One of the first questions every aspiring buy and hold investor will need to answer for themselves is, “do I hire a property manager, or should I manage myself?” As with most questions of this variety, there are arguments both ways.
Benefits to managing yourself:
- The knowledge gained from being intimately involved in your rentals. You will learn a ton (good and bad) when dealing directly with your tenants. This can help you later as you build your empire. You’ll be a better owner for having gone through this experience if you have the temperament and the time for it
- Cost – It’s obviously cheaper if you manage your own properties. You aren’t paying a management company and can keep all the net rents for yourself. You’ll need to be diligent to make sure your rents are at the market rates as your leases come due. Many self-managing owners end up being far short of the market because they don’t keep pace each year, or they don’t want to run the risk of the tenant leaving due to increasing rents. This is oftentimes an unfounded fear; many times the tenants grumble about the increase but end up paying. Keep your rents at market rates!
- Better quality tenants – If you choose the tenants, they could possibly be higher quality than if a management company does the selection. You will likely have a better relationship with the tenants if it’s you that they are calling with problems and it’s you that fixes any issues. Be certain you are complying with all federal, state and local laws in selecting and dealing with tenants. You can find these rules and regulations through a local landlord association or REIA. Be vigilant in your compliance; mistakes can be very expensive!
Benefits to hiring property management:
- Compliance with laws in tenant selection and relations – Property management companies are well versed in the laws of tenant selection. If five tenants apply for your unit; how do you select one without opening yourself to a bias complaint? Property managers know how to select from the group. They have access to screening tools such as background checks, criminal histories, credit reports, etc. They also know how to manage the tenants during the time in the unit and will effectively document any deductions from security deposits prior to returning them to the former tenant.
- Keeping rents at market rents – Property management companies have their fingers on the pulse of your market and will make sure your rents are at appropriate levels when they send out renewal notices. They make a percentage of the rent charged, so are incented to keep rents at the highest possible level.
- Less hassles can lead to more units – The hassle of dealing with tenants, collecting rents and the repairs and maintenance required can be an issue when deciding whether to acquire additional properties. If you feel bogged down with the effort of management, it may be time to hire this out so you can spend more time in finding the next great investment property. Don’t let the burden of managing your properties keep your portfolio small!
- Geographic Diversity – This, to me is the biggest reason to have your investments managed by professionals. Once you make the decision to outsource this part of the business, you are free to invest outside of your local area. If you manage yourself, the properties need to be in your area. What if your area doesn’t offer great cashflows or appreciation opportunities? If you work with management companies, you are free to invest in areas with the best returns.
Whether you choose to self-manage or hire this out, I encourage everyone to build the cost of property management into your calculations. If you manage yourself, you’ll make additional money compared to your calculations that can offset some of the hassles. If you ever decide you want to offload this responsibility to a professional firm, you have the money baked into your analysis, so your returns won’t fall below your projections.
I hope this is helpful; all the best to you in your investing future!
