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.   

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  • Investor · MD/DC · Member since 2020 · 37 posts · 43 votes
    6y

    The OP is making some blanket assumptions, which probably don't hold true if you are a half-way decent investor/landlord.

    I recently reached 25 units, and had to do some soul-searching (along with searching on BP forums) to decide if I should engage a third-party property manager. I read almost every post in this thread and concluded that I can't justify the cost of a property manager, which would amount to a third of the cashflow on most of my my properties. 

    I am writing this long post for a couple of reasons:

    1. I found a lot of useful info on BP but never contributed. Maybe there is a thing or two from my process that others would find useful.
    2. I am not nearly as experienced as many others on BP, I only started rentals in 2019. And I am entirely self-taught. So I am open to any feedback if I missed something. 

    Finding Tenants (why I wouldn't pay 1-month's rent to fill a unit)

    • I don't see the need to post on the MLS, we usually get 25 to 50 showings per property within the first 10 days. I only do open-house showings. No individual showings.
    • When prospects respond to our ads, my VA confirms them for one of the open-house timings, and also calls them on the day of the open house to remind them.
    • I have one of my rehab crew members sit thru the showing, who just hands out a printout with details of the property, answers to typical questions, and the next steps to take if the prospect is interested.
    • If they are interested, they call my VA who gets some background info, collects their free credit report and income documentation for pre-screening.
    • The VA reviews the prospects with me, and we decide on the most qualified prospect and have them apply for full screening. The VA walks them thru the entire on-boarding process via phone/email/web, collects all required documents, gets the lease signed, utilities transferred, collects the security deposit and rent online, and gets them ready to move in.
    • I meet the tenants sometimes on the move-in day, or we leave the key in a lockbox and give them the combo on the move-in day.
    • We have an online system to track every step of the process, so I am usually informed on what is going on, but I spend about 2 to 3 hrs of my actual time in finding a new tenant. At that rate, I wouldn't pay 1 month's rent to fill a vacant unit. 

    Maintenance & Repairs(why I wouldn't pay 10% of the rent to manage)

    • Tenants call the VA, who enters the system in our system, so I get an immediate notification
    • My contractor is usually working on my next rehab (BRRRR), so he is readily available to attent to any repair issues. The VA contacts him and coordinates the repair/maintenance with him, and all updates are tracked in the system for me to follow.
    • If it is a big ticket item, I get a call from the VA/Contractor, otherwise they just fix it right away. I average less than 24-hr response times, and less than 3-days to fix any issues. Sometimes I pick call them to get more details if I need it.
    • We are running an average of 4 tickets per week on 25 units. While these are mostly handled by my VA and the crew, I may still spend an hour a week on this.

    New Properties

    • When new properties are acquired, the VA informs my insurance broker, applies for rental licenses, makes sure utilities are transferred, HOA registered and takes care of misc paperwork. I might spend a couple of hours per property in this initial setup.
    • My time is mostly spent on finding properties to buy, and monitoring the rehab. I estimate about 40 hrs per property between finding deals, managing the rehab and getting the property rent-ready. We do 1 or 2 deals per month.

    Rent Collection

    • All rents are paid online. The system automatically tacks on a late fee by the 6th, and tenants are aware of it.  
    • The VA starts calling the tenants on the 6th if rents are unpaid.
    • If a tenant calls me ahead of time to inform me that they will be late, I waive the late fee on the first occurrence. But I make sure that they understand that it will not be waived thereafter. It builds goodwill, and also trains them to work with me if there is trouble in the future. 

    Accounting

    • I am still working on this area. The goal is to categorize all the income and expenses between the credit cards and bank accounts and send them to the accountant on a weekly basis. I am not there yet. But I think it should not take more than a couple of hours a week to do this. 

    Delinquencies / Evictions

    • I haven't had one yet, so I never had to go through an eviction process. I will someday update this post once I experience it; lets hope I never have to.

    The Cost of Property Management

    • I spend about 5 hours a week total on property management and accounting.
    • I pay $250/property for my crew member to sit thru the open houses. The guy is pretty friendly, and he give me a good read on each prospect that visited. 
    • My VA grew up in the area, but moved to South America. So he speaks perfect English, and I pay him $1500/month for full-time work, but he says he is only busy about 30% of the time. He thinks he can handle about 75 units before tapping out.

    It is possible that property managers do more than what I listed here, but this is the extent of my experience. And I find it hard to justify the cost. 

      • Investor · Louisville, KY · Member since 2020 · 1 post · 2 votes
        6y

        There is a third bucket: The hybrid method. 


        This is the bucket I prescribe to. I work full-time and I outsource all laborious and time consuming tasks to a property manager. For me, that is finding and screening tenants. I pay a property management company half of one month's rent to find a tenant. After they find a quality tenant, I manage the property. After finding a tenant, landlording is operational and on autopilot. 

        If the properties financials can support it (which I factor in during analysis), then outsource tasks so you can operate at the highest and best use of your time. 

