Investors: Believe Me, You CAN’T Afford Property Management. Here’s Why.

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I am not sure where the attitude comes from that that real estate investing is something that can be done “on the side” or something that can be dabbled in. I suppose articles across the internet are partially to blame. One article after another about success, and the apparent ease with which this success was achieved — that’s enough to lead someone to erroneously conclude that success in this sport can somehow be an outcome of some type of passive activity and that real estate investments can be used as a nothing more than a diversification strategy within your otherwise predominantly paper portfolio.

Thankfully, not all of us here at BP try to sell you a dream. Some of us actually tell you that this stuff is hard, both mentally and psychologically, and that chances are better than not that you will break long before you find any measure of success. In fact, if you listened to Podcast 152: Building Wealth and Passive Income with Rental Properties with Ben Leybovich, Brian Burke, and Serge Shukhat, I do believe that all three of us were rather blunt on the subject.

Don’t get me wrong — we were also blunt about the reality that real estate is in fact the best opportunity for most of us to build wealth on our balance sheets and financial freedom on our income statements. However, the “read between the lines” essence of it all is that real estate works only if you do it right — YOU do it right, not someone do it right for you!

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What You Need to Know About Property Management

You can’t afford it!

Related: 80 Smart Questions to Ask BEFORE Hiring Your Next Property Management Company

Serge came out and said that much in the podcast, for all those who are willing to listen. Brandon Turner didn’t reply anything, because there was nothing to be said — he’s been trying to find a halfway decent PM for years now, and all it’s doing is costing him time and money. For my part, I sure as hell know that none of the projects I’ve ever bought could be transformed into what they are today under a PM.

It’s a blatant reality — none of us can afford a PM for anything we currently hold in our portfolios.

Let’s Look at Some Numbers

One of my favorite series of articles here on BP Blog is the one tracing the repositioning of the Symphony 10-unit. There have been 4 or 5 installments, and you can find them by clicking here, here, here and here.

Just to summarize:

  • I bought the thing in February of 2013 for $373,500. I used a blend of institutional and private money and ended up bringing to closing $5,300 of my own cash (1.5%). It wasn’t 100% financing, ’cause I am not quite as good as Brandon, but it might as well had been.
  • I had a lot of turnover in 2013 and spent a lot of money on cap ex, and by the end of that year only managed to clear about $3,000 cash basis accounting.
  • I did better in 2014. I was beginning to catch up on the deferred maintenance issues and made strides in stabilizing the tenant base. That year I cleared about $12,000 cash basis accounting. This was $1,000/door — not quite $100/door per monthly CF that is the magic number here on BP (likely due to me).
  • In 2015, Symphony cleared about $20,000 cash flow. Three years after the purchase, Symphony is now fully stabilized.

Could I Afford Management?

Before a discussion can be had of whether a PM can be afforded, we have to discuss whether a PM is even appropriate. In this case, it took me three years to fully reposition the project, and I was on it every day for the first 6 months, and every other day for the next 6 months! The following year Symphony required much less effort, yet still occupied more time than everything else in my portfolio combined. By 2015 this project is automated, and I have seen an inside of a unit out there one time in the last 6 months.

Now the question is:

Could a PM do the job that needed to be done?

Regardless of the cost, could they do it?

Answer:

There are professional property management companies out there. These are companies with thousands of doors in their management portfolio, with developed management and reporting systems. Many have legal, title, accounting, and construction in-house, and if not in-house, they certainly have standing working relationships with all. They have an in with the municipalities they are involved with, strong relationships with code enforcement, auditor, etc.

These are the type of players we use as part of a syndicated acquisition of a 200-unit. Why? Because they are much more systematized than I ever want to be on my own, and they have infrastructure that I can’t possibly afford on my own. Besides, I wouldn’t want their job.

A player like that absolutely could do what needed done on Symphony. The problem — they don’t want Symphony. A little 10-unit simply cannot support payroll and fees that are part of the infrasture of professional management. There just isn’t nearly enough meat on that bone to underwrite the expense of professional management.

And if Not Them…

If not them, then what you get is what I call “mom and pop”  management, and about all they are good for is to mess things up, which is why in the last two weeks I spoke to two investors here on BP who are in the process of firing their PMs, and it ain’t pretty or easy. After all, in order to fire someone, you have to get them on the phone — that’s not easy if the PM is doing all that they can to avoid you. 🙂

I’m telling you, guys: There’s no magic to this, and this is why Serge simply stated that you will not make any money if you use a PM. I applaud my friend for being candid, as this is an unpopular view on BP today.

Speaking About Money

Typically, a Mom and Pop PM charges a 10% fee — that’s 10% of gross income. In the case of Symphony, I can tell you that this would have been about $7,000/annum, which means that in 2013, I would have been as much as $4,000 underwater, in 2014 I would have made $3,000, and in 2015 I would have cleared $13,000 instead of $20,000.

Related: The 8 Reasons Why Using Property Management Is a Waste of Time

What do you think? Can I really afford to lose $7,000 out of $20,000 on a building and still be able to drive a Tesla?

Don’t answer that yet. It gets worse!

It’s Not JUST a 10% Fee

Typically, the 10% is just a flat fee. Additional costs, which are not included in that are lease-up fees, maintenance surcharges, court appearance charges, eviction charges, etc. By the time it’s all said and done, try 12.5 – 13%!

Thirteen percent would have meant writing a check for about $9,500 in 2015 — that’s HALF of the cash flow in 2015!

Really? You think that this is how you’re going to make money in real estate, Mr. I-Have-a-Nice-Paying-Job-in-Silicon-Valley-So-I’ll-Just-Pay-a-PM-to-Manage-My-PIGs-in-Ohio-Indiana-and-Wisconsin? That’s your plan?!

Two Points in Conclusion

One: Small-time real estate investing is not passive. Get over it. Real estate works, but only if you do!

Two: You cannot afford property management — what more can I say?

Investors: With a subject this polarizing, I’m sure you have an opinion!

Be sure to let me know what you think by leaving a comment below.

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.

127 Comments

  1. Ian Fisher

    Ben – I think this depends how you value your time. So you put $5K of your own cash into this deal. So far in 3 years you’ve netted $35K in profit over 3 years. Obviously this is a good return on your cash. But how many hours of your time did it take you, and how many of those hours could have been saved if you’d hired this out and made only $12K in the 3 years? So you’ve hired yourself as the PM for 3 years for $23K…is this a good return on your time? Could you have redeployed that time in more profitable ways (whether financial or otherwise)? Could you have 100 of these deals going at the same time if you insisted on managing yourself? Would you rather have 100 deals netting you $12K each in 3 years, or 10 deals netting you $35K each in 3 years? I’m being deliberately extreme in my example, but the point is that your time is a scarce commodity, at some point even more so than money.

    • Donald Capwell

      I think Ben’s point was more about the smaller PM’s ability (“Regardless of the cost, could they do it?). Yes, there is value on time, but if the PM can’t perform, and you chase PM after PM to find the elusive unicorn that will perform as needed, then you lose both time AND money…

      Now, my question… Once Ben whips the property in shape, does he THEN turn it over, as it should then just be a matter of maintaining what he’s built? At that point, he’d free up most of his time to lather rinse and repeat, except the occasional “sanity check” to make sure the PM is performing, and jumping back in if not? Frankly, if the goal is not to put it on cruise control, then aren’t you just hiring yourself to be a PM?

      • Ian Fisher

        Agreed Donald – I can imagine that there might be a world where there’s simply no way to get the right PM. But even then, I think it eventually comes down to a “what is the highest and best use of my time” question, at least if you want to scale up. Can Ben find people out there who can capably work for him on the PM side (directly or through a company), to free his time up to do higher-level work like structuring deals, raising capital, etc.? And won’t he make more money (and possibly have more free time) if he does so?

      • Ben Leybovich

        Answer is – no. Why should I pay 13% of my time commitment is 5 hours per month, most of which is book-keeping and would need to be done anyway?

