Property Management Companies: Is it Smart to Hire One for Your Rentals?

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If you’re serious about building a profitable portfolio of rental properties, you will inevitably be faced with a critical decision about your future.

Are you going to manage these properties yourself, or will you hire a property manager to handle them for you?

Make no mistake about it, this is a huge decision about how you’re going to spend your most valuable asset (a.k.a. your time).

As with any big decision, there isn’t necessarily “one right answer” that applies to everyoneWe all have different reasons for pursuing rental properties, so it’s important for you to understanding why you’re in this business in the first place.

What is it you want out of your rental properties anyway? Whatever your verdict is, the path you choose for your property management will have a major effect on what your future looks like – so to the extent that you can, it’s important to get this right from the start.

I’d like you to stop and think about which of these statements best describes you:

Statement 1:

“I want to create a job for myself as the manager of my rental properties.”

Statement 2:

“I want to retire early with a solid portfolio of passive income from my rental properties.”

Before you choose your fate, I should warn you: you cannot do both.

Why? Because these paths work in direct opposition to each other — they lead to two entirely different places. If you want to be a property manager, you’ll never be free from a job. If you want to retire early and be truly free from the daily grind, you can’t be your own property manager.

Just speaking for myself, I started buying rental properties because I wanted the freedom that comes with passive income. I knew this would only be possible if I put someone else in the driver’s seat (someone with WAY more competence and experience at the job than I have). If I didn’t have access to a good, competent property manager, it would’ve been irresponsible for me to own rental properties because I knew I could pull it off on my own. That’s the honest truth.

In my mind, paying 10% of my gross rental income to a skilled property manager was a bargain (and since I factored this into the cost of each rental property, their services were automatically paid for right out of the gate).

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Not All Property Managers Are Created Equal

Unfortunately, finding a great property manager isn’t always an easy, carefree process.

Similar to attorneys, accountants, title companies and general contractors, some property managers are worth their weight in gold, and others are worth their weight in garbage. As I explained in this blog post, there are a number of vetting criteria you can use to make sure you’re working with a competent professional BEFORE you sign on the dotted line of their Management Agreement.

I was fortunate enough to find an awesome property manager when I bought my first rental property, and I’ve continued to do business with them ever since.

What makes them so good? There are a few qualifying criteria that come to mind:

  • They know how to find great tenants.
  • They know how to get rid of bad tenants (quickly, legally and before things get out of control).
  • They have connections with all the right people (contractors, inspectors, service providers and more), which saves me thousands every year on property maintenance, renovations, utilities and more.
  • They are responsive and helpful when I have questions.
  • They are timely, helpful and informative with monthly accounting statements and cash distributions on each property I own.
  • They handle all of the tedious, mundane, miserable and skilled labor that I either don’t want to do, or I have no idea how to do myself. In short, they are FAR more competent at property management than I’ll ever ever be.

When Does it Make Sense to Hire a Property Manager?

Perhaps you’re reading this, and you just aren’t sure whether it makes sense for you to outsource your property management to a professional. What factors should you be looking at in order to make this decision?

As a starting point, you can take a look at outsourcing experts like Chris Ducker and do what he does:

1. Make a list of jobs that you hate to do.

2. Make a list of jobs you can’t do.

3. Make a list of jobs that you shouldn’t be doing.

If property management falls into one or more of these lists for you, there’s a good chance that you should be looking to outsource this job to someone else.

For me, there were several reasons why I chose to work with a Property Management Company, so as a way of helping you process your own thoughts, I wanted to lay out my reasoning below.

Of course, my rationale might not apply to your situation exactly (i.e. if you have different goals and objectives with your rental properties, you might not have the same perspective and motivations that I do), but at the very least, perhaps you’ll find some similarities and/or disagreements that you can contrast with your own situation.

1. I Hate Dealing With Problems and Complaints from Tenants

I’ve always loved the idea of passive income from rental properties, but that doesn’t mean I want to deal with a constant stream of headaches and annoyances from the people who are renting from me. The beauty of allowing a property manager to handle this aspect of my business is that most of the time, I don’t even need to know who my tenants are!