      • Member since 2020 · 52 posts · 9 votes
        6y
        Originally posted by @Jill F.:

        If I get tired of managing my own properties, I'll hire a w-2 manager that reports directly to me-- not a property management company. I'll do this because there are (usually) financial incentives for unethical behavior by property management company employees to create churn (and additional placement fees) by failing to work with tenants having temporary problems and by failing to promptly take care of maintenance issues they cause unnecessary turnover, by nickel-and-diming tenants for late, lost-key fees, etc., and "damages" to increase their own performance incentives, by charging top-dollar for mediocre workmanship and pocketing the difference, and by steering tenants to their own or their most profitable apartments. By failing to make filing the units a priority and inadequate marketing, advertising and/or preparation.

        I look at apartments every day, and the VAST majority of the time, "professionally managed" properties are in the worst shape.

         How did you manage a w2 manager.. appreciate your inputs.

      • Rental Property Investor · CT · Member since 2016 · 36 posts · 7 votes
        6y
        I fit with #3, for sure.  However, the management company that I hired wasn't handling tenant communication well.  They didn't inspect the property, keep up with even visiting the properties to see the issues.  I'd be contacted by neighbors saying "Your property is looking a bit rough.. what is your management company doing?"  Well, they were doing nothing.  They were collecting their monthly fee and "waiting" for a tenant to mention a light was out, or the door was broken, etc.  Sometimes they never found out until I would find out myself - often MONTHS after something happened.  I fired them.  Unfortunately, there aren't other PM companies in this particular area to move to, so I took it back on.  Within a month, we were back on track -- asked my handyman to make some regular visits to the house and we're back on track with money saved and happy tenants that want to stay vs the turnover I was having before. 

        As for folks running the world in group 1.. Agree to disagree.  There's value in delegating for sure, but I wouldn't want someone running the country that can't identify where spending frivolous amounts of money just to not deal with something is the answer. 
      • Real Estate Broker · Denver, CO · Member since 2016 · 36 posts · 14 votes
        6y

        I guess your post struck a nerve. Right or wrong, it worked. Too bad the perception of property managers in the U.S. is so negative. We have a lot of work to do. Let's keep adding value and helping our clients and let the rest fall where it may. 

      • Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
        6y
        Originally posted by @Greg Pond:

        I guess your post struck a nerve. Right or wrong, it worked. Too bad the perception of property managers in the U.S. is so negative. We have a lot of work to do. Let's keep adding value and helping our clients and let the rest fall where it may. 

        The perception of PM's is like the perception of RE agents. "too expensive for little work". The issue is many are crappy at their job and they give the industry a bad name. But the small percentage that are good at what they do are worth their weight in gold.  

      • Member since 2020 · 12 posts · 2 votes
        6y

        While i agree that management fees charged to small owners are outrageous, if you have to self manage your property to turn a profit it is likely not the best investment. An investment should be profitable hands off otherwise it is a business, and in this case you should make significantly more per hour self managing your portfolio than what you make per hour at your day to day job. 

        Since rentals are a generally a low margin / growth investment, self managing is a reasonable option for retirees or people with modest income who want to save some bucks, but i hardly see the benefit for someone running a successful business or having a high paying job. The majority of active businesses have way better margins than that 

      • Property Manager · Charlotte, NC · Member since 2020 · 80 posts · 41 votes
        6y

        @Syed H. you make a great point and it is unfortunate that so many PM's get a bad reputation by those who do not do their job well. 

      • Rental Property Investor · Houston, TX · Member since 2019 · 212 posts · 149 votes
        6y

        For those who house hack, try to automate the process using Cozy for tenant screening & then interview tenant roommate candidates on Zoom and then find the good contractors on yelp or BP for any repairs. 

      • Rental Property Investor · Brooklyn, NY · Member since 2013 · 272 posts · 165 votes
        5y

        @Kris Mann

        Just checking - Your "VA" is your Virtual Assistant? $1500/mnth? (1099?)

      • Investor · MD/DC · Member since 2020 · 37 posts · 43 votes
        5y

        @Michael G.

        Yes, Virtual admin, 1099. Based offshore @ $1500/month. I got lucky and found someone who used to live in my area before moving offshore; and even had property management experience in the US. 

      • Jim WatsonPro Member
        Rental Property Investor · Davis, CA · Member since 2016 · 56 posts · 17 votes
        5y

        Gina - check out Landlord Studio for software. Can test drive. Good if you just have a couple rentals. Lots of units? I'd spend the money for the higher end software. 

        I self managed because there wasn't enough cash flow to support the 8% PM. Went thru several PM's that were terrible. My current PM found great tenants that willing to pay a higher rent and expected annual increases. More than covered his cost, also reduced my vacancy and repair costs. 

      • Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
        5y

        @Julie Marquez- I only recently read through the rest of the comments so thought I'd respond.  all of our properties are within 4 miles of my house but 80% are within 2 miles.  I currently own 15, 2-4 unit buildings, one daughter/son in law own 5, and the youngest daughter owns 2 and looking for her 3rd.  

      • Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
        5y

        I agree with @Joey Copper- if you managed your property as badly as he did his. then you would be crazy not to hire a PM.

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