The Biggest Lie Investors Are Told About Property Management

by |

Like all of you guys, I receive BiggerPockets newsletters in my email box. Like most of you, I skim to see if anything piques my interest — something did! There was another article on a popular subject of gurus.

The article was entitled “The 13 Tell Tale Traits of a Real Estate Investment Guru.”  While I do not necessarily disagree with the article, I have a few counterpoints to offer. So, with all due respect, here are a few thoughts.

Download Your FREE Tenant Screening Guide!

Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.

Click Here For Your Free Tenant Screening Guide

“Guru,” Defined

According to Merriam Webster, a non-religious definition of the term guru is:

  • A teacher or guide that you trust
  • A person who has a lot of experience in or knowledge of a particular subject

Well, hell — if the shoe fits, you know what I’m sayin’?!

I am a teacher. I know lots of stuff about this business. And lots of you guys trust me.

Like I said, if the shoe fits!  

So yeah, when I see an article like this, I get a smirk on my face.

And with this, we’ve arrived at the counter punch:


Related: Why I Fired Property Management — And Began to Manage My Own Investments

Property Management

One of the biggest lies in all of real estate investing is that you can outsource property management and see any success at all. Unless the project is large enough to absorb payroll, you cannot outsource PM. In fact, one of the most honest lines ever uttered on a BiggerPockets Podcast episode was by my friend and yours Serge S. in the by-now-infamous Podcast 152 with Burke and me, when Serge told anyone who’d listen in no uncertain terms — you can’t make money using property management, and he is right!

For Example

Let’s just imagine a building with a bit over $70,000 in gross top line. After OpEx, CapEx, and debt service, let’s just say that this building cash flows $18,000/annum.

Now, if you were to outsource PM, it would cost you 10% — that’s it, a mere 10%. If all you look at is that number, 10% doesn’t look or sound too bad. And truthfully, the manager needs to make money for their effort, so it’s not like plus or minus 10% is unfair either. Understand, my thesis here is not that all property managers are bad — only that bad or good, you can’t afford them!

Why? Because realizing that this tiny 10% equates to a $7,000 annual fee on a building with $18,000 free cash flow after OpEx. CapEx, and debt service. If my math is right — and I’d sorta like to think that it is — you’ve just given the PM 39% of your profit margin. Now instead of $18,000 of cash in your pocket, you are looking at $11,000 — can you afford that?! If you are buying this building and others like it so that you can replace your W2 income that’s killing you, can you afford a PM? Can you afford to give up $7,000 out of $18,000?!

I know I can’t. Not on this building, nor on any of the others. 🙂

This isn’t rocket science, guys. Like Serge said, you can’t afford property management if you are going to rely on this income.

One Exception

The only exception to the rule is this:

Some of you are extremely highly paid professionals, and I am not talking $100,000 W2 income here. In this case, first of all, you are not buying buildings for cash flow — you are buying them for depreciation and whatever cash flow you can get. Secondly, your time, in dollar terms, is worth more than the actual and economic cost of PM. So, for you, yes, a PM is a good idea.


Related: Premium Property Management Really IS Worth it: Here’s What it Can Do For You


If you are not one of the folks who fit the description in the above paragraph, please do yourself a favor and find someone who will teach you every trick I’ve learned about buying the right building, which attracts the right kind tenant. And while learning this may cost you some money, I promise it will cost infinitely less than hiring a PM!

Investors: Do you agree or disagree with this assessment of property management? Why?

Let me know your thoughts with a comment — and let’s discuss!

About Author

Ben Leybovich

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


  1. Logan Hassinger

    The biggest point so many miss regarding PM is the point that you hit on at the last. Most view self management as a hassel and that it’s so time consuming, so they sub it out. However, buying the right property and having systems in place allows for a more hands off management style because of the tenants the unit attracts. Everyone wants to analyze a property with random percentages for expenses and a 10% PM fee and if it meets some return metric, then it’s a good deal. Very few look at the story each property’s numbers represent.

