Why Self Managing Investment Properties is CRAZY

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

6y

I have done both and each has their pros and cons. The true cost of 3rd party management is higher maintenance and vacancy costs. I can fill a unit much faster than a 3rd party PM...and my contractors are less expensive. But, my time is more important right now.

In the case of property management, it's not one size fits all.

8 Reply

Doug Pintarch

Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes

6y

We have managed our Short Term vacation rental from 3 hours away for the past 2 years, and just picked up a second one in March (Yes, mid-covid!!). At $120 - 140 each turn for cleaners that aren't going to clean it like we will would have cost us over $6000 last year. That's ALL cash flow we'd rather keep, and we get a Sunday at the beach every weekend (short walks or lunch, but it still counts) :)

Nice post, but the hard-yet-still-subtle sales pitch doesn't work on me. MY money, brother. :)

4 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

6y

Originally posted by @Bruce Runn:

@Joey Copper

No one will care about my property/cash flow as much as me.

This is the mind-set that keeps my company growing! The majority of owners I pick up are the DIY type that think they're smart by doing things themselves and saving money. They avoid paying 10% but they lose a lot more than that by not keeping up on market rates, longer vacancies, lower-quality tenants, rougher turnover, unpaid rent, etc.

I share examples all the time. Woman bought five properties and managed them herself for five years. Between vacancies, damages, and unpaid rent, I estimate it cost her close to $100,000 in that five-year period. If she had hired me, it would have cost her $6,000. When she did hire me, I evicted every single one of her tenants, I spent thousands renovating each unit, I bumped rent 25 - 50%, I placed good tenants, and last year she made almost double what she's made in any other year AFTER paying my fees.

No property manager is going to drive by the property once a week or pull weeds from the sidewalk every time they drive by. It's unlikely the property manager will remember every detail about your home as well as you because they have other things to think about. But there are many things a PM can do that private Landlords can't and it shows in my clients' bottom line.

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7 Reply

Curtis Mears

Property Manager · Raleigh, NC · Member since 2014 · 728 posts · 596 votes

6y

@Joey Copper

For some, having a property management company may work. But, I have never skimped on repairs for tenants, taken more than 24 hours to get back with tenant on anything, accepted subpar tenant just to make it easy on myself, charged tenant or owner for 5 minutes worth of work, etc. The list goes on.

This is why I self manage. No management company will care for my property or my tenants more than I do.

I will use a management company some day, once I am retired, or dead.

1 Reply

Doug Pintarch

Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes

6y

Originally posted by @Nathan Gesner:

Originally posted by @Bruce Runn:

@Joey Copper

No one will care about my property/cash flow as much as me.

This is the mind-set that keeps my company growing! The majority of owners I pick up are the DIY type that think they're smart by doing things themselves and saving money. They avoid paying 10% but they lose a lot more than that by not keeping up on market rates, longer vacancies, lower-quality tenants, rougher turnover, unpaid rent, etc.

I share examples all the time. Woman bought five properties and managed them herself for five years. Between vacancies, damages, and unpaid rent, I estimate it cost her close to $100,000 in that five-year period. If she had hired me, it would have cost her $6,000. When she did hire me, I evicted every single one of her tenants, I spent thousands renovating each unit, I bumped rent 25 - 50%, I placed good tenants, and last year she made almost double what she's made in any other year AFTER paying my fees.

No property manager is going to drive by the property once a week or pull weeds from the sidewalk every time they drive by. It's unlikely the property manager will remember every detail about your home as well as you because they have other things to think about. But there are many things a PM can do that private Landlords can't and it shows in my clients' bottom line.

Nathan - This post is in my opinion the single best argument for a Professional PM. We have 2 condo's so there is nothing "Outside" that we need to worry about, just interior maintenance and supplies and cleaning. Our plan with these 2 is a pro cleaner each week on a different unit, that way we still clean every week and see in side our units every other week ourselves. This will be during the summer season (If there still is one this year...).