        I only buy things that are easy to manage, Donald. There is a system to this madness 🙂

    • Ben Leybovich

      Ian – you should know better. Lat time I touched a hammer was 7 years ago. Last time I showed a unit was 3 years ago. My commitment is 5 hours per month, most of it book-keeping.

      A PM willing to take Symphony on would not have been able to do what needed to be done…doesn’t mean I did it all myself 🙂

      I’ve seen inside of one of my units 1 time in 6 moths, and that was mostly for fun. I don’t manage property, outside of re-positioning. I manage my system. And I buy property with specifically narrow criteria which enables me to do what I do – 5 hours per month 🙂

      I think I get paid pretty well for what I do…

      • Ian Fisher

        Somewhere there’s a disconnect…you stated “I was on it every day for the first 6 months, and every other day for the next 6 months! The following year Symphony required much less effort, yet still occupied more time than everything else in my portfolio combined.” So…for all that effort you avoided $23K in estimated PM costs, meaning you got paid $23K, right?

        • Ben Leybovich

          Mentally, and on the phone – I was on it every day to ensure things moved, evictions posted, court appearances took place, contractors got the keys, vendors were paid. During this time, I worked a bit on this project every day, and in the first 2-3 months I was on the ground for 30 minutes or so several times per week to underwrite and set parameters of the rehabs.

          In 2014, I was there physically twice per month. I had a very difficult 2 evictions in 2014 early on. I also had a volatile situation in another building in mid 2015 which needed my attention and presence on the property 3x.

          However, as I mentioned, I’ve seen one unit in the last 6 months, and have had no evictions or showings that I needed to be present for. When shit hits the fan, which happens from time to time, I might have 5 -10 hours into a property within a month, but this happens rarely, and averages out over 12 months to very insignificant time commitment not worth 13% of gross, Ian.

  2. David Roberts

    Yea i tend to agree Ben about the expense of PM.

    Question, if you had a more significant apartment building, say 20-30 units or more, at what point can you afford PM?
    At some point you cant run it all, can you? Im asking because we are steeringbtoward buying out first apartment complex and as much and as nice as it sounds to turn it over to PM, that 500 per leaseup adds up fast.

  3. Ryan Ball

    I agree with @Ian Fisher. It all depends on how you value your time. I have no interest in receiving tenant calls, showing apartments, collecting rent, etc., so I am willing to pay someone else to do it. Now finding someone who is actually good at property management is challenging. I agree with a lot of the premises but like most blanket statements, this one does not hold 100% of the time. We have used a property manager for all of our properties for 8+ years and have been profitable. It is just another cost to figure in when evaluating a purchase.

  4. William Morrison

    Just another half thought out article and title for clicks.
    Don’t try this in your Solo 401k or Check Book IRA.

    Small Property Management quality has a regional bias as well. As a multi-state investor some area the quality Property Management on a small scale is impossible to find not so in some other areas.

    And a good career allowing a larger equity stake changes the numbers as well.

  5. Ronald Perich

    As always, you have given us a lot to think about. And I happen to have found he same thing around my area. The most seasoned investors around here all self manage because they can’t find good PMs and because they won’t be able to work value plays. I have my own Symphony. It’s taken months to just get it stabilized. Everything from rehabbing units to abandonment to AC replacements to water heater blowouts. There is no way a PM not working directly for me would have been able to do what we did. We’re finally getting to stability and starting to see the fruits of our labor. And the time commitment is dropping exponentially. And the value is up by $50 a door in rents and actually collecting on late fees. This ain’t easy, but it will be so worth it in the end.

  6. Terry Martin-Back

    It depends where you live. Each state has different laws we must follow in order to be in compliance. PM is not an 8-5 job, it’s 24/7, 365. We use an attorney to draw up our leases, (so we are not practicing law). We don’t do month to month leases to defray paying sales tax. Having a contractor in your pocket to inspect any property prior to purchase will help you negotiate a sales price or have cash ready for repairs. Knowing what’s happening in your area is extremely important when buying any investment property. How many apartment, condo’s, PUD’s and homes are currently approved to be built over the next five years in your investment area? So many questions to answer and a good PM will have the answers. Property management is not for the faint of heart and not all PM’s are equal. weigh your time, cash flow and current reserves before venturing into any investment deal.

  7. Curt Smith

    We self manage 32 rentals / rent to owns all across GA. Hours away. You might ask how one can manage properties hours away? Our situation defies being turned over to PMs!

    This is an (easily) manageable situation for a reason that is rarely talked about in discussions about buying rentals. I feel it’s doing BP and new folks a big disservice to not mention how to choose a rental property for low management effort. When you have low turn over, low to no damage or theft, your net NOI is higher as well. So how do you choose a rental property for low management cost, highest net NOI?

    It starts with thinking like a renter. What do high quality renters want, where do they want to live and what do they need from the home they chose and thus the landlord?

    There is no one or correct answer. In a FL coast town it means something slightly different than a home in the plains states. I say “home” vs “rental” vs “SFR”. You need to understand your customer!

    There are general guidlines:

    – top school district then put the high school name in the ad subject. Select for young kids who will all go to the same high school. You’ll never hear from this family. Choose great schools 6 or better. Higher will mean less turn over and lower operating costs.

    – safe, area has low crime. Google: crime stopper, your customers will.

    – safe, nice and walkable neigborhood.

    I’m not suggesting you have to pay too much for your inventory. There are always the cheapest houses in top high school districts.

    Another tactic to attract good families especially when the rentals are far away. We moved 100% to rent to own, we will finance after 12 months. “bounce back” families desperately want to own their own home. Screen for “tenacity”, the ability to solve their own problems, handy at fixing stuff you won’;t hear from these folks either. But you do need to learn about Dodd Frank re seller financing etc, but the tremendous benefit is you are helping good families get a head which turns into a win-win.

    Our GA markets totally change every 12 to 18 months. The inventory we bought for rent to own has thinned out so we are moving to buying cheap stick builts in a very hot job market, but the cheapest area next to a hot jobs/rental market. This allows us to select from a bigger pool of applicants, better jobs and aspirations for improvement on the backs of all boats floating higher as the area improves. The poor locals who are very bad renters are being squeezed out by economic migrants moving to the area bringing their better work ethic and personal goals with them.

    – Choose rental locations near hot jobs. If your renters make more than enough to afford rent, have savings to bridge over a job loss you’ll rarely see late or skipped rent.

    It’s all about knowing who are the best renters, then providing what they want, where they want it. It’s NOT about houses!!!! I think this sentence sums up the biggest failing of most training programs, that focus on “houses” and “cap rate”. The later is 99% spread sheet magic that Ben’s point is that end of year in your pocket NOI is a far cry from spread sheet magic. Knowing your customer and what they want is what I’m advocating is how you achieve higher honest at the end of the year cap rate.

    Owning a portfolio of low management high profit rentals starts,,,,, before you actually buy. It’s still possible to improve a portfolio’s manageability, but you have much more leverage by choosing the right location and house.

  8. Ben,

    Controversial as always. As others have posted, perspective is very different for different projects. Your chosen REI path is not the same as others. Your path requires a high level of hands on and direct contact so property management would not work to ensure that your vision is realized.

    Other thoughts and digging deeper into your comments that “Real estate works, but only if you do”, does not preclude using property management. While not near the work that not using property management, managing the property management companies is work. Finding the correct properties is work. Lot’s of work even with a property management company. Using and paying for the PM provides other opportunities, like watching the Steelers/Bronco’s game. Knowing that the water leak reported late Friday night was taken care of while I sit all warm and comfy in the man cave. The bill, $225 + 5% PM fee to replace a disposal, including the plumber and the disposal.

    To your point on the reduction of profit, yep, absolutely correct. I take a hit for using property management. I also take vacations, will retire soon and take more vacations. As long as I have email access, it’s all good. I can be “sittin’ on a beach earning 20%” (Hans Gruber – Alan Rickman) while some other poor Sapp handles the repair. Or, as others referenced, working on the next REI deal.

