Why Self Managing Investment Properties is CRAZY

Why Self Managing Investment Properties is CRAZY

Specialist · Wichita, KS · Member since 2020 · 7 posts · 48 votes

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. 

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Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
6y

@Joey Copper

I self manage.  Why would I "give" away 40-50% of my profits for someone to do what I can do very efficiently myself.  No one will care about my property/cash flow as much as me.  


I'm not saying property management is bad- it's just expensive.  It's great for some people and just an unneeded expense for others.  An example is-what does it cost a mgmt. company if the owner loses a month of rent because there is a vacancy?   Nothing-  What incentive does the owner have in renting it themselves to insure it gets rented-A LOT.   Who can tell a better story about a property- a management company with no financial stake or the owner who has their livelihood tied up in it?  


If I take an example of a small landlord with 5 duplex/triplexes and $20,000/month in rent.  At 8%, the management co takes $1600/month- That might be or 40-50% of their profit-I had a full time job and had 5 buildings.  

The post is more of a salesmanship post and does a good job trying to convince people they should hire a management company.  I'd advocate the best way to learn the business and optimize profit is to self manage.   

See this reply in the discussion

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  • Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    6y
    Originally posted by @Jared Stasch:

    Hiring a manager allows you more time to find more properties. My greatest deals come from self managed properties due to burnt out landlords who get too close to tenants and don't want to raise rents. I can tell you that the richest investors don't manage their own properties.

    It's usually a lack of funds that stops people from getting another property, not lack of time. I don't think there is anyone out there that says "If I only had that 2 extra hours a month I would have been able to find another place to buy." However, I bet there are a lot of people that say, "If I hadn't paid that useless property manager $20K last year I'd have enough funds to buy another place."

    And of course the richest investors don't manage their own properties. No one is saying that a person with thousands of properties should self-manage. There comes a point either from quantity of properties or distance from properties where it is impossible to self-manage. However, very few people own a large enough quantity of properties that they couldn't self-manage. Most landlords own under 5 properties and they are local. 

  • Investor · White Haven PA · Member since 2014 · 362 posts · 221 votes
    6y

    This is why I love BP.. I don't have to call out these self serving posts trying to masquerade as a public service announcement, because my fellow BP members have already done that.  OP, You own a property management company ! You need to disclosure that in the first line of your post. 

  • Member since 2020 · 11 posts · 9 votes
    6y

    Yep - I'm going to add to the list.  I have control issues and I am proud of it and that is what makes me a good property manager and investor.  My little business grows every year.  I learn something every year and, knock on wood, I buy something every year.  I get better at my purchases and I truly enjoy and value the vendors and residents that I work with.  I am not sure you should get into real estate investing if you don't like the property management portion of the business because you will have to deal with it at some point and generally that is going to because something unexpected and negative happens (the list of possibilities is endless).  Until that happens, if you aren't involved, you are probably leaving serious money on the table through management fees; but, as well as slow rental turns, unresolved tenant issues, and the vendor mark-up you pay back to property managers.  When you get big you definitely may need to hire a property manager or build out your own team; but, there's nothing like learning the business from the inside out!  If anyone needs help with how to attract and keep great tenants and develop a super vendor list - I would love to help.

  • Member since 2019 · 2 posts · 2 votes
    6y

    You say you hate managing properties.... so much.... that you decided to do it FULL TIME and start a management company?!

    This post is straight up an advertisement and it's not even a very good one. Highly doubt this changed a single person's mind about anything except your credibility as a PM who supposedly started a business to do the thing he hates most about RE.

  • Investor · Phoenix, AZ · Member since 2010 · 24 posts · 7 votes
    6y

    Add me to the self managed camp.  I have one property manager out of the dozen I have worked with over the years who comes close to doing what you say a property manager should do, and 11 who did the job so badly that I had to fire them.  I agree that some owners cost themselves a lot of money because they deal poorly with tenants, but there are obviously a whole bunch more of us who figured out how to act as their own professional property managers!

  • Rental Property Investor · Helena, MT · Member since 2017 · 282 posts · 117 votes
    6y
    I purchased a 6 unit that was managed from a local PM/ Realtor. One of the larger realtor's in my town. It was very run down and mismanaged. I had a tenant ask me to replace a failed deadbolt that the PM didn't replace for 2 years. 10 minutes later I had built a lot of credibility and saved a few hundred dollars. I enjoy building / fixing things (reason I got into fixer upper houses & real estate). I'm too frugal to give up a large chunk of my cash flow for that time and experience. Sure I'd rather be rock climbing but I'm building a business. If I'd rather lessen my gains and reduce all possible energy into my business and manage managers than I think I'll invest in index funds.
  • Kingston, WA · Member since 2018 · 4 posts · 0 votes
    6y

    Interesting discussions

  • Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    6y

    Here's what Ben Mallah has to say about PMs and far away real estate.  Since the guy is work north of $200m, perhaps some people will heed his advice

  • Lynnwood, WA · Member since 2016 · 1 post · 0 votes
    6y

    .