  2. Mike McKinzie

    Ben, there are literally thousands of Real Estate Millionaires out there who use Property Management. Do you really think Donald Trump knocks on doors to collect rent? Your advice is absolutely correct for the new and novice investor. But as you grow, you will either hire help or hire a PM. Maybe it is ten houses, maybe twenty, maybe 100 or more. Owning property in multiple states, the PM fees I pay are less than the cost of one plane trip to the property. And by the way, across 25 properties, I average 7% PM fee and using the 50% guideline, I lose 14% of my profit. So instead of making $200,000, I make $172,000.

      • Mike McKinzie

        “Right Systems” = “Property Management” This is where people get confused. “Self Management” means that you physically collect the rent, make the repairs or oversee a handyman/contractor making the repairs, do all the bookkeeping, file eviction notices at the courthouse, EVERYTHING. It always cracks me up when people say they “self manage” and then I found out they have a secretary, a bookkeeper, a staff handyman and leasing agent. My cousin ‘self manages’ 25 units in Colorado Springs. He mows the grass weekly in the summer and shovels snow in the winter, he knocks on the door and collects the rent every month. He unclogs every toilet, paints every wall, and replaces every light bulb. And if you have your tenants use online software to pay rent, if you have handymen do the repairs, if you use an eviction service to handle evictions, then you DO HAVE some Property Management.

        • Tim Rehmel

          Mike, I’m not sure I follow your logic. Let’s say I own a property managed by Acme Property Management. They have a staff secretary and a handyman and use rent management software. At some point I decide to fire Acme and do it myself. I then hire a secretary and a handyman and purchase rent software. Are you saying I’m not really a property manager but Acme is? Or neither one of us are?

          If it’s not “self management” I’m not sure what else to call it.

    • Ben Leybovich

      Let’s talk about Donald Trump, first of all…since you mention, Mike. I have respect, but not as much as you think. Realize, Donald inherited $500 mil of RE prior to inflation of the 80es. Had he left that alone and allowed the market to carry it, he’d have $70 billion today. I think, when he does release his taxes, we will note that $70 billion he doesn’t have…LOL – this, by the way, is not a political statement 🙂

      Now – I haven’t seen an inside of one of my units in quite some time. This is why we have teams. Rents are done on line, and so are the applications. Telephone works just fine for most other necessary communications. And for evictions, if the property is in an LLC, most States require an attorney anyhow.

      Swinging the hammer is not practical, and while you do need someone on the ground, a PM may or may not be the most effective system. And certainly, 10%, which turns into 13% with lease-ups, maintenance up-charges, and whatever else, is certainly a drag on cash flow which is difficult in most leveraged rental situations under $1,000. Not the large projects, of course, but the leverages few units here and there…

      • Mike McKinzie

        Ben, just to clear things up, Donald did not inherit $500M, that is a false rumor from anti Trump folks. It amazes me how gullible people are. No politics on BP, but just like buying property, folks need to do research and not listen to third parties who have an agenda. Ben if you have a ‘team’, then you have property management. That is unless your team works for you for free? Let’s face the facts, owning rental property will have a management expense. If you self manage, the expense is TIME. If you hire a PM, the expense is a percentage. If you have a team, then you have payroll. I do agree that many PMs are getting nastily greedy and charge way more than they are worth and I will be firing one of mine later this year (I have ten different PMs). A good PM will increase your return, a greedy PM doesn’t care about the investor.

        • Ben did not say he inherited $500M; he said he inherited $500M of real estate. But never mind. The point is he inherited a whole lot of money and real estate, which with all of his wheeling and dealing, is today not worth nearly as much as it would be worth if he had just let it ride.

    • Mike,
      Using 50% guideline you lose 14% profit, only if you are not leveraged. Once you leverage, you are looking at numbers closer to what Ben noted. I am starting out and leveraging real high on some properties. If I had a PM, I would be losing about 50% or so of my profit.