    I could make more money without property management doing it myself, but I don’t need a second Tesla and the hassle is not what I need or want. I prefer to spend the money “buying” time to spend with my family, finding private lending deals, hiking or helping the kid with math, science and programming assignments.

    I have used REI for 20 years as a passive and part time investment, so did my parents. There are many of us that have good day jobs looking for diversification and it does work. While my returns will not be what yours are, they do range from 14 to 22 percent on invested cash over the years, killing the stock market.

    It’s all about perspective and goals. Not everyone wants to be a full time active real estate investor. There IS opportunity and profit in using a more passive approach.

    Kevin

    • Ben Leybovich

      Haha Kevin – I’ve never been told that I am controversial…where’d that come from? lol

      I get pretty good pay for 5 hours per month of time commitment. Better than losing 50% of CF I think…:)

      Thanks so much for jumping in!

  9. Luz Espiritusanto

    I respectfully disagree with the author of this article. It all boils down to how you value your time. I would rather pay someone else to deal with tenant calls, maintenance issues, etc and focus my time on other more important things. You can only manage so much- and before you know it; it’ll be a technician all your life and not actually enjoy fully the fruits of your investments.

    • Brandon Phillips

      Haha, I’m glad you said technician. Lately I feel like a damn handyman. I ran the numbers on a 4-plex I bought a year ago that had a ton of deferred maintenance and I’m pretty sure I was making about $10 per hour and I didn’t even really count the time spent on the phone taking the complaints and requests. I was so busy with my full time job and this new handyman job that I gave myself that I didn’t have time to look for more properties and I started to really miss my time at home on weekends to work on other projects. I hired a PM a few months ago and I got a lot of my free time back, I started looking for more properties again and I think my tenants are going to be happier. They can get to a repair on a Tuesday at 10am or take a call in the middle of the night, something that I couldn’t really do as a full time worker. I’m hoping to have another property in the next few months and bringing in even more money!

      • Curious…how can you be blunt and still require so much reading between the lines? Seems paradoxical to my simple mind, but I’m sure that just means I missed something between the lines or between my eyes. 🙂

  10. Scott Trench

    I think that this is a great article. I would be very interested to see the cash flow numbers from folks with PMs vs those without, and to see who built wealth through real estate using a PM.

    My bet is that the vast majority of those using PMs made their money outside of real estate, and merely park it in properties. Those that actually produced a ton of wealth or outsized returns will likely be those that worked for it.

    My hypothesis at least.

    I also think that using a PM comes with time and scale – years and millions or tens of millions in real estate value, probably. It makes no sense to hire a PM for a fledgling real estate portfolio like mine. But with 100+ units, it might make sense to have a couple of full-time employees. One of those might be a property manager.

    • Matt R.

      I have heard 100 doors is roughly the threshold to attract competent PMs. There must be a million exceptions and a million that fall into that bad PM scenario. So let’s say it is a 50/50 deal if you have less than 100 doors to offer. The risk is high you could have PM issues for most it appears.

    • Ben Leybovich

      Scott – I never know if you love me or not, so today is a good day!

      I’ll tell you one thing. You and I have butted heads on this blog many a time. It’s always because I am right, but you decide to argue 🙂

      But – I know you are paying attention, and learning. And YOU, and young people like you, are the reason I enjoy writing!

      I’l be in CA next month and very seriously considering renting a car and taking it up the coast to a God forsaken place called Aberdeen. If that happens, don’t expect Brandon to be “foundable” for a few days, as he will most definitely be preoccupied…

  11. Brad Shepherd

    That’s incredibly short sighted. You build wealth, real wealth, over decades, generally with appreciation and not cash flow. Someone doing real estate “on the side” and using a PM has a great opportunity to build wealth over the long run, while letting someone else handle the tedious tasks of property ownership. I’ll sacrifice cash flow for wealth, and time freedom, any day.

    • In my opinion, relying on appreciation to generate wealth is the wrong move. Never mind the fact that having cash flow doesn’t eliminate your ability to capture appreciation. To me, all that matters is cash flow. Appreciation, if it comes, is icing on the cake. Other than wanting to buy properties in areas that can maintain there value/attract good tenants, I don’t give a moments thought to appreciation and it doesn’t enter any of my calculations, when buying. It if comes great! if not, it doesn’t matter I have excess cash going into my account each month.

      I am, admittedly, a fairly small investor. I have 6 SFH and 5 duplexes. I found somewhere in the middle of doing everything and a PM is best for me. I maintain a full-time job and I take all calls and keep the properties rented. All of the maintenance is handled by a handful of local people I have established relationships with, over the last 6 years. Admittedly, I am giving away some of my cash flow, or all of it at times, by paying for labor, but I could not duplicate my current salary with my rentals yet.

  12. Jeanne Miller

    We’ve had some successes with and without PMs. We have 3 rentals, all houses we lived in but then kept when we moved away (in other words, they were primary residences that became rentals.) Two are in FL. The one with PM (12% plus fee equal to 1 month when tenants change) does great, decent return even after fees – but it’s also in a great neighborhood and school district; we have had it 25 years.The other one in FL, that we self manage from 3000 miles away, not in great neighborhood or school district has been, predictably, disastrous. We have not been able to find a PM to manage that one for us; we are preparing to fix it and sell and hopefully to reinvest in a neighborhood that will attract better tenants. We have owned it 37 years. We have a third house in a very small town in Wyoming. We have had 6 PMs in 15 years; we fired the first one who ran the place like a frat house. The others have come and gone on their own life paths. Some have been better than others. At one point we were bullied into 20% and chose to go with it since there was no other show in town and we had no options. Now we are at 12% and holding our breath. We’ve owned that one for 15 years. So overall, it has been a mixed bag for us with property managers. I guess the only consolation really is that those expenses are tax deductible which takes some of the sting out of it. I have to say though that if I were buying houses as rentals right now I would not dream of buying them somewhere where I could not personally manage them. I might not be the person wielding every hammer and paint brush but I would sure like to be closer to be able to keep a better eye on my properties.

  13. Dayna Amboy

    It definitely depends on the situation. Ben’s Symphony 10-unit needed a LOT of work upfront to get it running. There’s no way he could have had a PM do that, it would have cost way too much in all the up-charges. But once it’s stabilized and running smoothly? As long as he factored in PM costs into the original deal and it still cash-flows with that, it could be an option, freeing up time for Ben to do more deals or take a vacation.

    In general, despite the guidelines here to always factor in 10% PM costs, I seem to notice many people who don’t factor this in at all, and maybe wouldn’t have cash-flowing deals if they did. I’m not saying that Ben’s unit falls into this category, but just saying that it’s a trend I’ve seen here often.

    • Ben Leybovich

      Dayna – Ben doesn’t buy anything that doesn’t need a lot of work up-front, because Ben doesn’t believe in retail investing, as is evidenced in the aforementioned Podcast. You really hit on a crucial point – the elephant in the room, so to say. And this brings us to two worlds colliding…

  14. Mike McKinzie

    Ben
    Your job at BP is to stir conversation. You did it once again. Every single property has PM, it is just a question of who is it! Many times it is the owner of the property. Inserting that in your headline, it would read: “Investors: Believe me, you can’t afford yourself. Here’s why” Many have talked about how valuable their personal time is to them. You talked about your Symphony project. Imagine how much it would have cost you if you NEVER set foot on the property and every job you personally did was contracted out to someone else. You would have NEVER bought that piece of property. Every property I own, from CA to TN, I could personally manage as I used to run my own management company. But that creates a “ball and chain” on me, holding me back from so many other things! I just ran my numbers for last year, and my total cost of PM, INCLUDING ‘move in’s, ‘lease renewals’, etc… was 7.433% of gross rents. It would cost me MORE just to fly to each location ONCE a year. I have rentals in Central California that rent for $800 to $1,000 a month and my PM fee is a flat $50 per month, with NO New Tenant Fee, NO Lease Renewal Fee, NO markup on repair costs, etc….. In that case, I CANNOT afford to NOT have a Property Manager.

