Why Self Managing Investment Properties is CRAZY

Marcus Johnson

Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes

6y

@Ruth Blue

Are you sure property managers do a better job? If you are saying that to be true, then does your property manager use proactive measures or reactive measures when there is a problem. For example I inspect my property at least once every three months. The reason being is I notice things such as furnace filters not getting changed, which can result in a failure of the unit. Another example would be tenants who doesnt report things such as a dripping galvanized waterline, which could cause a flood in the basement. or a coaxial cable that’s been wired from the street to the housing unit and it’s laying on the grass and partially in the tree. Or some wood that’s rotting on the side of the house, which could result in mice penetrating the interior lay nest chewing on the wood and pooping all over the house. What a property manager would do is after the mice have already penetrate in the house and pooped in the walls were all over the floor and chewed on the wood in the house, then they would hire an exterminator. The damage is already been done and the property manager was reactive. I could go on and on and on. .

Bruce Runn

Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes

6y

@Todd Powell

Between my daughters/me we have 20 buildings/50 units and I use the 4 mile generously. 16 of our buildings are within 2 mile radius and 4 of them are 4 miles away in another wonderful neighborhood so we drill into areas we know intimately. We never go outside the 4 mile radius.

@Julie Marquez

My daughters are 28 (owns 2 places) and 31 (owns 6 places). I taught, they learned/saved $/bought on their own. As they say- girl power!

4 Reply

Thomas Greer

Real Estate Consultant · Member since 2020 · 80 posts · 102 votes

6y

Everyone has to position their themselves according to their value add and comparative advantages. What is the marginal return of YOUR efforts?

Some people are good at self-management. Some are bad. Some are just better at other aspects of real estate. Where are you eking out value? How are you "positioning" yourself. IF someone gave you 1mm (or 10k, or 100mm or whatever) how would you sell your differentiation in the market? This is the "mental exercise" I often do to determine where I should spend my time. I try to focus my energies on those things that I feel I do well and get the most bang for the buck.

For me that is not PM. But for others...their value-add proposition is just that - "I can buy an asset at X and through superior management obtain better quality tenants, with less hassle and consistently bump rents while keeping costs down".

Or..or...that's all an excuse and I'm just lazy. We all have limitations of time & energy.

Jill F.

Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes

6y

Originally posted by @Dave Poeppelmeier:

@Jill F. I meant jumping straight into hiring property management. I completely agree with everything you said.

Oh, I'm sorry! I misunderstood!

Jay Helms

Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes

6y

@Joey Copper - kudos and 10000000000% agree!

Michael Zagorsky

Tucson, AZ · Member since 2015 · 56 posts · 15 votes

6y

So like any good post that speaks in absolutes, the right answer is of course ‘it depends’. Anyone who says that there is only one way is looking for eyeballs and post engagement above all else.

It depends!

So let’s go with a simple example. Let’s say you built new construction in a class A neighborhood and put in a working professional.. Explain to me what exact value a property management company is bringing to the party?

Let’s put it a different way, property management directly lowers the return you get on a property. The question is whether you really have a ton of opportunities to maximize your return in other ways. But let’s do a quick and dirty example:

With Property Management:

Amount	Category	Percentage
$ 100,000.00	Price of Home
$ 25,000.00	Down Payment
5%	Interest Rate
$ 12,000.00	Annual Rent
$ 800.00	Taxes
$ 1,000.00	Insurance
$ 960.00	Vacancy Allowance	8%
$ 1,200.00	Maintenance Allowance	10%
$ 1,440.00	Prop Management	12%
$ 5,400.00	Total expenses
$ 6,600.00	NOI
6.60%	Cap Rate

$ 4,824.00	Mortgage Payment Annual
$ 1,776.00	Cash Return
7.10%	Cash on cash return

Self-Manage:

Amount	Category	Percentage
$ 100,000.00	Price of Home
$ 25,000.00	Down Payment
5%	Interest Rate
$ 12,000.00	Annual Rent
$ 800.00	Taxes
$ 1,000.00	Insurance
$ 960.00	Vacancy Allowance	8%
$ 1,200.00	Maintenance Allowance	10%
$ -	Prop Management	0%
$ 3,960.00	Total expenses
$ 8,040.00	NOI
8.04%	Cap Rate

$ 4,824.00	Mortgage Payment Annual
$ 3,216.00	Cash Return
12.86%	Cash on cash return

Increase in Cap Rate	21.8182%
Increase in Cash on Cash	81%

So there you go. If you have other ways that increase your CAP rate by 21% or your cash-on-cash by 81%, go ahead. I assumed 12% management fee to account for new tenant placement fees.