      May be once I pay down my loan, free up more cash flow, I can choose to give away 14 to 20% of my profit.

  3. Sandeep S.

    I agree with general recommendation that Property Management (at 10%) is very expensive for most investors – whether they realize it or not. However they are more exceptions that Ben seems to have overlooked:

    1. If one has multiple doors (SFH or MF) – it is very likely that you can negotiate PM fee far lower than 10%. Say 8% or 6% or 4%… And now the PM becomes “affordable”! And now the time value of even a poorly paid $100K W2 professional

    2. If you invest out of state – in most cases – the property management is a better choice than self managing. Not sure how Ben would should the vacant units to prospective tenants (take a flight and show and then take a return flight?)

  4. Logan Hassinger

    I think you’re still missing the point of the undertone within the article, that buying the right properties, in the right areas, that attract the right tenants, lends itself to easier management, self or professional. Yes, things need to be repaired and evictions can occur in any property type, and I’ll always hire that stuff out and if I’m a property manager now then so be it. But the the time I put in over the course of a month is not worth 10% of gross.

  5. A friend of mine was looking to hire a PM company for her out-of-state property. Each one gave her a contract to read over. I was stunned. There is a lot of money the PM expects to take in over and above that base 10%. And they often double-dip some of that extra money. For example, they bill back to landlord the cost of screening tenants, the same costs that the prospective tenant supposedly paid with the application fee. The contract often gives the PM the authority to set policy for the unit(s). But PMs tell prospective tenants that the owner sets the policies. One thing though: it takes a motivated tenant to go over the head of the PM, look up the owner in the Recorder’s office, and contact the owner directly. Most tenants simply accept that the owner is inaccessible. Perhaps that is what your are paying the big bucks for. How else to account for the fact that so many owners try to present themselves to tenants as merely the PM?

  6. Michael Boyer

    Agree 100 percent… Especially tough to afford a property manager on a small scale both on the numbers above and also, very important, due to inherent agency costs…….

    What do I mean by agency costs? This is the classic problem where no one has your interests in mind quite as well as you..

    Just one example…I regularly see the “professionally” managed places sit for months across the street when I rent mine in a few days….not only do I have more incentive, the pro may have dozens of places of show, where I have one vacancy to focus on…

    The same agency costs can be at play in turn around costs, doing maintenance, handling. Tenant communications and satisfaction, etc….up all these costs marginally to cover the higher costs and slower times when someone else is doing it… It adds up, a few days extra vacancy here, not retaining tenant there, etc….

    That said, I suppose if you can find someone to do it much better than you, then maybe it makes more sense to hand it off..but that has not been the case yet for me ….

  7. Scott Trench

    I agree with this article. You are buying yourself a hobby. If you are good at your hobby, you can one day turn it into a business. The price is a few hours per month, at extraordinary hourly rates for you. If you outsource it, you are losing money, or at best, slowly losing to the stock market. If you are a normal W2 employee, expect to manage yourself for the first few years at the very minimum.

    Of course, there are exceptions to every rule. Just don’t expect to be better than average.

  8. Ryan M.

    Here’s why I know this article has substance – because it annoys me.

    I followed a movie critic in a local paper (shout-out to Ken Hanke at Mountain Express) for some time, wondering why he trashed so many movies that I thought were at least okay. He was negative much more often than not, giving very few films high ratings. Ken was really annoying to me, until the penny dropped, and I saw he was right. A movie is my money and two hours of my life, two hours I’ll never get back. It ought to be good, it should have substance on some level.

    I’m trying to fit the pieces together as a novice buy and hold real estate investor, and here comes Ben with another bucket of cold water, telling me PM is a sucker’s game. One step forward, two steps back. Why don’t I mind?

    If I care enough where $10 and two hours go towards a movie, should I not be many orders of magnitude more concerned where five or six figures and multiple years of real estate ownership go?