    So just like your “You can’t make money on $30,000 pigs” article stirred up great conversation simply because some folks rent out those $30,000 pigs for $1,000 a month. Your title should have added ‘if the rent is 1% or less of the purchase price.’ This article stirs up controversy because you are talking about purchasing a PROJECT instead of a TURNKEY. If an investor calculates in the cost of the PM before the purchase, then he/she knows before hand what that ROI will be. But like my “Dear Property Managers” thread, in recent years PMs are creating more and newer ways to gouge the investor. That is why I am considering starting up a new PM so I can show how it can be done as an advantage to both the investor and the PM!

    • Matt R.

      Mike I like your idea of starting up a PM. There will be 1000 bpers ready to use. There is probably not many who could be better at that. The need is there and you could be the best option. Sounds like a winner to me.

    • Ben Leybovich

      Mike – I’m not arguing with you cause, like me, you’re always right…hahaha This makes two of us!

      The title wasn’t mine. My original title would have driven even more traffic, but would have offended too many people. So, the nice lady at BP, Alison, who saves my ass every time, changed the title 🙂

      • Mike McKinzie

        Ben, you and I are always right, IN A GIVEN SITUATION. But as we both know, no two properties are identical. I own four houses on one street, all built in 1991 by the same builder and the same floor plan. But each one is VASTLY different. Each REI is vastly different. There is a good chance that at some time in your future, everything you own will be handled by a Property Manager. It might be your own staff, but you will get to the point where taking a 3 month long cruise will not be a problem because your business will be self running. And I know the title wasn’t yours, I just thought my little edit sounded pretty funny!!

  15. Matt R.

    Here is my property management story. I sold a house with a tenant. The day after it closes the tenant bails. The new buyer list it with the best manager in town. 9 months later and for less rent I see it is finally off the rental market. No one is going to be more interested in your property than you and even the best in town won’t care more.

        • Ben Leybovich

          People don’t get it. IT IS A BUSINESS!!! It’s not passive. If it is 140 units, the the PM is riding the pay roll personnel, and we are riding the PM. If it’s too small to support pay roll, then you have to be the PM – there are exceptions which prove the rule, but they are few…

    • Mike McKinzie

      Matt
      So many people use that excuse “no one cares more about your property than you” as an excuse to not hire a Property Manager, that it really is NO EXCUSE at all. It is a GIVEN that no one cares more about your property than you do. But, no one cares more about your CAR than you do and yet I bet you take it to an auto mechanic when it needs repair. No one cares more for your child than you do, but I bet you take your child to the Doctor when they get sick. And the list goes on. There is an old saying I will paraphrase, “A man who is his own lawyer has an IDIOT for a client.” And while I agree that there are a LOT of Bad Property Managers out there, I would lay money on the fact that a Really Good PM will manage a property BETTER than the owner would. One of the top reasons that beginning Real Estate Investors fail, after BUYING WRONG, is that they try to self manage. I have heard interview after interview of failed investors and it all rings along the line of “tenant horror stories” and they are usually tenants that the owners themselves put in the property. “A man who is his own property manager………………….” Other Blogs on BP tout the exact opposite of what Ben just wrote. If Ben were painting the walls in a unit, that he could get someone to do for $10-$12 an hour, then Ben feels that what his own personal time is worth. How much OPPORTUNITY did Ben lose because he wanted to paint that wall himself? There was come a time when Ben has a couple of hundred complexes and he will have no choice but to hire that work out, because saving $10 while losing $100 is not a good business model!

  16. Michael Boyer

    Good practical discussion and spirited comments, too..

    One reason I self manage that may not have been brought up is agency costs… No one is more incentivized to be efficient and act in my short and long term interest than me….

    I see exact units across from mine vacant and advertised for months by outside managers. I fill mine in a week tops with good tenants applicants to spare…same for turnarounds, where I use dozens of way to cut costs and speed the process (also tons of diy cleaning, painting, caulking, repairing, etc.).. You either need an in house staff or a symphony of service people ready to follow one another if you can’t diy.

    I am somewhat grateful for managers, however, especially those without their interests aligned fully with the owners because I feel I can outcompete them on my unit quality and service. For example, applicants tell me I have responded, shown the place, answered questions and have a full application before the professional manager even calls back (and yes, I even hear sometimes I am the only one returning calls, emails and texts that day)….

    Of all the costs mentioned, the very real but phantom agency costs can be greatest risk.. So I would have to see even more alignment of interests in the transaction to ever look at management…Best of luck..

  17. Tyson Hill

    Property manager here! Successful management companies are ran by successful, bright people. Problem is they are not the ones managing and they hire 40k a year employees who don’t care as much, and that is where the disconnect is. I think it is ignorant to throw a blanket statement that PM never makes sense. Every situation is unique. The key is getting the right one.

    I own a PM company, so I have an intense sense of pride in what I do and protecting my brand. I personally manage every property to ensure my clients are 100% happy. Truth is, every property I have picked up from someone who has “self managed”, I have found huge fundamental mistakes that cost them thousands, and they had no clue. It’s not that they did completely know what they were doing, but it’s the small things that cost them. It is usually a loss of rent due to not pricing the property correctly, high turnover, not screening tenants properly, and just not having a pulse on the market due to lack of involvement.

    Bottom line is, you hire the right person to manage, it will be beneficial. If you don’t, you will inevitably lose.

    • Christopher Leon

      Wherever you are, the investors should be lucky to have you then, where I am at, Ben is, and almost everyone else I know cannot find “the right person” as you eloquently put it. Don’t get me wrong, I agree with your premise; however, I am unable to locate the person your describing – and to me, that’s OK. I don’t care to run an entirely passive business. If I wasn’t managing my portfolio, I would have nothing to do.

      • Tyson Hill

        No doubt there are terrible PM companies out there.

        To me it boils down to experience with self managing. I would not recommend a novice to try managing. They will get burned and that is an expensive learning curve. You have to know the law as well. Our small claims courts are filled with landlords getting sued for mishandling repairs, deposits, etc.

        I have plenty of clients who choose to be highly involved and we work more as a partnership with plenty of communication. So they are not only learning the business based on my volume of experience, but they have a hand in it. Not to mention they don’t have the calls, the rent collecting, and trying to rent a unit while on vacation 🙂

        One more thing, I think the biggest issue with investors (especially new comers), is they don’t know how to properly identify and weed out the bad companies when hiring one. It is more about “how much” rather than “how are you going to care for my investment.”

        • Ben Leybovich

          Tyson – as I am sure you know, managing property is about people, not property. As managers, we can do very little to attract tenants. Indeed, property – what it is, and where it is determines who is attracted to it…and this is who we are going to get, and it’s who we’ll have to manage.

          So – it all starts (and ends) with what you’ve bought. If newbies listen to what I teach, they will self-manage just fine and will not get burned out 🙂

          It all starts with the asset you’ve bought!

        • Tyson Hill

          Good point, I’m just saying there are individuals like yourself that can handle it and do well, or those who really want to learn. Then there are those who would absolutely benefit from having a PM. Self managers out here in AZ still think Craigslist is how you rent your property. It’s comical really.

        • Curt Smith

          Tyson, I can weed out for good renters but don’;t have a clue on how to weed out for a good PM!!! References?

          Pete Fortunato turns all his rentals over to a PM that he has a Master Lease with (no option). Fixed rate to Pete, PM gets anything above the base rent amount. No insane 10% and first month and rip off repairs. Just a master lease, PM then is incentivized to maximize income into his pocket. That’s the only idea i have for setting the relationship with a PM on the right footing.

          Pondering choosing a PM makes my face turn purple. I’d rather design systems that are inherently low effort for me, like Ben but less competently I’m sure. 🙂

          My guess is that PMs are mostly bad is because of the bad idea built into the contract: 10% and 1st months lease up, plus repairs at arbitrary mark up. This guarantees the PM is NOT going to be fair to the landlord.