  • Jim WatsonPro Member
    Rental Property Investor · Davis, CA · Member since 2016 · 56 posts · 17 votes
    6y

    I self managed 4 single family rentals locally for 10+ years. Did the rehab, repairs, found the tenants etc, etc. After a marginal tenant left one house w major problems, decided it just wasn't worth it. Interviewed several PM companies. I agree with the comments about marginal overpriced (maybe incompetent) PM companies. Also 10-15% is ridiculous. My out of state company was dishonest and got terrible tenants. However there are good (or great) PM's. I spent a month looking and hired a PM.  He held multiple open houses and sorted thru at least 75 applications. He was smart to look for the "right tenants". He got A renters that want to stay forever. He got more rent which covers his cost (8%), lawn care and City costs. We both have subcontractors for specific jobs. I get mailbox money electronically deposited. Sold one house and he manages the other three. More income and no headaches. Rent income continues to go up every year. It also gave me time to find a 33# multi out of state. For me, it was fix toilets and chase rent or make more money and find new investments. Easy decision. Just take the time to find a competent PM that's genuinely committed to finding good tenants and has cost effective solutions to typical rental problems .

  • Investor · Washington, DC · Member since 2018 · 7 posts · 4 votes
    6y

    I can speak from both perspectives. I have both PM managed and Self-managed rentals. Frankly, in this stage of investment life, I don't like the self management. This is because I still have a full-time job worth more than the hassle to self-manage. Yes, I do give away some % to the PM company, but then I can focus on making more money at my job to buy more properties. I do think that self-management makes sense if you don't have a full time job as you can improve your return. That being said, I don't want to work 40 hours in my full time job and then another 10 hours on evaluating deals and obtaining financing, and then 5 more hours managing. Maybe I'm thinking this wrong? Let me know :-)

  • Investor · West Springfield, MA · Member since 2016 · 1 post · 1 vote
    6y

    Been buying selling and renting properties for over 20 years, have 45 units now.

    I have a management company rent apts, collect rents, send notices. They maintain an office and take maintainence calls,which they text to me. I have a partime maintainence man on call, and guarentee him 20 hrs per week. I pay 6% on collected rents and a month's rent to rent an apartment. I pay all bills, mortgages are on auto pay. This is the most cost effective way for me so I can go out and look for more opportunities, and enjoy my life.

  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    6y

    We chose the route of self managing and building a property management company around our investments. It's worked well for us, but certainly was tough in the early going and is not for everyone (especially those not planning on buying a large number of units). That being said, I am pretty confident that I am, as of now at least, sane.

  • Real Estate Agent · Englewood, NJ · Member since 2017 · 93 posts · 31 votes
    6y

    I had a PM manage one of my properties over 10 years ago and the experience was not good.  Since that time, my wife and I have managed our rental properties.  We market, find, and interview our tenants, collect rents, reach out to our same handy man to address maintenance issues, hire our same electrician company for electrical problems or for upgrades, and hire our same plumbing company when needed.  

    Easy breezy.....not always lol... but we are both W2 employees and we really like keeping all the $$$ coming our way and we determined to keep the costs down.  We refuse to give any of my profit away to a par or subpar PM. As far as education, I recently decided to take a real estate salesperson course and property management course in order to have more "tools for my toolbox."  Even though real estate investing is a part time endeavor for me, I'm in bucket number #2 --- I love the RE business and I love to self-manage in spite of the challenges.  

  • Rental Property Investor · Providence, RI · Member since 2017 · 4 posts · 2 votes
    6y

    @Joey Copper

    The small owner should manage his own, learn the business and feel the pain.

    The medium guy should hire a management company, at least for one property. Learn what they do differently than you’ve been doing.

    The real big guys all manage their own. They establish pm arms, often owner’s of the Real Estate it’s self. They hire full time guys and go to work every day.

    My thought is, until I can justify full time help I will use a PM company to work the day to day;

    Tenant communication

    Rent collection

    Accounting

    Leasing.

    Iv established my own PM co. to employ myself, wife and skilled worker to handle outside projects. Non urgent repairs and upgrades to property. We do some landscaping, cleaning and beautification. We take flips when time allows. This keeps us close to the property and aware of it.

    Someone always has to manage the managers or they will wash you, no matter how honest.