After our 3rd STR condo we are figuring on a cleaner full-time.

Great post!

1 Reply

Jeffery Rayome

Houston, TX · Member since 2019 · 9 posts · 8 votes

6y

@Joey Copper

This is my first post on BP so please be gentle. I have been researching for about six months, and am planning to take the plunge into buy and hold by June 2021. So admittedly I do not have hands on experience.

I found your article very interesting, and a counter to my own beliefs. I plan on creating my own management company to compliment my buy and hold company. I have decided to do this for one simple reason. Management companies in my experience suck. They are very limited at keeping tenants happy and don’t care about a thing other than collecting rent on time. I have been a renter for over 14 years now, and the story is the same with every management company I have dealt with. You can’t get a hold of them unless they are trying to collect rent. You email them it takes a week to get any response back. They flat out don’t care about you as a tenant. The only rental home I was happy with was one that I rented directly through the landlord. I can go on and on about the troubles I’ve had as a tenant with management companies.

So, due to our past experiences when my wife and I decided to go into this journey we knew that was something we wanted to change for other people. Call me green. Call me naive. I have however seen other people’s response to this post in the same way. A hired management company cares only about the numbers. I as a landlord care about my property and the numbers. Therefore I care about the tenants I put in my properties. No one else is more qualified to take care of your properties than the person that has all the risk, blood, sweat, and tears into them.

Who knows I may get five houses into my journey and discover that I am wrong. I do however love reading all the different view points on this subject! Thank you everyone for the insight.

8 Reply

Hunter Vigneault

Real Estate Agent · Boca Raton, FL · Member since 2015 · 74 posts · 57 votes

6y

Personally, I prefer to use a property manager. I have self managed as a house hacker of a duplex and later as a more traditional landlord when I moved out of the property into another house. I've since moved out of that house (SFH) and switched to using a property manager. I will say that he has been good. If we are starting with the assumption that any property manager we are discussing is a bad one, then I suspect it would never make sense to hire one.

While I acknowledge that I am "leaving money on the table" by using a manager, I greatly prefer the emotional distance it allows me between the property/tenant and myself. Like anyone's answer here, it is a personal decision, but I like to have the distance to make a logical decision and have my property manager implement it. Again, you need to trust that they will do it competently. I likely win fewer deals because I need to get to my desired cash return while factoring in the PM fees.

I am a commercial real estate agent. Anyone can sell their own property, but one of the benefits I feel I offer an owner is being able to be the rational and locally informed go between in what can be an emotional transaction (yes, even in commercial transactions. I once made a multi-million dollar unsolicited offer on behalf of a client to a seller that said he would consider an offer, but didn't want to give any pricing guidance because he felt he would tip his hand. I got a screaming phone call from him because he felt we had insulted him. He is the kind of person that should probably use an agent.)

3 Reply

Jim Chuong

Rental Property Investor · Toronto, Canada · Member since 2012 · 102 posts · 95 votes

6y

Completely agree with OP. Self managing is a crazy. As a Canadian, if I wanted to self manage I wouldn't have been able to buy US properties during the credit crisis.

1 Reply

Brian Ploszay

Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes

6y

If I did not bring my management "in house," I would have significant financial leakage. I've tried it and then removed property managers before. I've had conversations with numerous property owners who also subscribe to creating their own management platform. I think the advice given was simply dangerous. If you do use management, carefully find someone who will pay the right attention to your properties and "manage" on top of them, to some extent. Always visit your properties - don't become an absentee landlord.

5 Reply

Roy N.Pro Member

Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes

6y

Originally posted by @Mike Dymski:

I have done both and each has their pros and cons. The true cost of 3rd party management is higher maintenance and vacancy costs. I can fill a unit much faster than a 3rd party PM...and my contractors are less expensive. But, my time is more important right now.

In the case of property management, it's not one size fits all.

