I notice that it's a mixed bag when it comes to management on here. Half prefer to manage all their properties themselves and the other half won't touch a property without a manager/management company. Why is this such a polarizing topic in real estate investing?
Coming from a small business world, I couldn't imagine owning my business and doing all the work AND being on call 24/7 for customers. I never had any issues hiring employees and managers. So when I started real estate, that's the first thing I did upon acquiring a new property, started looking for management companies. I was surprised when I came to online forums to find that so many people DESPISE property managers and do everything themselves.
I have manager for my small business, I'm paying him $40k+ a year! I pay that because it makes my life easier, I don't want to deal with a bunch of min wage employees and customers asking for me. Same thing for tenants.
It seems to me that many real estate investors are opposed to management it unlike your average small business owner.
Cincinnati, OH · Member since 2020 · 299 posts · 476 votes
6y
@John Liaaz For most part, I feel like if you own just a single unit or even a handful, the challenges of marketing and managing your rentals are fairly doable. But as your portfolio grows, managing your units can then get quite time consuming and can start to feel like a headache. For smaller landlords that live close to their rentals, I think adopting some sort of property management software is the easiest way manage, instead of hiring a property manager. You can automate your invoices, collect payments online, sign leases and store them too, screen your tenants, track maintenance, the list of benefits is truly quite long. Some might disagree with me and say that hiring a PM, is definitely the easiest way to go, but I know of many smaller landlords that make effective use of these softwares and hire a maintenance guy to look after any work orders.
I notice that it's a mixed bag when it comes to management on here. Half prefer to manage all their properties themselves and the other half won't touch a property without a manager/management company. Why is this such a polarizing topic in real estate investing?
Coming from a small business world, I couldn't imagine owning my business and doing all the work AND being on call 24/7 for customers. I never had any issues hiring employees and managers. So when I started real estate, that's the first thing I did upon acquiring a new property, started looking for management companies. I was surprised when I came to online forums to find that so many people DESPISE property managers and do everything themselves.
I have manager for my small business, I'm paying him $40k+ a year! I pay that because it makes my life easier, I don't want to deal with a bunch of min wage employees and customers asking for me. Same thing for tenants.
It seems to me that many real estate investors are opposed to management it unlike your average small business owner.
What would be the reason for that?
Great question and framing of points for consideration and comparison. As a person knee-deep in all aspects (PM, Investing & Client buy & sell representation) I have pondered on this a lot, and made many observations on it.
The 80/20 rule seems to stand vary true, on average 80% of our new PM clients rapidly love everything it gets them (HOLD on nay-sayers, I am speaking specific to MY PM office here ok) and they seem very content in all PM brings them. On the flip side, about 20% seem to really struggle, doing self-destructive things such as giving tenants their personal contact, stop by property weekly or even more, just all kinds of micro-managing which really throws a wrench in the whole works. Truth is we strive to identify those quickest possible and say it's not a good fit and let them go, it's rarely taken well "what, so, so your firing ME, who the hell do you think you are".
Then there is the experience factor, as in experiences had with PM companies, namely bad PM companies which unfortunately there is a lot of bad PM's out there, a lot. On average about 50% of our new PM clients are take-overs, coming to us with a horror story from another PM company. I know of some truly horrific PM companies, how they ever talk clients into working with them I don't know, and unfortunately perceptions can get built that those bad experiences are just how all PM's are. It's like getting food poisoning at a restaurant and then declaring all restaurants are crap and give food poisoning. Maybe it's ego in the way to admit they made a wrong selection in company, I don't know, but it happens and I gave up a long time ago on even trying to explain to those that it can and is better with other PM's out there.
A last factor is ignorance, plain and simple. I hear it on here a lot that "when your small with less units you can do just as good or better than a PM on your own".... No, no you can't, not vs my office, not a snowballs chance in hell even if you have just 1 unit, we can manage and lease it a lot better than you ever can. First point, leasing; as a PM company we do this all day every day, have a staff of people who specialize and focus on specific aspects, how can 1 person have more experience and knowledge than several people doing it 40/50 hrs a week? And when it comes to leasing your property, we have hundreds of thousands of marketing hours and units leased under our belts, it would take a person years to figure out what we already know. in addition, we have contracts and marketing agreements no one else can get, our vacancies are on 80+ sites with millions of visits to our own site every month, no craigs list add can compete, not to mention every site you can pay to put it on ours are on and it's all included in that fee we charge. So we have you beat multiple times over on vacancy marketing. Our leases, we have legions of lawyers develop them, and update them annually, and at every change in the laws. We have lawyers on retainer. Evictions, yeah, remember Norm on Cheers, that's our lawyer walking into the courtroom, how do you think our process goes.
It's just a fact, we are a PM business, in operation for many years managing more properties over more years than 99% of investors will ever have, how anyone can say they have 10 or 20 units and they can do just as good or better just blows my mind, it's common sense, just because I use a PC no I can not do it better than Microsoft. So it leaves me that there must be an ignorance factor at play there.
And for all those dead set that self-managing is the cats meow, I saw God bless ya and I sincerely wish nothing but the best to you, I really do. But please remember, just because you may be making it happen not everyone can do it, and telling green people to just go do it and risk their finances is dangerous and potentially damaging. Most actually can't, because they haven't before and can't afford the financial costs of screw-ups. Please, consider that next time. And yes, a huge part of what I do is investor training and education for any and all who want to learn and grow, I am happy to help always, as any good PM should be. (ok, I do have an advantage as that's one of my actual position's at my office, so I acknowledge that).
Toronto, Canada · Member since 2018 · 20 posts · 12 votes
5y
Great post with some interesting insights. The key point from all these responses seems to be that PMs are overrated and represent risk, and that profit for them is a question mark, which raises the likelihood they'll do something undesirable with your tenants/properties. As JD Martin said, getting things to large enough scale might be the deciding factor. And this year 2021, finding a property management company or manager might be difficult and they'll want more pay. On the risk side, they could mismanage everything, and what guarantees do they offer?
From collecting rent to costly repairs and fraud, investors seem worried about PMs, so is automating property management digitally a surefire way to get rid of the downside? Should you be in the business if you can't do any landlord work yourself?
Investor · Pasadena, CA · Member since 2017 · 612 posts · 523 votes
5y
I don't think many people, make a distinction between real estate "investing" and "business."
Property management is a Job (or business) and is separate from an investing strategy. Investing is buying an income producing asset hoping it grows faster than inflation (value and cashflow), while leveraging on others to help pay the loan/s (tenants).
Like any investment, it requires managing. Typically, people hire managers for this "job." In the financial realm, they hire portfolio managers/brokers/financial planners, etc. In the real estate world, they employ Property Managers, or take on that job themselves. But, many don't consider that to be a job, they tend to accept it as part of their investment strategy. Some may even feel they are required to do their own managing, due to preserving their income and/or assets, possibly based on past bad experience.
But, they may not realize they are giving themselves a job. If they are their own property manager, they should be treating themselves as such (i.e. a separate person or entity doing the job or PM), and should not be considering that part of the investing strategy. I'm not talking about the accounting part, that is up to you and your CPA, but, when you are considering a real estate investment, you should have a separate line item for property management, even if you plan on doing it yourself. Otherwise, you have neglected one of the costs of investing.
For those people looking to have a more "passive" investment, they employ PM's.
But, the simple answer to the original question is: My guess is that most landlords don't consider property management to be a job, and accept it as part of their investment strategy and may see limited preferable options in order to preserve their investment and cashflow.