Why am I okay with this? Because I know that my property manager uses a time-tested tenant screening process that is proven to keep most of society’s riffraff OUT of my properties, while keeping the responsible, trustworthy renters IN them. My property manager handles all of the time-consuming aspects of finding the best tenants, and they automatically deposit the net rent proceeds into my bank account each month.

On average, I spend an average of 2 minutes per month looking at the activity from each of my rental properties. Everything else (showings, screenings, site visits, evictions and much more) is handled by my property manager, while I’m out minding my own business, living my life and not worrying about it.

2. I Wanted to Focus on Growing My Business

Take a look at any real estate mogul who has built up a vast investment empire of income-producing properties. How do you think they did it?

Related: How to Choose the Right Rental Property Manager

Do you think Donald Trump maintains his billionaire status by unclogging every toilet in the Trump Tower? Do you think Ken McElroy earned his financial freedom by personally responding to every tenant complaint that came up along the way? Do you think Robert Kiyosaki tends to every mundane detail out of his sheer need for perfection? Of course not!

These power players reached their level of success because they knew what to spend their time on, and my goal is to look at my business the same way.

If I want my business to grow, I need to spend my time looking for the right opportunities, not spinning my wheels managing them. If growing the business is part of my long-term strategy, it makes a lot more more sense for me to leave the most time-consuming tasks for someone who knows how to do the job a lot better, faster, cheaper and more effectively than I ever could on my own.

3. I Couldn’t Afford to be an Expert at Everything

Being a business owner means you need to wear a lot of hats.

Of all the things I’ve learned to do as a real estate investor, one of my biggest areas of incompetence is my complete inability to fix, build, renovate or repair almost anything in my rental properties. I can’t do it to save my life.

I also don’t particularly enjoy accounting work and keeping track of petty little expenses and numbers (I can do it, but I still hate it).

The problem is, I’m only human, and I can’t afford to be an expert at everything. It’s just not humanly possible! The ONLY way to scale a business is to start offloading some of these tasks to other people in a cost-effective way — and my property manager provided an excellent opportunity for me to do this.

My property management company has access to every kind of expert in the business. For the truckload of things that I’d be terrible at on my own, they know how to do these things quickly and inexpensively because they do these jobs every single day. When you think about it, it’s not all that different from the other things we’re willing to pay for:

  • Ever bring your car to a mechanic when it needs fixing?
  • Ever go to a doctor when you’re sick?
  • Ever hire an accountant to handle your taxes?
  • Ever work with a builder when you’re doing home renovations?
  • Have you ever hired a professional to help you with anything?

I work with these people without thinking twice about it because I don’t need to be the expert when somebody else already is. Is there a cost to working with these people? Of course! But I’m happy to pay it, because I know that in the end:

  • They’ll save me tons of time.
  • They’ll save me a lot money.
  • They’ll allow me to scale get more accomplished.
  • They’ll do the job far better than I could ever do it myself.
  • In the end, I’ll sleep much better at night.

Remember, just because you CAN be your own property manager doesn’t necessarily mean you SHOULD. Check out this video for another quick illustration:

4. I Wanted the Ability to Invest Anywhere

A lot of real estate investors give themselves a self-imposed barrier to investing in other markets. It’s not always a bad mentality, but at the same time, your geography (relative to your properties) doesn’t necessarily need to hold you back from growing your business.

If you’re able to find good property management companies to handle your property, there’s no reason (logistically speaking) you can’t live in Boston and own a rental property in Phoenix. Your inability to drive by and physically see your property doesn’t need to be a significant limitation on which properties you’re willing to invest in.

Related: The Landlord’s Ultimate 34-Step Property Management Checklist

Of course, I’m not saying you have to invest in other markets to be successful, but there’s also no reason you should feel limited by the opportunities that are available in your own backyard. A good property manager will allow you to live your life without having to worry about the hands-on issues of managing your rental properties.

5. I Wanted to Make the Best Possible Investment Decisions

Any property manager who is worth their salt will have a vested interest in your success (because if you’re doing well, they’re going to do well, too).

