitability is more closely related to your level of effort.
Investing is riskier, but your income can grow faster than the time you need to put in.

Some people want to do both. Many prefer to only do one. Many more get the two confused and blurred. Don't do that.

If you invest in many units, there comes a point that you have to hire help. Most apartment complexes I have seen are not managed by the owner.

I manage my one (1) unit and its not a problem. I might not want to manager more than 10, or even more than 3 considering I work a full time job.

Not all PM's are bad news. And there are different levels of service a PM can provide.

Property management is a good barometer for the value of your time.

Is it worth your time to do all of the things involved in property management, for the net positive rent at the end of the day/week/month? If it is, then self-manage. If it isn't, then you'll need to find a good PM and have them take care of it for you.

I personally have self-managed until now, but with an out of state venture I'm taking on, will need to use a PM. It just wouldn't be feasible for me to try to maintain good proper occupancy levels and enforce leases from afar, and it costs less to have a manager in place than to constantly be flying back and forth. What that does mean, though, is that I have to become skilled at managing the manager. That's my goal.

Why hire a painter? He charges $15/hr + materials! Surely you can just paint yourself! In fact, I'm not sure why people go out to eat? They can just make all that food themselves and probably a healthier version of it! Why buy bread when you can just make your own bread?

It's called leverage of time.

I always love the "well there are bad PM companies" or bad anything companies. Well no kidding. There is bad anything. Why in the world would you expect there not to be bad realtors, or property managers, or painters, teachers, or anything in life?

People just baffle me sometimes. Not to mention these PM companies, the big ones, like ours, have full time attorneys making sure every law is followed and every lease is legal. I'd argue that I can get better pricing for our owners then they could on their own due to volume.

I'm a big fan of being a business owner first, and an employee second. I like to know that I can go on vacation for a month or two or three, and not have to worry about my business continuing to run. While I generally have very few rentals at any given time, f I were doing the property management myself, I'm not sure I could go on vacation for 24 hours without putting my investments into jeopardy.

I also agree wholeheartedly with Jake -- if you're saving $100/month by doing property management yourself, and if you spend 5 hours/month working on PM tasks that would otherwise be farmed out, you're essentially working a job at $20/hour by being the PM. Personally, I'd rather be focusing on the parts of my business that generate hundreds of dollars per hour (acquisition, raising money, etc) than the parts that are generating $20/hour.

That said, everyone has their own utility function for time and money, so what's right for me certainly isn't necessarily right for anyone else.

I do my own property management too and, for the few rentals that I have, it's not a huge burden of time. But, as the number of rentals grow, I can see management time increasing much more than the "passive" income I receive. It just won't scale. Also, for remote rentals, there's simply no choice but to have a local presence.

It isn't all bad, though, I think. Someone mentioned being able to take vacations for a month or two at a time - I'd love to do that one day and if I set things up right, it'll happen.

One thing I've done to test out the waters is start looking for a low-cost property that is remote on purpose. I plan to then put it under a PMC and see how it goes.

As others have stated here - what is your time worth?

I invest a few hours away from my house and it doesn't really make sense for me to drive 2+ hours to my market just to show a property or collect rent.

I use PMs, but that is not to say I don't take an active role in my investments. I still do walk-thrus and schedule routine maintenance, I just don't like dealing with the day-to-day aspects of tenant mgmt. I have a pretty demanding day job and I would rather spend my free time either looking at new deals, building relationships, raising capital or doing nothing related to real estate.

Another benefit not mentioned here is leverage. Once you have enough units, you can dictate the terms to the PM. For example, I don't pay surcharge fees on repairs, I don't pay for tenant placement and we've negotiated our monthly service to $70 a SFR or ~6%.

When I started off, no one would talk to me about lowering their prices, but once I coupled up with a few other investors, the PMs were much more responsive.

Just my two cents!

AG

Maybe I'm just a control freak, workaholic then.... We keep a bookkeeper on staff but the buck stops here.

Originally posted by Ryan Moseley:
Maybe I'm just a control freak, workaholic then.... We keep a bookkeeper on staff but the buck stops here.

Nothing wrong with being a control freak, workaholic (I am as well)...I just choose to focus my control and effort in a way that allows me to make a lot more money than the money I save by doing my own property management (or other low-cost tasks).