      • Tyson Hill

        Well Curt, here are a couple of pointers and thoughts:

        -I’m 8-10%, no junk fees (leasing, maintenance, etc.). I’m as transparent as possible so my investors know what to expect each month. I literally get paid on collected rent, that’s it. It’s called “ALIGNED INTERESTS.” There are companies that do the same, you have to find them. Just like any other industry, there are people who want to rip you off, and then there are legit honest ones. You have to be willing to find them.

        1- Don’t focus on company, focus on WHO will actually manage the property. They will have the biggest impact on your property.
        2- Don’t worry about price until you find the right company. Then negotiate it. If you base your decision on price, you will lose.
        3- Location. If they are not within 5-10 minutes of your property, they won’t do a good job. All my properties are very close so I can move quickly on opportunities to rent.
        4- YELP reviews! don’t worry about pissed off tenants, they come inevitably. Look for actual investor complaints. The really bad companies have an insane amount of negative reviews.

        • Ben Leybovich

          Tyson – I’ll bite. I like you. I focus on the fact that I like you, and you’ll be the one managing my asset…

          You cross the street. You forget to like right and left. You get hit by a car – you get taken out!

          I didn’t focus on the company. I didn’t underwrite the infrastructure of the company. I hired YOU because I thought you were great…you’re gone now. What the hell do I do now?!?!

          See my point? We work with systems, because that’s what is sustainable. You must be expendable and the next guy must be able to walk in and run the system… Yet, you want me to focus on how great you are…see my point?!

  18. Jerome Kaidor

    Ben, I’m with you. I have *never* used a property management company. I hire and train
    on-site staff as needed, and do all the back office work myself. I have taken steps to refine and streamline the office work as much as possible.

    Wait, let me modify that. I *did* hire my RE broker to do property management once. For two months. On my first apartment complex, the lender demanded that I have it “professionally managed”. OK, I signed a property management agreement with her and paid her for two months of “management” that we actually did ourself. Then we “fired” her and continued on our own.

    Rental property for the most part, is a low-margin business, and a PM company would simply eat all the cash flow.

    With suitable software help, I am able to manage a hundred units as a part time job.

    – Jerry Kaidor

    • Ben Leybovich

      Jerry – I just write what I know to be true. That’s all I can do. But I respect that different folks,, different strokes. So, all of those who can make it work on a small scale with a PM – God Bless!

      Thanks for jumping in:)

  19. Mark F.

    Ben, with all due respect, I disagree. Yes, good PMs are not easy to find if you’re a small investor. BUT, they are out there. We’ve done very well with our PM, and yes, we’ve actually MADE MONEY. I can pull the reports to prove it.

  20. Lance A White

    I would not waste my time managing a property. In the year it take you to develop that property I could have purchased four more that size. Put a management company in charge to rent it. And continue to do flipping. I don’t know how anybody can afford to manage things on their own it sounds crazy to me. I think you bought your property incorrectly at too high of a price. We always Factor Management into our properties because we have investors who don’t manage their properties and don’t want to. We have others that do want to and they take the 10% for themselves and all the headaches that come along with it. My golden rule is not to listen to somebody that says you can’t do it it is to find the person that is doing it and then copy what they do.

  21. Nathan Gesner

    Another PM here but I’ve also owned investment properties that were managed by others. It sounds like you’ve got a good grip on the cost/benefit for yourself but it’s awfully misleading to apply that to every investor. Take it with a grain of salt. 🙂

    First, it sounds like you spent the first year or two dealing with renovations, so your analysis is a bit unfair. The property manager’s responsibility is to protect your investment and your revenue stream, not handle renovations for the owner. That’s why we call them property managers and not property renovators. Once the property is “rent ready” then you can talk about what the PM is or is not capable of.

    Second, you are applying your personal experience to every investor as if we are all created equal and have the same skill sets. In my experience, most people are not capable of managing investment property. They suck at dealing with conflict. They are push-overs when tenants give sob stories about why rent is late for the 4th time this year. They don’t have policies or procedures in place and would’t know how to create them or even steal them from someone else. The don’t know how to analyze the market and think that keeping their rent low will ensure the tenants appreciate the situation and care for the property. They have no idea how to screen applications to keep bad tenants out and they don’t know what to do once the bad tenant is in and causing trouble. I’ve picked up about 100 rentals in the past five years and the majority of properties I pick up for management are from Landlords that have lost a TON of money due to unpaid rent, damages, vacancies, evictions, and the like. About 80% of the portfolios I pick up make more money AFTER paying my management fees and their properties are in better condition which improves equity and the ability to sell in the future. While you argue they can’t afford to use me, I would argue they can’t afford to NOT use me.

    Third, as others have pointed out, it also depends on what your time is worth. You said PM would cost you $7,000 a year for ten units. If you spend less than ten hours a month managing the property, it makes sense for you to self manage (assuming you are good at it). But if you are spending more than that then you are probably losing money because you could be spending that ten hours finding a new deal. For example, an attorney could pay me $100 a month to manage a SFR and he could earn $300 – $600 in the same amount of time, effectively increasing his income $200 – $500 a month. It may cost you $7,000 for a year of management but you have potential to make twice that using the same amount of time flipping a property. And if you are a mediocre Landlord, hiring a PM may save you even more because you aren’t hiring attorneys for evictions or dealing with lost rent income, damages, and other losses that a professional can protect you from.

    Fourth, the idea that you can always manage from a distance is extremely optimistic. Having a high-end rental in an upscale community makes it easier, but is that realistic for most investors? I would venture to guess that the vast majority of BP investors are with B/C properties. A Landlord two states away is incapable of handling move-in/move-out inspections, driving by the property every month or so to check lawn maintenance, etc. They may be successful for a while but they are playing with fire and will eventually get burned.

    I recently worked with an investor that lives in Florida and owns a SFR in Wyoming. He flies from Florida to Wyoming to handle the move-out inspection, clean/repair, market, show, screen, and get tenants under contract. Then he flies back to Florida, satisified that he didn’t have to hire a “thieving” property manager. Meanwhile, his costs are easily twice what I would charge for a year of service and I would do a better job. Penny wise, pound foolish.

    I can see where it makes sense for you to manage your own property and that you may be getting a better return. To claim the same is true for every investor – or even the majority of investors – is unwise. I would argue that the majority would be better off hiring a PM, assuming they do their due diligence and find a professional and not a glorified rent collector.

      • Ben Leybovich

        Hahah – No, what I think we are saying is that in the time that it takes to find a good PM, we can buy a building, re-position it, refinance it to drive the IRR, makes some cash flow, buy a Tesla, and take it cross-country 🙂

        No doubt there are good PMs there somewhere, but who’s got that kinda time lol

        And, btw – I wouldn’t think of managing a syndicated 100-unit. That’s a job for a professional manager…a job I don’t want, nor could do well 🙂

  22. Terry Martin-Back

    No good PM’s, Hummm? I also know it’s just as difficult to find investors who willing to pay to turn their unit, upgrade and modernize to maximize rental income. We have had to fire many investors over the years because they wouldn’t turn their properties properly. We were investors long before we were contractors, realtors, brokers and PM’s. We teach people how to buy for the long term and if they can manage their investments, that’s just more money in their pocket at the end of the year. I will agree, there are PM’s who really suck at their job but their are many PM’s in our area who do an outstanding job.

    • Mark F.

      You raise a great point that I don’t think I’ve ever seen mentioned anywhere. As an investor, you definitely want to find good management, but it’s also important that you’re the kind of investor a good manager would want to work with. If your units are run down and a mess, then it’s a good bet no quality manager will want to take them on. Before you can have a good manager, you have to be an investor that’s good to work with and have a property worth managing.

        • Mark F.

          LOL, Ben – I’m just arguing because I know you enjoy arguing :).

          No, really, for me, the PM is well worth the cost. I have a full time job and a family and calling plumbers and qualifying tenants would be a big headache for me. I have ZERO problem with the fee I pay the PM. It’s money well spent!