Whenever I’m looking at buying a new investment property, I have MANY ongoing conversations with my property manager. I ask them all kinds of questions about:

  • The neighborhood I’m looking in.
  • What kind of vacancy rates they’re seeing in the area.
  • The good, bad & ugly about the local market.
  • If they think my property will be easy or difficult to work with.
  • How much I can realistically expect to make in rent.
  • Whether they think I’m getting the property for a good price.
  • Their review and opinions about of my property inspection report.
  • What kinds of issues and costs I can expect to deal with immediately after closing.
  • Any hidden issues I might not have thought about.

My property manager is basically a free consultant, and their advice is worth a lot. They know a lot more about these things than I do (and I’ll pay much closer attention to their opinions than those of my realtor’s because I know which of them actually has the benefit for firsthand experience). This kind of credible information is a HUGE benefit that I wouldn’t have access to if I was trying to manage this whole operation on my own.

6. Their Services Are Already Paid For

Whenever I’m analyzing a new property as a potential investment opportunity, the deal MUST be designed to support the cost of a property manager (because let’s be honest, someone will have to do the job, even if it’s me).

I will never buy any property unless I know I can deduct 10% of its gross revenue to pay my property manager and still show solid cash flow. My property management company is such a vital part of the equation — I would probably pay even more if I had to, because they’re worth it! They provide a service that allows me to live a life of freedom and that makes all the difference in the world.

Investors: Do you see property management companies as invaluable like me — or would you rather go it alone? What are your best tips for someone trying to decide?

Leave a comment below, and let’s start a conversation!

About Author

Seth Williams

Seth Williams (@retipsterseth , G+) is an experienced land investor, commercial real estate banker and residential income property owner. He is also the Founder of REtipster.com - a real estate investing blog providing real world guidance for part time real estate investors.

47 Comments

  1. Jeff Jenkins

    Hey Seth,

    Thanks for the article.

    I do not typically endorse the use of property managers unless it’s for a multi-family property. There’s really no point in having one with single families, as they’re a very large, and easily avoided expense.

    Dealing with tenants is usually a breeze, and in the very rare case a repair is needed I can take care of everything from my couch. What do you think most managers are actually doing anyway? Fixing the repairs themselves? I don’t think so!

    The only time I would suggest using a single family property manager is for a long-distance property, or in the case you have more than ten properties. However, I also do not recommend long distance properties and if you have more than ten single families I think it’s time you “de-leverage” and move into multi-family.

    In summary, I believe the use of singe-family property managers is an unwise business decision. The only time-consuming aspect of REI is finding deals. The rest, when done correctly, is virtually passive.

    All the best,

    Jeff

    • Seth Williams

      Thanks for your input Jeff! Sounds like you’ve figured out a system that works pretty well for you.

      When I look at the property management issue, I think there’s something inherently appealing about having this responsibility COMPLETELY off my plate (taking up zero space in my mental hard drive). Even if it does cost me a small chunk of my revenue each month, it seems like a no-brainer expense to me, because my time and peace of mind is worth it (maybe it’s because my brain and schedule is already too cluttered up with other worries and obligations, I dunno).

      Either way, I can appreciate the way you’ve learned to handle your business too – it sounds like you’ve got a model that has served you well.

  2. Roy N.

    Seth,

    While we see the value of professional property management, we’ve been rather underwhelmed with the providers we’ve encountered to-date. We are leaning towards hiring/cultivating internal property management as our holdings grow.

  3. Mike McKinzie

    Seth,
    I could not have said it better myself. Let me just say I ran a property management company for years and could easily do it. But guess what, I DO NOT WANT TO DO IT ANY MORE. Why? In my time as a PM, a short list of what I had to deal woth; a two year old drowning on a pool in one of my rentals, a unit burning down, a DEA drug bust, a murder, eviction court dates, and so much more. For me, a Caribbean Cruise sounds better.

    • Seth Williams

      Sheesh – that sounds horrible Mike, I don’t blame you for wanting to get out of it. I think some people have a sort of mental “gift” where they’re able to deal with this kind of stuff without letting it get to them. Personally, I don’t think I have it… this kind of thing would be the end of me.