I'd like to expand on Mike's cost of third-party management. Not only is there more maintenance and turnover, the quality of the repairs and improvements to the property tend to be inferior. When filling a vacancy, the screening tends to be weaker as well.

2 Reply

Stone Jin

Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes

6y

@Joey Copper

I guess I would be a hybrid. We self manage both locally and out of state, however also use the service of 2 property managers in markets that I did not want to manage.

I self manage probably 10 x the number of doors as I have outsourced. My opinion is that good PM is worth the price. One market I pay 13% to the PM, she's awesome, so I'm happy to pay. Another market I pay 10%, he's okay but I'm considering taking those properties back over as I self manage in that market now. The number of hours day to day is minimal, most of my time spent on property management is during acquisitions and turns. The maintenance is easy as I outsource all of it, tenant texts me, I text a specialist and they send me a bill.

The amount of money I earn by acting as the PM can afford me a new car every 6 months, though I still drive my used 2005 Nissan Titan :)

1 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

Originally posted by @Joey Copper:

One funny thing about people is that while we are almost always well intentioned, we seem to do a lot of things that are just plain crazy. I, for example, still prefer to eat my oranges by dissecting each into their individual wedges, peeling back the skin on each wedge, and delicately crumbling each skinned wedge into the tiny teardrop pods that make up an orange. Is it crazy? I already know the answer, but, I'll probably still eat my next orange this way.

Here is another example that I was luckily able to break free from - self managing my rental portfolio. Now that I'm on the flip side of this crazy behavior I want to lay out why this is crazier than my orange dissection ritual.

To begin to frame things, investors can be categorized into three buckets:

Bucket #1 - Those that hire a professional property management company

Bucket #2 - Those that self manage and love doing the work

Bucket #3 - Those that self manage and don't love the work

For those of you in Bucket #1 - Congratulations! I'm guessing you will run the world someday.

For those of you in Bucket #2 - Really? Do you LOVE doing this work? Could it really be that you LOVE complete control instead? If you are sure that it's not a control issue or trust issue then by all means, manage away! I suspect this group is pretty small.

For those of you in Bucket #3 - I'm writing this article for you. Why? Because I used to be you! I didn't hate managing my properties (outside of a few late evening maintenance calls), but I definitely did not enjoy managing them either. I convinced myself that it was worthwhile because I was saving money doing it myself. And heck - I was even fairly qualified for the work. I could do most of the maintenance, I could turn a property in a few months time, and most tenants paid on time. The basic tasks were getting completed. So what's so CRAZY about this? Let me rephrase the reality of the situation...

The basic tasks were getting completed ------> Only the most basic of tasks were eventually getting completed.

If we break down the more realistic statement we can see exactly why this behavior is CRAZY.

"Only the most basic tasks"

I thought that completing maintenance requests, filling the property with tenants that passed a background check, and keeping an excel-based tenant ledger were enough. This list "checked the box" in my mind but didn't even begin to address the components of a successful rental portfolio. As a basic comparison, the below list is what I expect from my professional management company.

Basic maintenance requests completed within 5 days, emergency maintenance requests completed within 2 days, preventative maintenance work twice a year, tenant-caused maintenance billed back to tenant, periodic inspections to make sure that the tenant is reporting necessary maintenance items, late fees collected, immediate 30 day notices posted, pet fees monitored and collected, move in inspections, move out inspections, move out damages charged to tenant, advanced notice on capital repair items, 30 day move out notices communicated, pre-leasing of property, tenant stay incentives, gutters cleaned, annual rent rate analysis, turns completed in 30 days, background checks on all occupants over 18, prior landlord references, co-signers on leases, direct deposit funds, monthly summary statements, online vacancy postings, post-eviction collections...

That in a nutshell is the different between managing a property and managing a property well.