  23. William Carroll

    Nathan Gesner has some good points, I will restate those that apply to me, plus a couple of my own…

    1) Property Renovation is not Property Management
    2) My PM is a full-time professional at PM, I am not. He is flat-out better at it than I am, and will likely continue to be in the foreseeable future. If he gets me 5 weeks per year of non-vacency through better screening and faster placement, he has already paid for his services in full.
    3) Those with high-paying, high-stress, 50-60 hr/wk full-time employment are typically compensated in such a fashion many of us are simply better off paying a PM and focusing on your job (and other aspects of investment), especially if variable compensation is a large component of your FTE haul. Those of us with non real-estate full time jobs live a much different reality than those who REI full-time.
    4) “Mr Nice Paying Silicon Valley Job” and I are typically not buying properties with razor-thin cash flows, so a PM eating off our plate is not typically putting us at negative cash flow risk.
    5) For me, I have time to acquire, renovate, or manage… but certainly not all three. Management is the low hanging fruit and most easily passed off without needing my input.

    PM certainly does not make much sense when:
    – You are a full time REI, but too small or few properties to put a PM on your payroll (barring some personal issue that absolutely precludes you from DIY like physical handicap, psychological, affluenza, etc.)
    – You have razor thin cash flows (common in low/no money down)
    – You have a full time job, but have fine-tuned your PM system to such a high degree that near minimal involvement is needed OR you are so underworked (definitely not me) or loosely managed at your job that you can deal with whatever PM issues you need without repercussion from your management chain

    If you do use outside PM, it is best that their incentives are 100% in line with yours… i.e. they don’t get paid unless you get paid. Percentage of revenue only, no re-leasing fees, no per-door.

    YMMV….

  24. nick doria

    Ben this article pretty much sums up my thoughts on PM’s and lets me know that i’m not completely nuts for thinking the same thoughts as you do

    -why pay somebody more than 10% of my cashflow to mismanage my property when i can create my own system to reduce the amount of time i spend while still getting all of the same things done that they can !!!!!

    – for all of the people saying what your time is worth here is something to consider.

    1.) Why would you rather hire out the most important part of becoming an investor in real estate other than finding deals and ruining the numbers ?

    2.)on top of that even if you do hire a PM, if you have never done it HOW will you find a good PM ? you cant because HOW can you tell if the person in front of you as a PM even knows what they are doing ?

    3.) Saving Time isn’t always what it’s worth in terms of what you may give up in money. why wouldn’t you much rather spend the time to build a process where as ben has where i only have to spend a few hours a week or even a month? isn’t one of the biggest reasons most people do real estate is to free up time and to have freedom from a job ?

    • Ben Leybovich

      Thanks, Nick!

      I think that the folks driving at the value of my time – a) Know very little about me, what I do, and how I do it; and b) Would change their mind having lived in my shoes for 1 month 🙂

      I’ve worked very, very hard to be able to live on my terms, and to a very significant degree I do!

      All of these folks arguing the other side are stuck in a W2 situation, trying to buy TK pigs in Mid-West and outsource management in hopes of a dream of replacing their W2 income – all they want is my life…this is why they are all here at BP!

      The want my jobless, boring, 5 hour per month property managing, system-building, business-starting, take kids to school in the morning and pick up in the afternoon, country-traveling, Tesla driving life… LOL

      What they don’t understand, because they haven’t done their research, is that the diagnosis of Multiple Sclerosis makes me very cognizant indeed of the value of my time – it is why I do what I do. And it is why in lieu of arguing, they should listen 🙂

      I don’t know how long I’ve got of being able to enjoy my time. So – I enjoy it today! And fixing mistakes of an incapable PM just doesn’t fit my model…

  25. Terry Martin-Back

    Reading all the comments, there is a lot of good info from both sides of the conversation. I’ll finish with this analogy; I hire a stock broker to manage my portfolio, if it doesn’t grow the way I want it to, I fire the broker. If I handle my portfolio and it doesn’t grow the way I want it to, I’m stuck or I can find another broker who is really professional. If RE investment is your full time job or you have a system that works for you, great! What works in your community may not work in mine because every house is different, every town, every state are all different. There are PM’s who really stink at their business, (no systems in place), just as there are many investors who get involved in REI, cash strapped and inexperienced and shouldn’t be in the business. Interesting commentary, thanks for the insightful piece.

    • Ben Leybovich

      Terry – yes and no. Performance of your paper is much more a function of the market and less a function of your broker. Reverse that for RE. Stocks can be sold with one click – not RE. Those are different worlds, and you may not discounting this in your thinking enough 🙂

      • Dan D.

        I do not use a stock broker because I can’t see how they can’t justify the 1% they get when an index fund will out perform them at lower costs.

        Same reason why I will manage my own properties as well. I can create a relationship directly with the plumber, handyman, roofer, in my area and get real feedback directly regarding a job vs relying on someone else to play the telephone game in which I won’t gain the information from a 2 minute conversation.

        The value isn’t in the reports you get from a PM group, the value is in getting information on your property from the people who service it so you can anticipate future expenditures.

        Many people think that if you don’t have a PM to manage it, you need to roof, fix plumbing, etc., yourself. That’s not the case.

  26. Randy E.

    For once, I agree with Ben with almost no reservation.

    I also agree with Scott. If a person creates wealth (relatively speaking) outside of real estate and has the ability to continue to do so, it may make more sense to employ a PM from day one. However, if an investor is working hard to use REI to help build wealth (or at least make life easier,) then it makes very little sense to employ a PM.

    I’ll bet everyone here who says “I would rather have my time than save a few dollars by not hiring a PM” makes significantly more money outside REI than through REI. Or they’re just a special kind of lazy.

  27. Dana Dunford

    Thanks for sharing your perspective. I couldn’t agree more from a cash flow investor’s perspective.

    One other point – Something that frustrates me with property management is the lack of transparency. When you own a valuable asset but someone else owns the data and communications, then you don’t get a full picture of what is happening. The property manager controls which “reports” are sent to the owner via their software, which has always been frustrating. If I own the asset, then I should be able to have 100% visibility into what’s happening day-to-day. (Just like I want that visibility with my stock portfolio.)

    Ben – What are your thoughts on that?

    • Jerome Kaidor

      Absolutely! WRT communications. I have supplied a toll-free number to my tenants. During business hours, they can pick up the phone and talk to the owner. Sometimes the calls are annoying, but not that often, and tenants have given me important information over the phone.

      Recently, I have gotten a lot of mileage out of texting. Nowadays, almost all of my tenants have
      cell phones. I send them rent receipts via text. I also have software that lets me send text newsletters…. “bug spray on tuesday!”.

  28. Thomas Fosnaugh

    Great article Ben. I own and self-manage 8 units in Iowa and I have no idea why people pay for what passes for “professional” property management on most properties.

    This last June, I stopped by an onsite office at a local 50ish unit complex to follow up on a tenant application since I couldn’t get anyone on the phone. There were flyers and banners everywhere advertising vacant units and a sign on the door that said they would be out of the office all week and to try back later – makes you wonder how valuable that owner’s time must be.

  29. Chris Clothier

    Ahh, Ben! You are becoming the king of writing articles that get comments…I applaud you for taking a stand and then sticking with it. You may actually believe it, too. But no way will you ever catch me agreeing with this stand.

    Forget that we built a management company ourselves managing roughly $350 million in asset value for investors – and growing. It was built on customer service and experience, which we know for fact is nothing like most management companies. What some deal with in PM and the reasons many use to scare other investors about PM, is a foreign concept to me. But, set that aside for my real reason for disagreeing with you.

    I am a full time investor who simply values his time at too high of a rate to waste any of it self managing. With a family that wants my time, a business that wants my time and being an active person that absolutely devotes time to himself and his own development, property management is the LAST thing I am going to waste my time on. The numbers simply do not add up and neither do yours. You devalue what others do for you and play to the worst fears investors have about property management.

    I am quite sure that Brandon and Josh could have another round table podcast with 3 very successful investors who would never dream of self managing and yet they somehow make it work – and very profitably!