But let’s go down the list of why you should consider property management and what property management brings to the party:

Tenant placement: We’ve had a real estate agent list and show our property in the past for one month of rent. BP also has a good book on how to do tenant showing and picking the right tenant. A weekend of work for saving one month of rent: Sounds like a fair trade off.
Maintenance: Put these words in your lease “Tenant is responsible for all maintenance items less than $50”. You also know, if you have a handy man you like, you can offer to put them on retainer (Maybe $20/month per property) and have the tenant call them direct. I know another investor that does this and self manages a few out of state rentals.

All that to say, in our time owning an investment property (we are in the process of selling and getting out of real estate for the time being) we never had a stupid simple maintenance item—they were always BIG items. AC broken, water leaks, floor rotting. Each of these costing thousands of dollars to repair--- In each case our property management company was not on our side. They gave us the first bid they got and didn’t bother to try and save us money.

Want to save a ton of money with property management--Learn this question: “How many bids did you get?”

Michael G.

Rental Property Investor · Brooklyn, NY · Member since 2013 · 272 posts · 165 votes

6y

Most Property Managers are HORRIBLE. They just do the bare minimum crappy job possible to get by. They also don't look at the big-picture. They would rather do 25 fixing of cracks in the dam, rather than replace the entire dam, IF the 25 repairs were faster, easier & made their PM company more money (rather than what was best for the Property itself).

Hence, the reason why so many are reluctant to use outside PMs

Mano Yeghikian

Rental Property Investor · Los Angeles, CA · Member since 2020 · 6 posts · 2 votes

6y

@Bruce Runn it all depends on your situation. But I agree you want to put in ur all and manage ur properties yourself. You can save a lot of money. As for myself I have managers because I run a huge car company that I need to manage. Hope the future bring me more.

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

6y

@Jay Hinrichs I would love to hear your thoughts on investors who vertically integrate. Did you see anyone that has in sourced instead of outsourcing? I am studying some local investors here in Chicago who have built up portfolios of 250-1000 units and they keep the PM in house. It definitely is self managing for the first 75-100 units, but with the goal of hiring someone else to do the grunt work. Thoughts?

Dale Lotts

Rental Property Investor · Lakewood, OH · Member since 2016 · 73 posts · 32 votes

6y

I self manage and my "To Do" list blows yours out of the water. I have a very high degree of automation and consistently hear that my rental units are the nicest people have ever seen - this includes real estate pros and people who have rentals.

Oh, and a 30-day turnover? You have to be kidding. Unless you're doing some significant renovation a turnover shouldn't leave a single day unrented. For example, the current tenant moves out by 11:00 am on 31st and the new tenant moves in at 2:00 pm on the 1st - I would fire any property manager that doesn't do turnovers this quick.

Shane Ussery

Member since 2020 · 71 posts · 72 votes

6y

Ok I haven’t read one post that explains the theory on whatever works for you. I’m going to break this down and show you the psychology here. What seperates a Billionaire from a Begger? Is it the Begger who’s less of a human being because they beg? No the Nucleus of it all is Awareness. The Billionaire is Aware on how to be a Billionaire the Begger is Aware how to beg. Now, could it be argued the Begger if they had their choice would they beg? Possibly? Could it be argued that they both have 24 hours in a day but it’s what they choose to do with their time that makes the difference? Absolutely! So who’s right or wrong the Investor that finds deals and subs everything out or the investor that finds deals and does all the work? Success is defined as the progressive realization of a worthy ideal... so if someone sets out finds deals fixes them up and manages themselves that makes them successful in their right. If their not doing a predetermined goal deliberately then their a failure.. if you’re doing that and that’s you’re predetermined goal you’re a success. Point I said people have listed their way in a time like thieves we need to get back to the basics and if we look hard enough we will find we as a Country’s have bigger issues on the table.

Julie MarquezPro Member

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

6y

@Bruce Runn That warms my heart, because everything I have I learned directly from my dad. He was also a strong believer in the 4/2 mile rule. It makes it easy to cart around my tools from garage shop to building to building just across the street. I love the family aspect of this business and I'm excited to teach it all to my son and daughter.

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ 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.