    • Seth Williams

      That’s a valid argument Mark. If you’ve got the time to deal with it and you don’t mind putting up with the work for a while, there’s nothing wrong with handling your own property management for the time being (or indefinitely – if that’s really what you enjoy doing). More power to you buddy!

  4. Larry S.

    There are many people out there starting their little business as a property manager. The 10% can in many cases be easy money for minimal work. They also tend to get bad tenants just to get an occupancy quickly. WARNING……………….. In many states a brokers license is required before one can manage another persons property. It would be wise to check the situation in your state. There are companies that offer property “maintenance services” but do not handle the cash flow or tenants. This is a nice half way situation which solves a good portion of the landlords time and energy. Doing your own very ridged screening and hawk like cash flow will take some work but will result in minimal problems.. Of course if you have hundreds of units in your portfolio there is a point where a good manager becomes necessary or some employees.

    • Seth Williams

      Good point Larry – I know those rules with the brokers license apply in my state (not sure if everyone follows them, but the rules are definitely there). I’m not sure if I’d be willing to pay much for a property manager who didn’t handle the finding/screeining/evicting of tenants, but maybe it makes sense in some situations.

    • Deanna Opgenort

      I have a “hybrid” situation myself. I own the house, but my parents handle the local stuff (I might arrange to purchase a stove, but they will pick it up). I monitor the rent, but they might collect the check if needed.
      I screen like a maniac (I spend hours in theinterviews/ background check,plus MySmartMove for the credit/criminal).

      • Deanna Opgenort

        Oh, and I only own 1 property, parents own 4 rentals, so we’re small potatoes — it’s secondary to our primary income, though now that my parents are retired it’s just a good return on their investment (hard to say “passive” if you are pulling the weeds…but no one pays you to pull the weeds at home either……).

  5. I am not an expert at landlording like some of you guys but I just can’t conceive building a large portfolio while self managing. Sure, you can learn the business of managing properties but why would you? It’s like buying yourself a 2nd job.

    I’d rather learn and get better at raising money, one of my weaknesses – and get 10x more deals. That is the ONE skill that would benefit most readers of this blog as far as scaling their business.

  6. Andrew Johnson

    So Seth it seems to me that you would recommend hiring a property manager no matter the size of your rental property or how many of them you have in your portfolio. I tend to lean towards your line of thinking in that even though it is taking money off of the bottom line, the 10% of gross revenues is totally worth it considering you don’t have to deal with tenant placement/evictions/repairs etc.. Seems totally worth it to me to avoid that hassle altogether and let an expert handle those tasks. Of course like you said, it’s key to find a really good property manager as well. Otherwise you’re replacing the unwanted task of dealing with tenants etc. with the unwanted task of dealing with a bad manager. Thanks for the article. It makes a lot of sense to me!

    • Seth Williams

      Thanks for your feedback Andrew – you’re absolutely right.

      I think you also make a great point – hiring a property manager is usually a solid business decision, but that’s only with the assumption that the property manager knows what they’re doing. If a property manager isn’t responsive and doesn’t know how to make your properties perform to the best of their ability – then the equation changes completely.

      Having the right property manager is a BIG contingency, because if you don’t have the right team in the driver’s seat, things can (and probably will) go sideways very quickly.

  7. Marcia Maynard

    I enjoyed reading your thoughts on this! Great points! When we retire or when our portfolio grows too big to handle ourselves we will be turning over some or all of the work to a good property management firm, or selling. For now, we will continue to own and manage our own properties. I love being a landlord and contributing in a positive way to our community by offering safe, clean, affordable, comfortable and quiet housing for responsible renters. It’s a good use of my management skills and doesn’t take up too much of my time. We outsource much of the work to our vendors from A – W (accountant to window washer), so delegation does play a role, even when self managing!

  8. Charles Marchiondo

    I self manage all mine and a bunch others. About 100 single family homes in all. I sub pretty much everything out. Still can’t justify paying someone else $10k+ for what I do. I work about an hour a day. Not bragging. Just saying it’s not rocket science.