    • Ben Leybovich

      Hahah Chris, I’ve commented on the value of time several times in this thread. And, for what it’s worth, I’ve also indicated to you that I hold you in a different category from vast majority of others. TK is not for me – never was, and never will be. But for some it may be the only way, in which case I tell them to find you…

      What can I say. You are much better than 99.99% of others out there. This, however, doesn’t discount my argument 🙂

      • Chris Clothier

        Again – my hat is off to you for a great article that gets some convo going back and forth. I love reading your takes and that you know nothing is ever personal in the comments! I think we are about 50/50 on our agree/disagree charts!

    • Jerome Kaidor

      we built a management company ourselves ….
      property management is the LAST thing I am going to waste my time on…

      Huh? Am I the only one who finds this illogical? Chris, I’m sorry you had to waste so much time on property management.

      Personally, I don’t find it a waste at all. The human comedy keeps me entertained. Pass the popcorn! I will say that I outsource a lot of stuff. My bank handles the money. My payroll service keeps me legal on that front. My CPA helps me deal with taxes.

      I used to be a computer programmer, and have a lot of fun writing software to automate parts of the business. I also enjoy not having a W2 job. Haven’t had one of those since 2003.

      • Chris Clothier

        “Huh? Am I the only one who finds this illogical? Chris, I’m sorry you had to waste so much time on property management.”

        Let me help you out understanding the logic Jerome. My family and I built a company to provide a service that hundreds of thousands of investors – just like us – wanted and needed. Find a service where the masses are not being served well and improve upon it.

        That is what we did. That is called building a company, which I am very actively involved. Self managing is called wasting my time, which I am not involved in at all. Today, I use my own service and have properties in three cities of which I do nothing at all as far as management, maintenance, collections, deposits, etc.

        That is left to the experts on my team whose job it is to perform for me and roughly 1,150 other completely passive investors. Precisely because we hated managing our properties so much, we built a company to provide that service for us and other investors who want to be passive. And just to be clear, I own properties in two other states where I use 3rd party property management too.

        I will never self-manage again. Hopefully that cleared that up….

  30. Steve Hamilton on

    Ben I have a lot of respect for what you have to say about real estate investing, but this one I just have to disagree If I didn’t have property management I wouldn’t have time to do anything. Of all the aspects of real estate investing, the most frustrating but least often left to the experts is property management. Do it yourself management can be the most expensive and time consuming part of property ownership. It is the one very major factor that can make the difference between profits and loses in income property investing. Hiring good professional management helps the investor avoid the expensive learning experiences from the school of hard knocks and allows him to continue using his specific investing expertise to attain financial freedom.

    • nick doria

      Like i have posted before if you haven’t at the very least studied Property and developed some strategies and processes to handle a building how will you know that a PM knows what they are doing ?

      If property management is so important other than knowing how to find and analyze a deal then that means that they SHOULD focus how to become an efficient PM and NOT on outsourcing the task because they are lazy and don’t want to put the time in !

      Let’s be honest here with ourselves when something matters you always find the time to make things happen no matter what you may have going on.

      • Mike McKinzie

        Nick, I don’t know if you are a father or not, but do you think that a child matters to his/her parents? So, using your logic, a parent needs to take the time and study to become a teacher, a doctor, a sports coach, a dance coach, a music teacher, etc… Or is it better to take your child to someone WHO has studied that particular area of expertise? If people want to manage their own property, then they did not buy an investment, they bought a JOB. And that is perfectly fine, it’s no different than buying a Subway, a 7-11 or a McDonalds. It is a BUSINESS. But other people buy Real Estate to NOT have a job, to NOT have a business. Investing in Real Estate does NOT have to be a Business!!! It can be a business, people can get emotionally attached to a piece of dirt with some wood, stucco and cement on it. Or it can be an income stream that allows me to do whatever in the world I want to do. I own 25 rentals, 20 of which I have NEVER even seen. And I am retired, living on that income. Why in the world do I want to see that house? So I can get some sort of emotional ‘vibe’ and decide whether to buy it or not? And why in the world do I want to hear another tenants excuse for why the rent is late? And before anyone posts “then maybe real estate is not for you”, don’t bother, I have been around Real Estate for a long, LONG time. I was mowing yards of rentals when I was 10 years old and bought my first rental when I was 19. It is a proven fact that if a person manages their own rental, their chance of failure increases! And that is mostly because they were not trained to be a PM. Real Estate can be purchased with zero PM knowledge!

  31. brandi carballo

    I have 5 properties and had a PM for one 4 plex when I lived 6 hours away. It needed work and one unit was vacant, I just couldn’t do it from far away. I went with the most highly recommended PM in my area. This ended up being more problems than it was worth. They hired an electrician to do work, but didn’t check the work and the electrician left exposed wiring sticking out of an uncovered junction box. I found it MONTHS later when I visited the property. I told the property management company about it, sent them a picture and asked them to fix it. They never did. The lawn care people they hired charged $100 per visit and spent less than 20 minutes mowing the lawn. When there was a problem such as a broken heater or fridge they hired the easiest people to hire, not the best, and they definitely didn’t take value into consideration. So on top of $210/mo in fees to the PM, I had to pay $100/mo for lawncare and extra for maintenance and repairs that we could have done ourselves, or found someone qualified to do it for less, or at least found someone of better quality to do it. When we moved closer to the area I fired the PM and took over. I now have someone mow the lawn for $40, saving me $60 per month. Not to mention the management fees. I had wanted to hire PMs so I could be more hands-off, but it just isn’t worth the cost.

  32. Jerry W.

    Ben, I had to comment. I will start this off by saying I am sure you are better at real estate investing than I am. As usual I am going to disagree with most of what you say.There are very few absolutes in real estate. Situations are fact drive not controlled by Ben says. I know I am going to amaze you but I am actually making money in my area on a small apartment complex that I have managers for. I am sure you will want to fly out immediately and see this miracle. I am sure you will want to interview me for your new book. You see I have this dreaded thing called a job. It allows me to pay my bills and helps me convince banks I am worth loaning money to because I have a job. There are only 12 units spread over 3 buildings. When we bought 2 of the buildings about a dozen years ago we inherited the property managers. It was horrible, one was a mom, and one was a pop. Yep they had a child. Surprisingly enough they overcame that massive handicap and were able to do things like interview tenants, collect money, send letters telling tenants to move junk cars, or have boyfriend move out. They change locks, call the yard guy when grass is too tall, etc. They inspect when folks move out, they hire people to clean sometimes. They only call my handyman for repairs. They call me if they are in doubt about renting to someone. They send quit or decease letters, if needed I send move out or else letters. They get 10% of gross rents and any late fess they collect. No lease up fees, no margin off of having work done. I know you will be wanting to interview them and see how they overcame being parents to actually doing a job they get paid for. I know you are not used to seeing folks like this.
    Another valuable lesson I learned from your post was from your comments on how you were there every day for 6 months and every other day for the next 6 months, and you had massive turnover that year. You were secretly saying that no tenant could stand to be around an owner that much and they would move out. By letting my property manager take care of the property and by me not going there every day I will not drive my tenants out. I also noticed how the less you showed up the greater your income was from the property, that means tenants will pay more if you stay away from the property. So by staying away I will make more money like you.
    I unfortunately do work on my own houses as often as I can in part because I am cheap and in part because I enjoy it. Believe me it often nicer to put a new roof on the summer than going to work on many days. I could make more money hiring a handyman to do repairs by spending more time in my day job but it would be offset by the cost and time spent on mental health counselors.
    I do manage my own SFRs. I have a dozen and a half or so locally. The turnover on those is much less than in the apartment building. Many tenants stay 4 or 5 years and I have had several for over 10 years. My rents could be higher but I prefer to keep rent down for good tenants to keep them. I will probably keep the property manager on the 4plex I am buying. like you I will probably take money to the closing, especially if I want to buy lunch. I will not be putting any of mine in the closing. I will not do as well as you on your 10 unit. I will like lose a small bit a month for 1 month. Break even for 4 months, then show a small profit for several years. Assuming no major rent increases I should be making $80 to $100 per door at the 5 year mark. I will not be able to figure even an ROI as I have no money in the property, it is all bank and owner finance. If all goes well I will own the property in 20 years for managing the manager of this property. The property is in a town 32 miles away from me.
    As a closing note all joking aside I want to thank you for writing this article. I rarely agree with anything you say, but you always make me think. In order to grow you have to open your mind to new possibilities or change the value system you use to look and evaluate things around you. The thing I liked most about college was the experience of new concepts and experiences. It wasn’t just learning it was the opening of my mind.
    I was slightly worried I might damage your ego but in retrospect I doubt a howitzer would do that and my small arms fire would be unlikely to scratch the paint.
    The thing I most admire about you is an adjective and maybe a noun. It is your grit. You have what it takes to get a job done and it shows. You also have an abrasive quality that can cause discomfort. Be well in your investing and I wish you health, happiness, and long life.