  • Martin NealPro Member
    Rental Property Investor · Chicago, IL · Member since 2017 · 293 posts · 383 votes
    6y

    @Joey Copper I can see the pros and cons of both sides of your arguments. I will say for myself, I enjoy PM most days because most days it’s simple and easy. Only every once in a while does it get tedious or time consuming. Even then, I still prefer to do it. You have to respect the hard times to appreciate the good times.

  • Investor · Charleston, SC · Member since 2015 · 113 posts · 50 votes
    6y

    I see a lot of posts here stating that if you're the small investor it makes sense and larger portfolios, it doesn't. Over the years I've come across several investors who own a lot of properties as in 1000 units or more and they self manage. It doesn't mean they do all the work themselves, it means they have put together a working model of an in house team along with a team that are boots on the ground. 

    The investor then manages the "in house team" and if a large enough operation they would simply manage a "regional manager" who manages the in house team who manages the boots on the ground. 

    This is a business model and when followed, it works. This model doesn't take any more of an investors time and more likely less that hiring a 3rd party management company. The exception is for the 3rd party management company that actually does as good or better a job as you would.

  • Wholesaler · Phoenix, AZ · Member since 2020 · 11 posts · 6 votes
    6y

    Thanks for your post, Joey.

    For every first time investor it is important to build a competent real estate team. When my brokerage wholesales to first time investors, we set them up with our network of third party contractors, lenders and agents. When an investor is looking to purchase a rental I would always suggest managing the first one yourself. Why?

    It forces you to learn property management. Tenant searches, repairs, rent collection, etc. 

    Its with this education that determines whether or not an investor should move forward managing properties themselves or passing that responsibility onto a property management company. The last thing a novice investor should be is disconnected from the properties they own.

    Just my opinion! 

  • Chicago, IL · Member since 2018 · 546 posts · 227 votes
    6y

    A lot of great advice on this thread already, and I don't want to add to the echo chamber. I will say great question, and definitely depends on the persons situation. Self managing a lot of units might be a lot of work to some, but perfect to others depending upon their budget. Self-managing only a few units still might be a lot of work to some, but perfect for others who have more flexibility to do so. Going with the right platform can really help with that (and if you're more hands on with your process early on, more of a chance you'll be able to learn through the process — and there are definitely some great options out there that can help with this).

  • Member since 2020 · 65 posts · 15 votes
    6y

    Thank you all for your input. Can anyone share any systems, software  that they have used to make landlording easier for rent collection, leases, work order etc. I am learning a lot from BiggerPocket community and I do read a lot but very few books are about implementation, they putt emphasis on what you need to do versus on how you should do it

    Thank you all

  • Investor · Clatskanie, OR · Member since 2014 · 212 posts · 233 votes
    6y

    We have a PM. I fired 4 or maybe 5 PM's before finding one we could tolerate. The trick really is to not loose focus of growing your cash flow. You need enough units so that you will not cry over PM fees. As long as you can do the things you want in life and bank account goes up and not down. Who cares. You will die soon. Let someone else smell the pee and step the poo from that Pit Bull you did not know your tenant had. We travel alot and like to get out and do things. We can get pretty loose and still see the bank grow when we get back home.

    The biggest issue is trying to get a W-2 worker, who gets 18 bucks from a PM to do a good job on maintenance. It never works! So you have to have your own guy to turn units and get things freshened up so your units always look great and you get the best applicants. If you leave it up to a PM or licensed contractor to turn your units you will notice things go downhill quickly. Your own handyman is the only way to keep things up and not pay 500 for a new water heater. Have him go to Home Depot, buy water heater and install in say 2 hours. 50 bucks labor and a mid range 300 heater and he is off to the next task. Have him side your properties, roof them, new windows, whatever and you will feel great and sleep well.

  • Flipper/Rehabber · Randallstown, MD · Member since 2015 · 9 posts · 3 votes
    6y

    Let's remember folks, he wrote this for those in Bucket #3.  Good article. 

  • Investor · San Antonio, TX · Member since 2015 · 38 posts · 17 votes
    6y

    I'm a full time employee and self manage my 3 properties (9 doors).  To me, this is the best way to learn the business, stay connected with the properties and tenants on a regular basis.  

    So far so good.  I'm all fine with keeping the 8% PM fees...     

    we'll see what happens in a few year

  • Investor · Fallbrook, CA · Member since 2012 · 2 posts · 1 vote
    6y

    Property managers do very little for the amount they charge, or at least that has been my experience.

    Paying 10% off the top just does not make any since to me.

  • Investor · Member since 2018 · 18 posts · 8 votes
    6y

    I enjoy self managing! I don't LOVE it but I find it fun at times and challenging at times. I have years of experience in leadership and the mental capacity to to so, but can totally understand why many wouldn't want to self manage. 

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