Hiring a Property Manager vs. Self Managing: What’s Better?

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I have made the case that buy and hold real estate investment is the best investment around. However, it comes with two major challenges. The first is financing, which I covered last week. The second is property management. Without good management, even the best purchases can go sour. Property management is the very lifeblood of any successful hold. And because of this, it can never be neglected.

Related: Top 10 Reasons to Buy and Hold Real Estate

When approaching this challenge, the first question to ask is simply whether you should manage yourself or hire a management company to do it for you.

My personal sympathies lie with managing yourself and eventually setting up your own management company. Much of this probably comes from having had some bad experiences with management companies in that past. We’ve been overcharged, misled, and we watched helplessly as properties were run into the ground by bad property management companies.

That being said, I have seen other investors have great success using management companies, so there’s no one way to do it. Obviously, it depends on the quality of the property managers you are using.

Here are the advantagesS to each approach:

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3 Advantages to Using a Management Company

1. Infrastructure Already in Place

Early on, you won’t have an office or policies or a staff — or anything else that property management companies generally have. But management companies will have all the leases, applications, notices of entry and other such documents, as well as screening procedures and knowledge of the landlord/tenant laws in your state (at least they should).

If you go it yourself, you will have to put these things together. Management companies will also have an extensive list of vendors and contractors to use that you will have to find if you do it yourself.

2. Ability to Save Time

The more time you spend managing, the less time you have to look for other potential properties to buy or other business opportunities — and you lose out on time to simply to enjoy life.

Opportunity cost comes into play here; everything you do means you can’t do something else at that given moment. If you can find a quality management company, that can undoubtedly save a lot of time.

 3. Opportunity to Outsource Headaches

Unfortunately, property management has a not-altogether undeserved reputation for producing a large number of headaches. It will require a thick skin to deal with angry tenants and severe maintenance problems. Most tenants are great people, but those won’t be the ones you hear from very often. Instead, the bad apples and discontents will eat up a substantial amount of your time and energy (and sanity).

5 Advantages to Managing Yourself

1. Chance to Save Money

Management companies generally charge 10 percent of collected income and the first month’s rent for each new tenant. This is a substantial expense that you can save by managing the property yourself.

2. Increased Control

It’s a lot easier to make decisions and implement them yourself or through your employees than it is through a third party, even if they really are interested in following through with your plan.

3. Avoidance of Fraud

Unfortunately, not every property management company is run ethically. Some receive kickbacks from contractors, pocket rent from “vacant units” — or engage in other such unsavory activity. Managing yourself can make it easier to avoid being a victim of these types of things.

4. Gained Experience

It is extremely important to know the ins and outs of property management, even if you are not the one doing it. It’s much easier to evaluate how well others are managing your properties if you know how to do it yourself and have experience in that area. It’s easier to see which excuses are legitimate — and which are not — if you’ve done it before.

For example, we had one management company tell us that Craigslist wouldn’t work in a certain area, and we trusted them. We eventually took the building over, started using Craigslist and, lo and behold, almost all of our new leases come from there. Managing properties will also give you a better perspective on an area, which can help fine tune your buying criteria.

5. You Care More Than Anyone Else

I consider this the most important factor. Consider it a universal truism that no one will ever care as much about your properties as you do. And caring translates into effort. That extra effort can potentially be the difference between a performing property and one that bleeds money every month.

Becoming Your Own Property Manager

If you choose to manage yourself, make sure to talk to an attorney and familiarize yourself with landlord/tenant law and fair housing. Complying with fair housing shouldn’t scare anyone off; it’s pretty straightforward (i.e. don’t discriminate!), but it’s important to be intimately familiar with it to avoid any pitfalls.

You will also need to gather or create the necessary documents (lease, application, etc.). You can find standard forms at most office supply stores or online. If you make one yourself, make sure to check it off with an attorney. You will also want to come up with general policies. For example, when to file for an eviction, when late fees will apply and how much will they be, whether you will accept payment plans, etc. These policies are important, as you can use them as an anchor to hold onto when tenants try to pressure you into something.

Related: How to Choose the Right City for Buy and Hold Real Estate Investment

And most importantly, never skimp on tenant screening.

Vetting a Property Manager

If you choose hire a manager, the best place to start is to ask for referrals from other successful investors. If a manager has a proven track record with another investor, it’s much more likely they’ll do well for you, too.

Regardless of how you find a property manager, it is critical to vet them thoroughly before hiring them. You should interview them, ask for references and interview those references as well. Make sure this manager specializes in the types of properties you own. If you own C rentals, a management company that specializes in A rentals will almost certainly do a terrible job and vice versa.

Some questions to ask include:

  • What are their management fees?
  • How long have they been property managers and how many properties do they manage?
  • How many evictions do they have each month?
  • How long do properties usually stay vacant before being leased?
  • How do they screen and do they accept people who’ve had evictions? (If they do, it should be only after five years or so or with a larger deposit/co-signer.)
  • How do they handle maintenance requests?
  • What is the minimum charge for a maintenance visit?
  • What do they do when a tenant doesn’t pay rent?
  • How do they intend to market my property?