We've always been in bucket 1 although I'll admit I was bucket 3 at first w/ a twist. On my first multifamily I was self managing but tenants didn't know who I was. Started a PM company, plated the building in that management company name and all payments went to the company. I even lived in the buildng but at as far as the tenants were concerned I was just another tenant. I did not do any work myself. Everything was hired out.

312-681-7487

Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

6y

In my opinion, managing your own properties very efficiently for your first 10 units is important. If done really really well, you will know exactly what to look for in a property management company.

Chris Spespy

Member since 2019 · 18 posts · 4 votes

6y

@Joey Copper your statement oy works for large scale investors and those with large cash flow. What about investors whose spouse run the property(ies) so they can enjoy the tax deduction from being a "RE professional"?

Account Closed

Developer · Maplewood, NJ · Member since 2019 · 56 posts · 30 votes

6y

I disagree with the post. Property managers don't truly care about the property, they don't normally handle the tenants with the respect they deserve, and most importantly they don't make decisions with the long term in mind. I would much rather replace the toilet then fix it over and over, or make sure I am responding to each issue with what is best for me in the long run. The plumbers and electricians that are used by property managers are typically overpriced and not reliable, and cause more harm in the long run.

I have 12 tenants and only get a few calls per year because of the relationship I have with them, the tenants I select, and the shape that my properties are in. Property Managers I have worked with never seemed to do the right thing when an issue came up.

Don Lewis

Investor · Fallbrook, CA · Member since 2012 · 2 posts · 1 vote

6y

Why would I ever need a property manager? Just find a good handyman and pay them well to put you to the front of their list of preferred customers. My tenants prefer me to take care of their needs quickly, unlike where they have previously had poor response from managed properties. I must be doing something right because I have very low turnover.

Karen Chaudiere

Kingston, WA · Member since 2018 · 4 posts · 0 votes

6y

I totally agree with hiring professional management. I self managed (poorly) 2 properties for over a decade. Of course the tenants didn't move or have issues - they kept the property very well maintained - because I didn't raise the rent and now am way below market. So NOW I have a property manager to handle the "tough conversations" about raising the rent as well as all the other issues. I am learning a lot from my property manager so I think of the fees as "tuition" to property management education for a potential future when I obtain more properties and can start off better.

Phillip Maness

Investor · Thousand Oaks, CA · Member since 2017 · 2 posts · 2 votes

6y

If I had lots of units, yes. A PM might become necessary, but emergency maintenance requests 2 DAYS? That's terrible! 8% vacancy? Unacceptable as well. That's a month a year per unit! At two days response time for a hot problem, no wonder! I have almost zero turnover, and hot issues get dealt with immediately, I'll have someone there that day. I think I'll stick with my way of doing things.

Ricardo A Perez

Hollywood Florida · Member since 2019 · 89 posts · 46 votes

6y

@ Joey Copper thank you for the article as a new investor i am still trying to determine my business model. I would like to start by managing my property's myself and create processes and systems that work for me before hiring a property manager that share the same vision and can follow my blue print. I see some post bashing property managers and how "its a waste of money" and "they don't take care of your property's" i would be naive to say that there is no truth in what they are saying but, i have to believe that there are good property managers out there. Again thank for your post and opinion.

Christopher Scott

Member since 2019 · 6 posts · 2 votes

6y

"...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..."

If you didn't know about this stuff and/or weren't interested in doing any of this, why were you in the landlording business to begin with? Some of this stuff is automatic (pet fees, are they paid separately from rent?) or easy to put on a recurring schedule with a reputable handyman or contractor (gutters cleaned) or something most landlords want to do (move in/out inspections). After reading some of the other comments I agree, sounds like a sales pitch.

[email protected]917-647-8840

Joel KriegerBusiness Member

Real Estate Broker · Allentown, PA · Member since 2016 · 4 posts · 1 vote

6y

For those that plan on self managing, be aware that the learning curve and technology training will require a significant time investment that is going to be steep. But it could be worth it if you have the time and patience to master all of the essential elements that go into management--maintenance, rent collection, leasing, and general business administration. If you absolutely master these skillsets you can self manage and find ways to minimize the stress and the chaos of day to day management. But if you're only planning to go halfway and not give it 100% then you're better off hiring a professional manager. If you do hire a 3rd party property manager, make sure to check accreditations (IREM ARM/CPM) and get references.

Lehigh Valley 4 Rent4.69 Reviews

Website View Page