    Ben, your article is annoying. But that might be a good sign, and I’ll keep reading until the penny drops.

  9. David Faulkner

    And 10% is best case scenario. As mentioned, add up lease up fees and other garbage fees and that often climbs to over 13%. And those are the fees that are in the contract and above the table. Don’t even get me started about kick backs under the table, marked up repair invoices, phantom repairs, pocketed late fees, expenses that could otherwise be avoided if the PM were honest, competent, and not lazy. And don’t think for a second that it is just a few bad apples out there … the good ones are the rare exception, not the rule. To quote one of Ben’s sayings “ask me how I know this” 🙂

  10. Scott Schultz

    I am using a Manager simply because, Im not good at it, and I dont like the day to day tenant Drama, I pay a lower % , but even at 10% if you dont follow up on stuff and bill your tenants for the expenses they owe you, they are worth every cent, a friend of mine was getting stuck with Huge water bills on his taxes, because he just doesnt want to deal with it, so it slipped through the cracks, to the tune of $14K last year, this doesnt happen anymore since the manager deals with it, also, a good manager will tend to get better tenants at higher rents, than owner managed units, they have no emotional interest, so its easier for them to enforce the “if you Pay you stay if you Dont you wont” rule. just my view.

  11. Steve Vaughan

    Thanks for writing this article, Ben. Finally, someone with sense, the guts to say it and the earned community respect to pull it off!
    High cost and crummy, apathetic ‘service’ aside, I tend to enjoy the experience of self-managing.
    Just today this adorable little tenant’s eyes lit up when her and mom pulled in to their apt. I was just leaving (after having a pleasant conversation with their neighbor over a small repair I didn’t have to schedule, oversee, then pay through the nose for) and she was waving me down. I stopped, she sprinted over and pulled her lip down while jumping up and down. She’s six and lost her first tooth. Mom said she has been waiting to tell me for days.
    Many other rewarding interactions I have with my tenants weekly. It doesn’t all have to be drama and evictions. Cheers!

  12. Dan Currotto

    It is difficult to use a management company for single family due to the limited cash flow.

    It is essential for multi-family and is made easier because of the greater cash flow. At that point you either need to hire a good management company or build out your own property management company.

  13. Bryan Brezic

    Up to 20 units and within 50 miles of my place I like the extra cash flow that comes from personally managing. Over 50 miles away and over 20 plus units I am going to use a property manager with a proven track record. Most deals have property management built into the analysis, but you can’t go to sleep. You have to stay in regular contact with the management company. 10 percent is too high. I also do my own advertising to make sure my rentals stay full. No one will manage it like you do, so there are time factors, Property management can at times be very time consuming not to mention you have to have a stomach for those occasional nightmare tenants.

  14. Dustin Beam

    This kind of reminds me how money and age work. The typical person has little money with youth and more money as they get older. So, affording the trip to the mountain gets easier as you get older, but hiking to the top is another story.

    Similarly, as a new investor with a full time job and 12 units in closing on (today!), I need a manager more now than later. When I accumulate enough properties to rationalize having a PM, I’ll likely have already quit my job and not need one. 🙂 One of life’s fun little catch 22’s.

  15. Jerome Kaidor

    “Unless the project is large enough to absorb payroll…”

    That’s the key. THIS is one good reason to go straight to multifamily instead of messing around with SFR’s. My biggest income producer is a 52-unit complex that I bought in 2003. With that many units, I was able to
    hire a manager, an assistant manager, and a cleanup guy. I also have a really good maintenance guy ( who also builds houses ) whom I 1099.

    Onsite staff collects & books the rents, keeps the place clean, serves papers, turns over apartments, maintains the exterior, shows the vacants, executes rental agreements and goes to court for evictions. Outside specialty vendors do HVAC maintenance & repair, appliance maintenance & repair, pest control, eviction paperwork.

