The Property Management Decision

As a mentor, I get a lot of questions about property management from my clients and students. When it comes to property management, and the questions are most often about Single Family investments, I will almost always say, manage them yourself.

I've kept numbers for years concerning my own single-family investments, and I’ve found that 20 houses will usually equate to about 10 hours of work a month and they will generate between $7,000 and $8,000 per month. How many of you would work an extra 10 hours a month for an extra seven or $8000 a month? Not really a hard question to answer is it?

Now, will some months hit 20 hours of work? Yes, but will most months usually require only one or two hours of work? Again, the answer is yes. When your investments are all occupied, I’ve found that I usually work about two hours a month for 20 houses. When you have a vacancy or two vacancies...boom, you might work 20 hours that month, but the average is going to be 10 hours or less for $7,000 or $8,000 a month income. Pure profit after you pay the principal, interest, taxes, insurance and maintenance.

When I was once pressed to pick a number to describe what percentage of people should manage their own properties, I scientifically chose the number 70%. I really think it's higher than that, but I didn't want to go higher than that just to be safe. So, who are the other 20 or 30%?

The other 20 or 30% of you reading this that SHOULD NOT manage their own properties are the ones who work your tails off at work. You've chosen a position to work 60, 70 hours a week and, at that point, I don't think you should run your own property. I really don't. I think you find somebody like Steve Rozenberg, with Mynd Property Management (Steve and Mynd are not paying me to say this – I’ve worked with Steve and I trust him) and let them run your portfolio for you.

The next person who shouldn’t manage their properties are the people engaged in what I call “The Passion Play”. This is the person who has a job that they're wildly passionate about, and they don't want anything to do with real estate. I met a doctor, a dermatologist, the other day and I talked to him briefly. He wants to invest in real estate, but he works six days a week. The twist is that he loves it. He didn't complain about the time at all, He actually said, “No, I work 60 hours a week and I don't want to ruin that.” Man, you don't hear that much, do you? But when you do find somebody who's in their passion, they should definitely have a property manager.

Will hiring a property manager cut into your cash flow? Of course, but it’s worth it. Remember that every dollar you've got in a piece of real estate is making you money four ways, and it's almost all tax deferred till after you're dead. So, you're still making incredible rates of return, but you're not taking the phone calls, leasing the units and so on.

So that's the 30%. They fall into one of those two categories. They're either stuck working 60, 65 hours a week, or they've got the Passion Play where they're passionately working those same 60 hours. I guess it's almost the same thing when you think about it.

It really comes down to just a time decision. If you're working that much, I don't want you picking up another 10 hours work. That's picking up the second job and if you’ve been reading my blogs you know I am not a fan of unbalancing your life like that. If you work normal hours though, 40, 45 hours max; then you can run the properties yourself.

Next time you have a free 10 minutes, sit down and audit your situation. Both options have merit but it is always best to be honest with yourself and take the option that leads to a fuller more balanced life.