When to get a property manager

Question

One of my big concerns is what I DON'T know before buying my first property (every day is a day closer to freedom thru real estate).  I think about getting a property management company from the get go, before I even buy my first property. (Yes, I have a property management book on my que of books to read).

What I weigh is monthly expense of paying the PM vs NOT having one and possibly doing something that costs me a lot of money.

So here's my question for the group:  WHEN would you recommend getting a PM? From the get go, or wait until you are a few properties in?

Evan Polaski · Answer

@Kevin Paglia, I think Account Closed brings up a good point.  I have never had good luck with managers, so am a bit biased.

Are you hiring a property manager that is also doing leasing?  In my area standard management fee is 10% of gross, many want to keep all late fees collected, you get billed cost + % for any hired out labor, and leasing commissions cost 1 month rent, frequently the same for renewals.  Just the leasing commission and management fee 10%, you are already at 18.3% of gross revenue lost to them, not including any repair costs.

Similar to Sue, although not as extreme as the $249 light bulb, there were simply drywall repairs made that cost nearly $500 that I could have contracted out for $150-200.  I should have asked more questions before okaying it, but I was not expecting 2-3x the cost when I said just take care of it, which is why you want a manager in the first place.

So, from my perspective, it isn't that management isn't worth the cost, it is that I went through 4 from big to small companies and all were terrible.  But more so, when you really take into account the true costs, you will not be cash flow positive.  Between PITI, reserves, management and leasing commissions, I have not found a single family deal in years that cash flows with those pieces factored in.  Take out the reserves, management and leasing and you can find a lot of deals that hit 100-200/door, but then you bought a job versus an investment.

Kevin Paglia · Answer

@John Paras The timing for when to get a PM is more for the headache aspects of it.  Like others have said, I'm not getting into this to get another job.  Having a service that will find tenants for me, deal with the handyman issues and such sounds very appealing to me.  BUT I am also a control freak so I may ask for contact for every repair over $100 and repairs through PM (or me) authorized contractors are the only repairs that would be reimbursed.

I will have to look at the services offered and see how much I HAVE to have them do vs what i can do and contract out the rest for.

Michael Noto · Answer

@Kevin Paglia I would recommend purchasing a property and managing it for at least a little while so you can learn the business. It is very hard to know what to look for in a property manager if you have never done it before.

Kevin Paglia · Answer

@Ricardo R. Thank you.  the mowing the grass analogy is perfect.  If i was only looking at a couple properties then I might do it myself.  But I want many properties and a lot of doors. (I always aim high).  I don't want to be "mowing the lawn" on all these.

Guess it is time to start looking for a property management firm and start interviewing.

Ps.  I was born in Michigan and lived in Ortonville for the first 5 years of my life.  Still root for everything Michigan

Account Closed · Answer

Never.  PMs never only cost you the 10% or whatever monthly fee.  Look over a contract and all the possible extra fees and imagine the worst case scenario.  Like, can you afford it if they never tell you that the clause that says they don't have to contact you if the maintenance cost is under $250, but then they have their maintenance guy go out and change lightbulbs for $249 ten times in a month, without calling you until your reserve funds are gone?

A story similar to this happened to my daughter.  She's like, what???? The funds are gone?????  What???? Oh yeah, tenants wanted a lightbulb changed - $249.  Not kidding.  The tenants complained the breaker kept tripping, so they had their electrician friend put in a new breaker box to the tune of $249 something like 3 days in a row to get the job done.  All the tenant had to do was not plug so many things into the circuit at the same time.  Used to be my daughter's own residence.

They'll charge you a fee to start the contract, to find a bad tenant, to get rid of the tenant, to fire them....

Sorry for the very few decent PMs out there who don't rip people off.  But, this type of thing is rampant in PMs who take advantage of new investors.

Self manage.  At least until you know more than any PM you may think about hiring, and then write your own contract - is my advice to you.

Even long distance investing could be done, once you are really experienced and then you just find your own handyman, electrician, plumber, you can call when necessary.  Buy somewhere you wont' mind visiting, and go there in person when necessary.

John Paras · Answer

@Kevin Paglia

I agree. No harm looking into services you can handle on your own versus things you'd want them to handle for you. All the best in this endeavor of yours

John Paras · Answer

@Kevin Paglia

Hi Kevin,

If you can get them early, like in an advisory role, they can give great insights about potential problems with some of the properties you're considering.

Once you've settled in on a property, they can then step in as PM, which by this time becomes critical as you'd want them to maintain, or even enhance, the value of the property all while you're focused on the next purchase.

I'm curious to know why the timing is a factor for you. Is it a cash flow concern? I'd love to hear your thoughts and share more insights.

As a background, I worked as a PM for commercial and residential properties. Now focused on brokerage side of the business.

Cheers and stay safe,

John

Grayson Spittel · Answer

@Kevin Paglia

Hey Kevin - my personal suggestion is to use a PM from day one. (1) You might say that you’ll use a PM in the future once you get big enough, however, when analyzing and buying deals, if you do not account for PM fees from day one, there may not be enough cash flow to cover the addition later on. You could be in a position where you would have to decrease your cash flow below a target level ($100/door or $200/door) to have a PM involved. (2) if you’re interested in the Passive side of real estate investing, then a PM is the way to go. Otherwise you’re creating a new job for yourself.

All the best

Ricardo R. · Answer

@Kevin Paglia oh no kidding... small world! Well I hope you get it going and really screen your property managers.

Ricardo R. · Answer

@Kevin Paglia I'll try to simplify it at as a PM...

If you bought a house... when would you hire someone to mow your grass?

You could mow it yourself for a while before hiring a landscaping company or you could hire a landscaping company from the get go. It's not hard mowing grass heck anyone can do it, the pros do have better tools available but it's a job any can do nonetheless. You can go out and buy yourself all the tools necessary to maintain your lawn and then spend the time maintaining it. You don't mind it at first but eventually you may realize that you would rather be doing something else instead of repetitively mowing your grass and eventually you may start valuing your time more than you value the $40 your save per mow - which you eventually realize is really only $30 because you still have to pay for gas and tool repairs.  If you decided you no longer wanted to mow it yourself you can then hire a landscaping company which will do it faster, maybe not better but faster for sure and they will certainly mow it differently than you would but it will get done nonetheless and your grass will be taken cared of. Your tools will be retired and you may even wonder why you spent money on them in first place.

The decision for you personally to get a PM should be based on your goals and your value of time. Some, I'm sure as is always the case, will recommend you start by managing it yourself because then you'll learn how it's 'supposed' to be managed... which is really the equivalent of saying go work on your car so that you learn how a mechanic should fix it. I'm sorry but I don't want to be a mechanic and I don't want to spend time learning how to be one... I just want it done. I'm better off spending my time on learning how to find a good mechanic than trying to work on my car. Hope this helps.

When to get a property manager

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