    I ( the owner) do all the back-office work for them. I supply and maintain custom software for them to book the rents, I pay the bills, I run ads in appropriate venues, man the toll-free number for existing and prospective tenants, do the bookkeeping, check out prospective tenants, create rental agreements, do the payroll. All of this adds up to considerably less than a half-time job for me.

  16. Mike McKinzie

    There is this side too. I am RETIRED. When I first started real estate investing, I self managed. It taught me how to manage and I even managed 100 units before the days of affordable computers, cell phones and fax machines. But now that I am retired, I don’t want to see a house, talk to a tenant or take the time to teach someone else how to do it. And if I die tomorrow, my heirs will not have to do anything, it is all taken care of. My retirement is relaxing and I don’t have to worry. And if you have several properties, you can negotiate the rate down. I gave one PM 8 houses and they charge me a flat $50 a month to manage the house and NO other fees at all. With average rents at $1,000, that is 5%. I almost can’t afford to NOT have PM. But with all that being said, if you buy fully leveraged and have a GOUGING PM, you will not make any money. And 90-95% of PMs are GOUGHERS IN MY EXPERIENCE.

    • Ben Leybovich

      I find it difficult to disagree with you, Mike – because I basically don’t. Once you know – really know, of course you can pick out the good apples. Most on BP are not there…

      I am moving to AZ, and I am keeping most of my Ohio portfolio. I have infrastructure. People that I’ve worked with for years. Yes – there will be additional cost, but certainly less than 12% overhead. And most importantly, these are MY systems. I am not relying on 3rd party to create systems.

      I should have titled the article – why you cannot afford 3rd party management…

  17. Carolyn Keller

    Had A pm for four months. Tons of problems! Let tenant move in 7 days before lease, exaggerating small repairs into major deals I found my own amazing, local, handyman, use easy, hellosign, and communicate with tenants every 1-2 weeks. For 6 mth inspection will send photographer out to take exact pics as pm and 1 yr will fly out. Tenants are a godsend, they haven’t rented a home before and probably will be long termers.
    Terminated with pm after battling the entire time, turns out they had too many other properties, and not enough staff to manage me effectively. They even admitted to bad service.
    It’s not easy to self manage from out of state, but I’m doing it!! And keeping all the rent money!! If tenants ever leave, still haven’t figured out showings, but house has a key box and alarm that I can control from phone. Maybe self guided showings.??so many techie tools out there I don’t see a pm involved with my property any time soon!!

    • Ben Leybovich


      Try – everything from rental applications, maintenance requests, lease signing, credit and background checks, and payment portal is handled online. Once you have repairmen lined up, this is all you need, and the cost is nothing in comparison to a PM…

    • Bryan O.

      You can find an agent to do the showings/screening for you. They charge anywhere from $50 to the full first month’s rent. You still keep the monthly income, but they also charge for doing the showing. Find an agent that is hungry and there you go!

  18. Jacob Pereira

    I actually think you were being overly conservative in your estimates of PM costs. Yes, 10% is the standard to collect rents and take calls, but the full cost is much higher. Most charge at least 50% of one month’s rent to fill a vacancy, for example. More importantly, they may have your best interests at heart, but not as much as you do. They won’t shop around for the best value in contractors, they won’t care for the maintenance of your properties to the same degree you will, and there’s always a buffer between you and the mistakes that are made.

  19. Gerri Araneda on

    Ok, so this is pretty overwhelming. I am brand new to real estate investing, and have JUST purchased a property out of state. I live in Texas and the property is in Michigan. So needless to say, I wouldn’t know where to begin in managing my own property, and I have decided to leave that up to a Property management co., and yes, they collect 10% & there are additional fees for everything everyone has mentioned, when the time comes that I need the additional services . I am fortunate that the rental has a renter already and they just signed a new 1 year lease. So should I be trying to self manage this property? I have no knowledge of contractors or repairmen in the area to have them on hand when something is needed. Where do I start?