For example, I have an employee who handles my property management. I have full control, but I still don't have to deal with tenants or focus any of my time on $20/hour tasks.

As Joe said, if you're that much of a control freak, do you also do all your own renovations, all your own marketing, etc? You've given up control of the books -- as far as I'm concerned, if you can give that up, you should be able to give up the little stuff.

Don't get me wrong we hire things out a lot but I prefer to make the call. I prefer to take the calls first, for example, I had a tenant call a few days ago after 10 p.m.. They said there is water leaking, through talking I was able to determine it was the water heater had them shut the inlet valve and put a pan there to collect the water. I went over there the next morning and found the TP valve leaking. Swapped it out with one I keep in my vehicle. I would be afraid to see the bill from a PM for that. There would have been a plumber there that night. Most tenant calls are quick fixes and I encourage tenants to call no matter what the problem is. That way I can 'check up' on everything.

As far as rehabs I almost hire everything out. This is something that can be shopped. I have multiple contractors that have done work for us for every type of work. Some things I do myself depending on timing like; flooring, painting, drywall.

I'm a spreadsheet nut, the main thing is return on cash, for me anyway, COC. The landlording is a byproduct. Its like paying a high load on mutual fund when you can buy the same fund for no load. I'm 3rd generation landlording so it's always been a 'way of life'

Thanks for everyones input

Originally posted by Ryan Moseley:
Don't get me wrong we hire things out a lot but I prefer to make the call. I prefer to take the calls first, for example, I had a tenant call a few days ago after 10 p.m.. They said there is water leaking, through talking I was able to determine it was the water heater had them shut the inlet valve and put a pan there to collect the water. I went over there the next morning and found the TP valve leaking. Swapped it out with one I keep in my vehicle. I would be afraid to see the bill from a PM for that. There would have been a plumber there that night. Most tenant calls are quick fixes and I encourage tenants to call no matter what the problem is. That way I can 'check up' on everything.

As far as rehabs I almost hire everything out. This is something that can be shopped. I have multiple contractors that have done work for us for every type of work. Some things I do myself depending on timing like; flooring, painting, drywall.

I'm a spreadsheet nut, the main thing is return on cash, for me anyway, COC. The landlording is a byproduct. Its like paying a high load on mutual fund when you can buy the same fund for no load. I'm 3rd generation landlording so it's always been a 'way of life'

Thanks for everyones input

Some PMs would of beent there that night. Us on the other hand, unless its a flood, we're not coming. Happy owners means more business. Our brokerage is the largest in Ohio. We have a large commercial division, large residential, large PM, and have mortgage affiliates, home warranty affiliates on and on, last thing we need is our name being soured over a leaky water heater trying to squeeze an owner for an extra couple of $$

Originally posted by Ryan Moseley:
Don't get me wrong we hire things out a lot but I prefer to make the call. I prefer to take the calls first, for example, I had a tenant call a few days ago after 10 p.m.. They said there is water leaking, through talking I was able to determine it was the water heater had them shut the inlet valve and put a pan there to collect the water. I went over there the next morning and found the TP valve leaking. Swapped it out with one I keep in my vehicle. I would be afraid to see the bill from a PM for that. There would have been a plumber there that night. Most tenant calls are quick fixes and I encourage tenants to call no matter what the problem is. That way I can 'check up' on everything.

As far as rehabs I almost hire everything out. This is something that can be shopped. I have multiple contractors that have done work for us for every type of work. Some things I do myself depending on timing like; flooring, painting, drywall.

I'm a spreadsheet nut, the main thing is return on cash, for me anyway, COC. The landlording is a byproduct. Its like paying a high load on mutual fund when you can buy the same fund for no load. I'm 3rd generation landlording so it's always been a 'way of life'

Thanks for everyones input

You are a real estate guy... not everybody is. There are plenty of RE investors that are doctors, dentists, Lawyers, etc that make $300+ per hour so for them to make a repair it would add $600 in opportunity costs on top of whatever the repair ends up costing.

Originally posted by Joe Bertolino:
There are plenty of RE investors that are doctors, dentists, Lawyers, etc that make $300+ per hour so for them to make a repair it would add $600 in opportunity costs on top of whatever the repair ends up costing.

Good point, Joe...