    • Seth Williams

      Wow, sounds like you’ve really got this property management thing figured out Charles. You should write a book (or at least some blog posts) on how you’re doing this. I bet there are a lot of people who could benefit from learning about how you run your business so efficiently!

  9. John Underwood on

    I easily manage my 14 properties via text msg.
    I haven’t seen most of my tenants in 6 months or longer.

    If they have a problem they usually text me. I text the handyman or HVAC guy and they go check it out.

    My tenants go to my bank and deposit into my account.

    My self directed IRA with checkbook control owns 4 of the houses and it too is a local bank that my tenants can go through the drive through at the bank and deposit rent.

    I am creating passive cash flow but not paying a PM for something that has been very easy for me to manage from my phone.

    I have one property I have never even seen the inside of. Bought it via tax auction. The people signed a lease and sent me a key and they have been one of my best tenants.

    After rent is due I just log onto my bank accounts to see who has paid.

    John Underwood

    • Craig Smith

      Be careful of the IRS with your self directed IRA. As a real estate investor outside of your IRA (10 properties) the rules don’t allow you to also do the same within your self directed IRA. I believe your considered too active within the IRA. Especially if your screening tenants.

  10. Chad Hale

    Hi Seth,

    Nice post. You lay out the options that an investor should think about what they want for themselves without saying one is better than the other. It is about personal goals.

    As an investor and property manager I manage my own properties. At least for now.

    Thanks
    chad

  11. Right on target, Seth. We manage a couple of hundred residential properties in the greater Tampa Bay area. Many of our clients live out of state, but we do have many that are local. I understand the reluctance of some to give up a portion of their gross income…but you outlined the benefits so well.

    Sure, their are periods of time when everything is flowing well and our time commitment to a property is less than usual. That said, when something hits the fan, so to speak, a property can demand a lot of your time, energy and resources. Over time things will happen to every rental. A good property manager will take care of those issues and keep all involved happy along the way.

    Speaking of happy, a good property manager will be customer focused…and not just to the property owner. There are, unfortunately, some in our industry who have become “jaded: and do not treat renters with proper respect and courtesy.. Keeping a tenant happy will lead to fewer turn overs….and that means a better bottom line to the property owner as well.

    I could go on, but one final point. A good property management company will have positive relationship with quality vendors. For example, our clients save money on their repairs due to the volume of work we can give the vendors. When you think about it a good PM can get quality tenants fast, screen them, treat them well, do the accounting, take care of the issues and save money on quality repairs and services, why wouldn’t you hire one?

    Thanks again for outlining the benefits so well.

  12. I like your point about deciding what you want from your real estate portfolio. I think many people see passing on the property manager as a way to save money. However, you are right. If you are going to be your own property manager, you will never be free of a job unless you sell your properties.

  13. Brad Coen

    Successful rock bands are capable of managing their own tours, press, appointments, rehearsals, etc.
    Successful CEO’s are capable of answering the phone, emptying trash cans, paying bills, etc.
    Successful real estate investors are capable of managing multiple properties 24/7/365, etc.
    But these people are successful because they’ve learned to delegate everything except that which makes them successful.

    Brad, High Point Property Management

  14. I just moved into my first apartment and I\’m trying to get a feel for how this kind of business works. Right now I\’m trying to learn more about the property management and what I can expect them to do. This helped me out a ton and I hope to keep figuring out how this works as time goes on.

  15. Thanks for the advice about choosing to hire a property management company. My husband and I are thinking about buying property to rent out for extra income, but I don\’t think either of us want to deal with the tenants directly. Maybe in our case, a company that take care of maintenance and tenants so we don\’t have to would be the best.

  16. There is some great information here, and I appreciate your point that by hiring a property management company, you don’t have to deal with complaints from your tenants. That way, you free up a lot of time to focus on other, more important things. Thanks for the great post!

  17. Thanks for the post! I have a friend who’s moving to Spain, but she wants to rent out her house to a few tenants. At first, I was confused about who was going to maintain the house while she’s living there until she told me that she found someone who would take care of it for her. Instead of hiring a property management company, she asked our neighbor to take care of her property for her. Now, this article perfectly explains why she would be better off hiring a property management company instead. You’re right about how they would be able to deal with any problems that tenants may have with the house. That’s something that she won’t be able to handle living in a different country, so she could use a professional service that knows how to handle those issues for her.