    • Carolyn Keller

      My real estate agent hooked me up with my first handyman. I then scoured Craig’s list and was lucky enough to find my current one. I then got a copy of the lease tenants signed, asked about where they kept the sec. Dep, read a few books, put all my paperwork in a binder, got ready during the time I had them to cut them loose. pm said they pay Angie’s list to seek out landscapers,contractors. Etc. But I found a.l. to have 30% higher quotes. I then got a home warranty that covers systems, plumbing, electrical, furnace, garbage disposal, etc. Only runs $30 per mth, and $60 service call, love them BC they send real, licensed people. I have an alarm on the house that I can control. When I went out and slept in the house for closing I got all my own pics and met with handyman before I left. Once tenants are in, pm moves on to other properties. When tenants call they play the in between. As a homeowner I know how to talk to a handyman, service person, and what to expect. As in price quotes sometimes run high and finished project I often had a number under that. Honestly my tenants can use easy to place a work order, but mostly they email and it’s never excessive, or calls day and night. Because when something comes up I bundle the issue with a few items and then send handyman as long as it’s not emergent. I take care of issues, no matter how small. I started feeling that sinking feeling early on every time I talked to pm. Then wouldn’t hear from him for two weeks. After calling oh this or that happened and its not fixed yet. I found books on pm at the library, asked owners on this site, and talked to two other pm’s in the city where my house is. For me I set up as much as I could to be automated and do far working great!

  20. Justin B.

    I think your article should have been titled something like “You make a lot less money by using a PM than you think”, because the statement that you just don’t make money (or to quote you “see any success at all”) using a PM is just too blanket of a statement and by itself just isn’t true and is complete opinion. Your math says it all. Yes, it’s $11k versus $18k, but that’s hardly “no success at all”. In fact $11k is money and is success (to what level is all relative of course). I have been using property management from the start for 1 main reason. I have almost zero time to handle the properties (due to work and kids/family) and the 10% is worth it to me (some of my PM’s charge 8 or 9%).

    However, I do make money (and a decent chunk of it), just not as much as I could if I PM’d them myself. I buy 100% for cash flow. All the other stuff (depreciation, appreciation, etc) is nice, but I only care about cash flow. Yes, I do agree that I could increase my cash flow 30-40% by using a PM, but I can’t show the properties or deal with repairs. Plus, I like “hiding” behind the veil of a PM. I don’t really want all my tenants having my direct contact information.

    I’m not like some of the folks commenting. I’m not saying you don’t know what you’re talking about (you obviously do), but I just can’t get on board with the blanket statement of not being able to make any money, because you can, and I do. Happy Friday!

  21. Julie Rogers

    I do not live in the area where I am buying, only 2 sf homes so far, so a property manager is necessary.
    My situation is a little different. I bought the homes for cash at a low price, rehabbed myself, and even with the expense of a pm, I am making a good return on my money. Of course, I have only been doing this for 1 year this month. So, time will give me more knowledge.
    When we move to the area, I might keep the property management firm. My surprise on pm’s was whether it it was Joe Blow, or Century 21, the cost are about the some, so I went with Century 21. I have been very happy so far.

  22. Mike Riordan

    As a small investor I agree. P>M> is also a great (not painless) education. I suspect the next step when we can no longer handle our properties one of us will be obliged to cut down or out on our employment,which will also give more time to find properties and get more education,and just enjoy.

  23. Ally Kumar

    Ben, thanks for a great post. Excellent viewpoints from everyone. I am a newbie and realizing PM is dragging down quite a bit of return as you pointed out. Since I don’t have time or inclination to do all of it myself, I have enlisted paid local help (people I know) to do most of it. Thats a good compromise for me between PM or doing it all myself.

  24. Andy Mason

    After reading several articles about PM this evening, and reading the comments here, it seems pretty obvious that PM is like so many other things in the REI world… what works great for one person is a total wrong fit for someone else! Listen to all the advice from both sides of the argument, try it out, then find what works for you and do that!

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here