"were eventually getting completed"

Time is money. Just think for a second how much money is generated from decreasing vacancy rates from 15% to 8%. This alone will pay for professional management fees. How much money is going to be saved over time from having gutters clean out? How much better is tenant satisfaction (and average duration) if they get clear and immediate response to their maintenance requests? The benefits of timeliness are as real as the cash in your wallet. Every time you delay your property management responsibilities you are deteriorating your investment returns.

This is my best attempt to logically coerce you away from this CRAZY behavior. If you are not already convinced to the point of taking action then I will try one last plea to your emotional side. Please, set aside your reservations, open up an additional browser tab, and begin researching for the best management company in your area. Your future self will embrace you with a warm hug.

Preach brother PREACH!!!! This is a top 3 mistake investors make, not learning this education soon enough.

I will add there is a 4th class - those who THINK they are saving oh-so-much money by attempting self-management. I see several of these persons have chimed in on this post already, arguing their failed point's with the same failed premise's. To those:

First point, if your making next to no $ AFTER paying for property management that means you bought wrong, it's a failing in paying too much NOT anything to do with PM.

Next, PM has direct financial incentive to assure your best performance; they only make $ on tenant placement once a tenant is placed so obviously the goal is to best and quickest place a tenant. Next, often PM bills on a % of rents so PM wants maximum rents while getting best tenant because the more hassles = more costs for them. I can go on and on but it's very obvious how PM only earns when the investor earns.

And the funniest one I hear is how PM is "easy", that anyone can do it, that PM dosn't bring anything special at all (LMAO). This is about as true as saying a DR does nothing, anyone can just look up webmd, why waste the $ on a Surgeon everyone has knives at home..... and with similar results.

I have shared this before but to recap, the PM team I work with markets available units on 84 listing sites, EIGHTY FOUR, self-managing is hard-pressed to get 8 listing sites running, the obvious value is mass exposure which = more $ and shorter vacancy. Next, it is literally all PM does day in and day out, and generally speaking they get damn good at it. They have connections with inspectors and various agencies that the self-managers will never achieve. PM is also constantly on top of all regulation changes and all paperwork details, all. So like when COVID-19 happened, my PM team had direction for all investors 2 weeks before the state had any direction, and has consistently been ahead of the ball on every step, because thats literally there job.

So, let me understand this, the argument is that all of that above, is oh-so-expensive at $100 per month? For less than the average cable bill? If that is your investing style, than I say good luck, as this reminds me more of the person who collects every soda can they see screaming "that's money, can't believe people just throw money away", yeah, all your's buddy, have at it.

4 Reply

Shiva Bhaskar

Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes

6y

Depends heavily on the type of property, and how much you own. A single family rental within 45 minutes of where you live, or even something which is 3 or 4 units, I think you're probably wasting money in hiring a PM, UNLESS you have a serious aversion to dealing with tenants, or don't think that you can do it well.

On the other hand, if you own 20 doors nearby (whether 20 singles or one 20 unit building), considering a PM probably makes sense. If you've grown to 20 doors, you could grow to 20 more (or many more) if you put your time to better use. If you own anything more than perhaps an hour away, I think hiring a local PM makes sense.

1 Reply

Todd Powell

Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes

6y

@Joey Copper how many doors do you own?

For me, I manage my 16 doors and there are some reasons, even though you would classify me in BUCKET #2. I have zero vacancies, and I realize some will challenge me on this, and why I want control to manage. I do not have vacancies except merely days between change overs for cleaning, shampoo, and any paint touch ups, etc

I also screen and check social media to get an idea who I am dealing with. Right now I am booking for June 30th turn overs, and keep in mind, I have a large college campus close properties on 3 universities in Oregon. My tenants like and respect me, and I get things done, although I never personally do the repairs. I text my workers promptly and get it done fast. I would challenge any PM on their abilities to run it smoother and avoiding my vacancies, not to mention I get a higher quality tenant than most companies take. A few buildings I bought and turned around, I gave 60 day notices (when no causes were legal), and gave some bad tenants to “great” local PM companies. They made exceptions I would not so they could fill units for their clients. I save money, and and also headaches from having poor quality tenants that could cause me more money in damages. So, my question for you is, how many doors does my management style become too unbearable? At 22 doors, I found it exhausting, but with 16 it seems okay given screening, rent collections, managing repairs, and turn arounds is what I do. I cannot hand over my years of hard work to a PM only to be disappointed. Of course, our 72 unit building we have a professional company handle this and when you scale up to a certain point this would be imperative. I just cant give up control on my smaller properties.