Also remember, there are plenty of full-time real estate investors who make that much (or nearly that much) money as well -- I can promise you that none of them take calls from tenants or fix toilets. That's my point...

The gist of what I'm getting from you is you just don't trust hiring a PM. Why not give them one of your crappier properties and see how it goes. Find out exactly how they get paid. There are only a few different business models for PM companies. Go to your local REIA and ask around and see who uses who. Assuming the people you're talking to REIA know what they are doing, that should limit your list to a pretty solid group. Pick your favorite from there and give them a property or two to see how it goes.

For those of us in California who do not want to risk putting another penny into real estate here, it allows us to own properties in other states.

2 main mistakes I see over and over with purchasers and property management.

1.They buy a house either local or remote and put a manager in.With houses you run into this more than apartment complexes.You get brokers and agents that do management on the side to regular sales.They cut you A DEAL the turns out to be a nightmare.

As soon as a sale comes along they drop watching your property for the small fee like a ton of bricks.Example you buy a 40k house for 500 rent and management gets 50 bucks a month at 10% of gross.

I can't tell you how many calls I get when they use an inexperienced broker/agent to handle management to shave 1 or 2 %.Then when they get a bad tenant in they are hurting from their mistake.

A full time manager has systems and checks in place to run it right.

Just think about J Scott for example.Somebody that flips full time and has systems in place to have a positive outcome every time and minimize risk versus an occasional flipper that might do one a year and is winging it.

The occasional flipper who was working for you or with you versus J Scott has the potential to make more mistakes.So you have to focus on what you get for what you are paying instead of just "this appears to be the cheapest!".

This brings me to point number 2

2.Buyers tell themselves when buying "I will manage this myself so do not need to include that cost in my buying decision or projections." FALSE !!

You hope for the best but plan for the worst.You run numbers based on having 10% management,other fees,etc.Then after you try management if you like it great but if not you budgeted in the beginning for management.

What is see instead is buyers do not budget for it when buying and afterwords try to strike a deal with someone because cash flow after debt service is tight.That's when the nightmare begins folks.

_________________________________________________
As far as managing yourself it cost you time to do that.People can usually self manage up to about 20 units for apartments.Anything past that it starts getting out of control.10 units is manageable for most.It depends on the location and class of building also.The tenant base the more you go into rougher or low income areas the more problems.The tenants tend to be more uneducated,have more problems,and income is more volatile and turnover causes much more intense management.

Some are really nice but it's almost like managing children in some cases as they have a hard time balancing budgets,understanding things,etc.

I find buyers fall into mainly 2 categories.They usually are trying to grow as much cash as possible and manage themselves as this is their first few properties OR they are a seasoned buyer who wants tax depreciation and cash flow and owns many properties and always uses management.

Some buyer such as doctors and lawyers etc. make hundreds of thousands a year with their jobs and only use management.

I use a PM company to manage all of my properties and it's worked well for me. I invest in Real Estate on the side from my day job and I'd rather not spend spare time managing property (opportunity cost). I think Joe Delia had a good suggestion by giving a PM one of your properties for awhile to see how they do. I did something similar and after watching them do a good job I continued giving them more. What time I do spend on real estate is mostly towards acquiring more and doing analysis on current properties so I can make better buying decisions in the future. My job requires frequent travel/reassignment and I now feel very comfortable leaving it in their hands for extended periods of time. Similar to Arthur, I do walkthroughs occasionally. By the way, this is an excellent forum. I recently stumbled across it, wish I'd found it earlier.

I have one good reason to have your properties managed for you, albeit one that is probably not common. I've been deployed/redeployed from Afghanistan 4 times in the past 3 years. For people involved in a similar industry- military, DOD, contractor -it can be a serious time-sink trying to organize a method of still collecting rent, screening tenants, etc... when you have to be on the next plane smoking. My PMs collect 10% of gross rents, but I build in the cost to my deal analysis because I know it is worth it for the peace of mind.

I didn't want to pay for property management either. Then just before a 3 week trip to Europe a house became vacant. I knew I couldn't properly handle it myself and turned it over to a manager.

I never looked back. Sure he doesn't care as much as I do. He also does not have the same motivation. He also costs me money.

But, the freedom I bought was well worth the extra expense.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here