  33. This is quite depressing. What happens if I never make it to the big time? Will I never be able to retire, hell, even take a vacation? Is there no hope at all, if property managers are useless scumbags?

    • Curt Smith

      Chris, read my post Jan 19 at 7am. Take Ben’s comments as a back drop. My post offers a great solution!!!!

      We self manage 32 rentals and no problem taking vacations or getting bored. I have a day job and spend 99.999% of my REI time on new inventory and the rent ups. We rarely have turn over. A garage door that jumped the tracks last week. 2 texts to contractors poof, fixed. No problems if you have business rules designed to buy right and to attract low effort renters then vacations are no problem.

      I’ve been pretty shocked everyone ignored my post. Ok, I guess folks like high maintenance renters and frustrating over PM choice. I don’;t get it??

      • Nathan Gesner

        Curt, I suspect the post from Chris is employing sarcasm, though I could be wrong. I read your original post and agree with it completely. People probably don’t focus on your strategy because it’s not the point of the article. The author also appears to agree with you, which is interesting because he didn’t seem to employ that strategy with his purchase of Symphony. He admits spending a ton of time, energy, and money turning the property around. It wasn’t really profitable until the third year. He even admits to calling Brandon Turner many times and threatening to walk away from rentals. The only reason he’s successful is because he had the time and tenacity to stick it out and fix his mistake.

        If there are any investors out there thinking Symphony is a great success story, please contact me immediately! I will sell you a 7-plex with a strong rental history. After you buy it, you can move here and spend the next year pouring all your rent income and energy fixing it up. ALAKAZAM! In just two short years you’ll be turning a profit and writing articles slamming an entire profession while touting your mistakes as successes. 🙂

        • Curt Smith

          LOL!!! Nathan, your reply is a great example of why BP needs voting buttons on blog replys too, one for quality the other for entertainment. I’d press both buttons on your reply. “ALAKAZAM in just two short years…” OMG!!! Tnx for replying!

        • Ben Leybovich

          Nathan – so are you saying you can do better for me? 100k on the balance sheet, no cash in the deal, and $20,000 of cash flow (discount by 50% – $10k of annual CF).

          Dude – if you can do me better. If you can find me a deal that I can have nothing into after 3 years, $100 of value, and $20k of CF – call me TODAY! I’ll be ALL IN and let you manage it for me hahahah

    • Curt Smith

      True Ben, True as Jerry from Texas said. Jerry really wrote a great reply, including the last paragraph “grit” part. In the end the tough get going with or without a PM.

      Thanks Ben for stiring it up! I would have taken the zero down deal too,,, as Jerry did but have a good friend contractor do most of the time at the place and not me. Tom Sawyer would have made a great real estate investor (as long as he paid the fence painter some fair rate)!

  34. Nathan Gesner

    Ben, you wrote an entire article disparaging a profession so I’m assuming you have a thick skin. Forgive me if I’m being too blunt.

    I agree your property is a success. I disagree with your statement that you got the property without any money. You fail to include the true cost of your time and the loss of rent income.

    I’m in a hurry because I have a full-time job stealing money from investors…I mean, managing rentals for others. Forgive me if my numbers are a little loose. First, let’s assume you would normally earn $50,000 at a normal W-2 job. You chose to work on your investment for at least a year, which means you lost $50,000 that you would have earned from another job. Second, you invested a down payment of $5,000. Third, you spent approximately $21,000 of rental income on the property in the first two years. Loosely speaking, that’s an investment of $75,000.

    Unfair you say? Well, another investor could have put $5,000 down on a property that didn’t require a year of swinging hammers, evicting tenants, etc. They could have continued working their regular job and earning $50,000. They would have hired a property manager and spent about 1/3 of the rent income compared to what you spent. Their overall earnings would be about $65,000 more than what you earned.

    Your value increased because you personally swung a hammer and managed the property. But your growth is only $75,000. You could have earned twice that at a W-2 job, which brings me to my point. Many people choose to continue earning a good paycheck at their W-2 job. They put $5,000 down on an investment and then hire someone else to swing the hammer and deal with evictions. In the end, they still see the same growth with their investment that you do but they also have the increased income from their 9-5 job AND they don’t have to call Brandon Turner for a shoulder to cry on.

    I’m not knocking your success or saying that I’m somehow better than you. You clearly enjoy what you do and I suspect you will be very successful at it. But that’s no reason to knock every property manager or insult the intelligence of those that choose to use them. Everyone on this board knows this simple fact: the most successful real estate investors in the world do not swing hammers, collect rent, or file evictions.

    • Ben Leybovich

      Nathan – I’ve not had W2 income that I didn’t pay to myself in 5 years. And I haven’t touched a hammer in 7.

      I really do appreciate the fact that you are standing up for what you believe. Some advice – the key to negotiation, or as the great Greeks said – persuasion, is knowing the predisposition of your audience. Read up on me and you will understand – there was a time when I physically couldn’t swing a hammer even if I wanted to. I can today, but I won’t, because I don’t know how long it’ll be before I can’t again. And besides – someone else needs the money more than I do.

      I was clear to indicate that there are professional management companies. If yours is one of those – I congratulate you. This is work I would not want for myself!

  35. Karl B.

    I agree with you, Ben. Ideally, I’m planning on having an employee of the family business do my PM work. She’s an intelligent person and the business is only 5-10 minutes away from the unit I’m planning on buying.

  36. Anish Tolia

    Maybe its the fact that you are trying to do zero down deals has something to do with the fact you cant afford the PM? What you are saying here is that unless you are willing to spend hours on the property management you should never buy an investment home? Thats simply not true. Those of us with day jobs that pay a hell of a lot more than the piddly cash flow these deals generate are not going to spend our times chasing deadbeat tenants, calling eviction lawyers, calling repair people, checking to see if the fix is done, dealing with showings of vacant units etc. There is no way the cash flow or ROI would justify that level of my time. I would need to generate over 25K per month, not year, to make that worth my effort. But I am happy to take a decent double digit return on my cash invested and do it mostly passively. And if I cannot afford a PM and get those returns, I will not do the investment. Now I am the first to admit the PM has a huge impact on the returns of your investment. And maybe I just got lucky and have a good one.

  37. Brandon Gentile

    Wow, good work here Ben! I found my head going back and forth like a tennis match here. I am believer of both sides. I do feel like many of the arguments are great, the only problem is; I don’t think everyone is arguing the same thing 😉
    Whats good for Ben is not good for everyone. What is good for Brandon is not good for everyone – as many have said to some degree. Something to chew on and think about and apply to your OWN situation and thats exactly what these articles are supposed to do. Good work!

  38. Logan Hassinger

    Decided to read the article for the second time since it was first posted. Read all the comments and came to conclusion that this is why real estate is so great. So many enefficiences due to so many opinions, which allows smart investors to create value where others cannot. Seems that most of the commenters here have missed the point that Ben never did any of the manual labor required to reposition the property. His time was spent managing others, which is what a PM does in the end. If there are local PM’s in a given market who are willing to take on a project this small and do the job Ben has then kudos, I just haven’t met one.

    Good luck to everyone.

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