4 Reply

John Edwards

Rental Property Investor · Topeka, KS · Member since 2017 · 56 posts · 137 votes

6y

@Jim K. I hate chocolate.

1 Reply

John Edwards

Rental Property Investor · Topeka, KS · Member since 2017 · 56 posts · 137 votes

6y

@Ruth Blue are you related to Ron and Wendell?

0 Reply

John Edwards

Rental Property Investor · Topeka, KS · Member since 2017 · 56 posts · 137 votes

6y

@Joey Copper I’m in bucket 2 because I love customer service and problem solving.

0 Reply

Todd Powell

Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes

6y

@Joey Copper correction, I am BUCKET #3.

0 Reply

Greg M.

Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes

6y

The more posts I read from PMs, the more I think I should rank their trustworthiness somewhere below a used car salesman, but just slightly above the Indian guy who calls me claiming to be from Microsoft.

7 Reply

Todd Powell

Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes

6y

@Nathan G. You are probably the exception, and so am I as the owner and PM. No one in Corvallis, Or could run my RE business better than I do. That is the honest truth, but also I hustle more than the average RE investor, and its the same way when I flip properties. You have poor, good, and great. Greatness is the only option for me, and I realize their are countless POOR investors out there.

2 Reply

Jonah FreedmanPro Member

Rental Property Investor · Ithaca, NY · Member since 2016 · 8 posts · 10 votes

6y

I agree that it is important to outsources as much as possible. Though I think to many people think it has to be I do everything or I hire a property managment company. I prefer to self manage but do as little of the work myself as possible. If I hired a property manager it would cost me 60k+ a year + all the markups for repairs etc. I use a virtual assistent in the philipines that I pay 6k a year and property management software that cost about $80 a month. I have a repair man who does other jobs but I give him about 50% of his work so he is always there for me. With all the help and utilizing tech I probably work about 10 hrs a week on the management side of the business. So I would say there are many ways to play this game.

3 Reply

Daniel B.

Rental Property Investor · Saint Louis, MO · Member since 2012 · 115 posts · 42 votes

6y

@Joey Copper

My local property management company sold out to a national chain. I started slowly turning some over just to test it property management while still self managing most. The national chain (renters warehouse) charges 10% for all repairs/maintenance work done on top of their monthly fee. Lots of motivation to keep repairs cost down (sarcasm). You think the contractor doesn’t build in this 10% into his bid? That $5,000 roof just went up 10%.....

It’s best to self manage as long as you can, no one cares about your properties like an owner. If you can build up enough to hire someone full time ...great. The difficulty is the in between stage where it takes up too much of your time you can’t focus on growth but there isn’t enough to do to hire an internal person...

0 Reply

Julie MarquezPro Member

Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes

6y

@Joey Copper I honestly love managing my rentals. I love working on properties, I love fixing them up and making sure everything is working and doing maintenance on them. I have my tools and my shop and I love tinkering around the apartments. I love my tenants and getting to know them and having real human interactions with the people who live in the buildings that I spend time fixing up. I can't imagine a better paying job than making great housing for great people.

I love learning the rental processes, laws and procedures that make up this business. I enjoy the other investors and landlords that I meet. I love that I can show an apartment to a potential tenant and tell him that I changed out that toilet. Maybe it's not the best use of my time, but why not hang out with my handsome husband for a couple hours and pay ourselves for the work? I do hire out the things I don't enjoy (like that clogged sink drain). I love that my apartments make me money, I love caring for the building and the people. It's a really fun job!