Don’t go easy on them. Getting the wrong management company can be disastrous. And if you hire a management company that isn’t working out, do not be afraid to make a switch.

Conclusion

Buy and hold may be the best investment around, but it isn’t without its challenges. Management is certainly one of those, but don’t let it dissuade you from investing. All it takes is a diligently executed plan, whether managing yourself or carefully hiring a property management company to manage for you.

 Do you manage your own property or do you use the services of a property management company? 

Let me know your best tips and suggestions in the comments.

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

19 Comments

  1. karen rittenhouse

    Hi Andrew:
    Great and comprehensive lists!

    Another point is that the “right” answer for you may change over time, so don’t freeze thinking you have to make the ultimate decision today.

    I managed our properties until we got up to 56. Hated pretty much every minute of it. Searched for a company to hand them over to and couldn’t find one – so we created our own company. As you said, by managing at least a few for yourself in the beginning, you learn a TON and are better able to hire the work out later because you know what you want and you know better what to look for in a property management company.

    We still manage our own properties now but have 2 full-time employees to do it — because I still hate pretty much every minute of it (and, as you said, you don’t make money managing, you make money buying and selling properties!).

    Thanks for a great article.

  2. Mike McKinzie

    Actually Andrew, I find number five to be the biggest detriment to self management. Caring for your property MORE than anyone else can get in the way of making the wisest decisions. This is not your children or your pet or your Lamorghini. This is an investment. In my 30+ years of experience, I find folks who self manage install carpeting that they would want in their own home, paint with $30 per gallon paint, hire a $200 a month gardener, etc…. In a rental, $10 a yard carpet and $50 a yard carpet will wear out in 3-5 years. You will have to repaint just as often, no matter how expensive paint you put in.’
    The truth is, to bring the best return on your investment, you need a totally objective, experienced and honest manager of your asset! Just like in POKER, Leave your emotions at the door!

    • The secret is this…

      Buy $30 a gallon paint, but only pay $20. Use semi gloss so you paint less often. Most spots can be wiped off.

      Hire a mowing service, not a landscaper. Take out the shrubs, and put in grass.

      Use a 10 year warranty, not a 5-year warranty carpet. It’s not that much more and cleans up better.

      Use laminate, not carpet, in all rooms except the bedrooms.

      And GET GREAT TENANTS!!

  3. I would love to hear how people self manage properties out of their area. Like most people, I have a love hate relationship with PM’s. The problem with self manage is over half of my portfolio is out of state.

    Jason

  4. If we are talking about local, single-family properties then property managers are a wasted expense. If your property is long distance then I would advise you liquidate it and invest locally. Professional single-family investors do practically nothing. Houses run themselves when operated correctly (I elaborate much more about this on my site). If you find yourself visiting a property more than four times a year then there’s something wrong.

    Sure, if you have 10+ houses then you just might need a property manager for a couple assets… Maybe. If that’s the case then I would strongly suggest moving into multi-family. Economies-of-scale quickly plays a major factor after so many houses.

    • Dima Tupchik

      “If you find yourself visiting a property more than four times a year then there’s something wrong.”
      Don’t you need to stop by once in a while do maintenance on it? Seal driveway, and foundation cracks and so on and so forth?

  5. Great article Andrew. It is a very timely one for me. I am at that cross road of whether to find a PM company or start my own PM company. I am leaning towards starting my own, however I have no idea where to start. We have 14 units now and will have 17 units by the end of the year. Any suggestions of where to begin by anyone would be greatly appreciated. Charlie-VA

  6. Jeff Rabinowitz

    This does not have to be an either/or decision. I hired a property manger to manage approximately half of my properties. Some of the ones I transferred were properties that, for some reason, were a bit more difficult for me to manage myself or properties I no longer enjoyed managing.

    I found that my property manager is often a bit more aggressive with setting rents and raising rents than I was. That helps to moderate their fee. There have been a few repair situations that I was very glad I didn’t have to handle. I have more time and fewer concerns when I leave town. I am happy with the value provided.

  7. One thing that I have realized is that not everyone is cut out to be a landlord or an effective property manager. Sometimes it takes making tough decisions and if you are a softy, tenants will walk all over you. I think the best option really depends on the personality of the property owner.

  8. Frankie Woods

    This is a great topic and one that every investor should really think hard about. For me personally, I think hiring a GOOD PM is paramount when building your systems to remove you from the business. However, the experience gained by doing it yourself is huge. I guess at the end of the day, as Dawn mentioned, it’s what you want out of the business. Thanks for sharing!

  9. To be honest, I have fantastic ideas and I am a great business owner. However, the little management details are not my forte and usually cause me to lose my mind. I agree that is essential to know how to find a good management so that you can keep your sanity and get the best for your company. This saves time, money, and gives you access to talents other than your own; it is in my opinion the ideal situation.

  10. Dmitriy Fomichenko

    Excellent points. In my opinion, you need to understand tenant/management laws very well to succeed in successful rental property management. On the contrary, if you want to grow your portfolio to a 100, 200 or 500 properties, you will need a management company. It is a very personal decision and it will certainly have a huge impact on your success. Thanks for sharing!

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