  18. I have never worked in property management before, but I know people that have. Their time was full most of the time. I’m sure if they had other obligations like school, or other jobs they would not be able to perform their job correctly. Hiring a property management company would help out in that case.

  19. Thanks for helping me in my decision to hire a property manager. I really appreciate the question so gave to ask myself as a property owner. I think that I would prefer to have someone else take care of tenants and maintenance that stress me out, so I\’ll look into finding a property management company!

  20. I did a bit of apartment rental a couple years ago and it was tough. Being the only owner and maintenance guy proved to be quite a difficult task. If I could do it all over again, I would for sure hire a property management company. That way I only have to deal with one aspect where they have to deal with another.

  21. I really appreciate this information on how know if and when you should hire a property management company. I like the idea you gave of creating a list of jobs you don’t like to do or can’t do and if property management falls into those, you should probably hire one. Do you have any suggestions for how to find a reliable company? Thanks for the tips!

  22. Thanks for sharing this great post about the benefits of having property management! I will be moving out of state, but I have a rental property here that I would rather not sell. Because I won’t be able to look after everything myself from that distance, I’ll definitely look into hiring a management service!

  23. Thank you for the post. I really like the idea to hire a property management company to deal with the people. I like that they will often run background checks on potential tenants. That alone can help to protect your investment by limiting the potential of tenants causing damage to your property, or those who don\’t pay on time or at all.

  24. This is some really great advice for any new property owners trying to figure out if they want to manage properties themselves or hire a management company. I definitely agree that hiring a property manager makes the process much easier for you, especially if you have multiple properties and/or limited time. And your third point makes a lot of sense; becoming the manager of a rental property is a lot of work, and if you have another job or other responsibilities then it very well may not be an option for you. Thanks so much for writing!

  25. My friend owns a company and he was telling me that he doesn’t know when to hire property management. I had no idea that hiring one could help you focus on growing your business. I think it is a great idea to have someone take care of the things that are keeping you from growing. Thanks.

  26. Thanks for the helpful post on property management companies. I plan on investing some money into real estate and some apartment complexes. I want to be able to earn some money off rental properties. I feel like the idea of hiring a property management company is the right idea for me. I like what you said about when it makes sense to hire a property manager. I will be sure to follow your guide, thanks for the help!

  27. This is some great information, and I appreciate your point that having a property manager means you don’t have to deal with problems with tenants yourself. I’m a very non-confrontational person, so I worry that problems with tenants would end up with me giving them whatever they want, regardless of whether I should or not. I don’t want them to take advantage of me, so I’ll definitely look into hiring a property manager so I don’t have to worry about that. Thanks for the great post!

  28. I want to invest in some rental properties, but I don’t have the time to manage them on my own. I think I would definitely need a management company to help me out. I especially like how they would be able to help be get rid of bad tenants so I can protect my investment. Would it be smart to use the same company for all my properties, or should I find the closest manager for each location?

  29. ben Parham

    Great article. As a property management company owner, I’ll be the first one to tell some people that they don’t need a property manager. You have to ask yourself if you want to be a landlord or if you want to be an investor. Take investing in the stock market as an example. I could certainly take the portion of my income that I set aside for retirement and purchase stocks with it on my own. I’d have to put in countless hours of research, go on red alert during market fluctuations, and constantly stay on top of my investment mix. Or alternatively, I can invest in a mutual fund and give my money to a fund manager to handle those hassles for me.

    Rental investing is no different. You have to decide if you want to be the one handling all the issues (routine maintenance, emergency maintenance, late rent, property damage, insurance claims, etc.), or if you would rather be a real estate investor and leave the hassles to a property manager. If your personality type is such that you always feel the need to micro-manage the property manager’s duties, I’d recommend saving the cost and just doing it yourself. But if you want to focus more on finding and purchasing properties, and staying focused on the business aspect of your real estate investments, then a property management company will be a good solution to look into.

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