4 Reply

Alvin Sylvain

Los Angeles · Member since 2018 · 464 posts · 471 votes

6y

Originally posted by @Joey Copper:

For those of you in Bucket #2 - Really? Do you LOVE doing this work? Could it really be that you LOVE complete control instead? If you are sure that it's not a control issue or trust issue then by all means, manage away! I suspect this group is pretty small.

I think it's rather presumptuous to psychoanalyze people just because their tastes happen to differ from yours.

My Dad (may he rest in peace) loved fixing things. He had a garage full of various tools for that very purpose, which he called his "toys". Whether the water heater went out or the car stopped running, he was all over it. He'd be perfect for property management, plus, when he retired, he had plenty of time for it. You think perhaps he had "control issues"?

I'm a software developer by trade, and fortunately I love doing it. If I could write software to rehab houses, I'd be a real estate billionaire by now, loving every minute of it.

And to be honest, if you've got 50 doors and you're self-managing, I'd agree -- you're crazy. But not all of us are that far along. I self-managed my SFR, and really, it was a walk in the park. The house is in good repair, only had a couple of disasters to handle over 15 years, and the rest of the time it managed itself. I didn't even need to bug the tenants for rent. They paid on time, and when they didn't, they automatically included the late fee. Why am I going to pay somebody 10% of the rent just to pretty much sit on their butts all day?

"Control"? No. For small-timers like myself, self-managing isn't that big a deal and can easily be the more economical option. For others? Maybe not.

4 Reply

Mark Gauger

Member since 2018 · 34 posts · 54 votes

6y

Originally posted by @James Hamling:

Next, PM has direct financial incentive to assure your best performance; they only make $ on tenant placement once a tenant is placed so obviously the goal is to best and quickest place a tenant. Next, often PM bills on a % of rents so PM wants maximum rents while getting best tenant because the more hassles = more costs for them. I can go on and on but it's very obvious how PM only earns when the investor earns.

I'm sorry, but this is laughable. A PM's interest does somewhat align with the property owner's, but typical PM fee structures provide the PM incentives that are not at all aligned with the owner's. Earning a month's rent on a new tenant placement incentivizes a PM to turn units often, but vacancies and the necessary repairs/updates they bring are one of the biggest cash drains an owner faces. Picture two identical perfectly qualified applicants: one tells the PM they love the place and intend to stay for years, the other let's slip they'll be moving for a job change in one year. Do your trust your PM to choose tenant #1 when tenant #2 will mean they get another hefty paycheck in a year? Certainly there are great PM companies who would act in the owner's interest, but plenty exist that would not.

In regards to a PM wanting the best rent since they get a share, that doesn't always work out for the owner either. The difference between a $1200/mo unit and a $1300/mo unit can come down to marketing. What does the PM gain by busting butt on marketing? An extra $8/mo. What does the owner lose by the PM being average? $1104 a year. This one of the same problems with bad or average real estate agents, or possibly even great ones. They don't have the same incentive to get the best sale price as the owner. An extra 10 grand gets the selling agent less than $300 after the broker takes their share. The owner would pick up an extra $9400, but is the agent really going to go all out for that extra couple of hundred bucks before taxes? Or do they take the quick, lazy sale and then move onto the next?

Also as others have already pointed out, PMs certainly earn even when the investor does not. Late fees, surcharges on repairs, new tenant placement fees, and more all put money in the PMs pocket while costing the owner.

A PM could absolutely be the right move for some owners. @Nathan G. pointed out a great example. There are lots of bad self managers out there that are costing themselves far more than they would be paying a PM. However, there's also lots of bad PM companies and even great PM companies typically have fee structures that don't fully align with maximizing the owner's profit. As always with REI, research, evaluate, and make a correction if your current method isn't providing the results you expect.

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Why Self Managing Investment Properties is CRAZY

Why Self Managing Investment Properties is CRAZY

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