I was reading my news feed and came across a thought provoking article by Pine Financial Group named: Rental Properties: Property Manager vs Self-Management. The author, Scott Craft, makes some good points to help the reader decide if self-management or having a property manager is right for you. As a property manager and a landlord myself, let me build on some of his thoughts and add some of real world examples of my own:
- Top on the list is that it is less expensive to if you self-manage. Yes, you do save the 7%-12% on management. Conversely, what is your time worth? It is not $0 (I suppose unless you are retired). Maybe you do it as a hobby (even with a team of maintenance people, I still enjoy occasionally working on my own rentals). Think about this, what would you pay someone to deal with the clogged toilet on Friday night so you don’t have to deal with it? That is your cost.
- As Scott Craft said, self-management will net you the highest bottom line because you can shop for the best prices on materials and vendors, drive across town to buy something on Craigslist, have hyper-knowledge of the rental pricing for your unit(s), rent the garage for more money, charge for storage areas, etc. For example, as a property manager we don’t rent garages to non-residents. There is not enough money in it for us to handle showing and leasing a $75/month garage. An owner can take that time.
- If you are particular about your property or how it looks, self-management is probably for you. Did you live in the house recently and still care what the neighbors think? Do you have an emotional attachment to the property? I have had more than 1 owner get upset during a July drought when they saw that the tenant was not watering the grass. As a property manager, I know tenants have no motivation to maintain the yard and I am not going to pretend I have time to monitor how much they water.
- While you are not spending money on management fees and can also shop for the best prices, if you are really cheap, self-managing is best. Property managers have a reputation (and often a license) to worry about. They are not motivated to run their properties into the ground and not repair anything. If your philosophy as an owner is only to fix things when you get a letter from the city, please don’t force your property manager into being your sh*t shield. You should self-manage!
- As the article says, the repairs and management are on you. Doesn’t matter if you are on vacation or out to dinner with family, if your tenants or property needs you, there is no one else to handle it.
- As it relates to the legal aspect of being a landlord, do you know all the laws in your area? Do you have a way to keep updated on those laws (municipalities make changes in their rental rules every year). Do you have an attorney that you could call for advice? Have you had your attorney validate your lease, forms, and application process are legal? You don’t want to be called by the department of commerce or attorney general civil rights division because you didn’t know your lease or application was illegal. Are you planning to take classes to continue to educate yourself on being a landlord (not just the legal part)? Downloading a lease off the internet is not good enough!
- I have found that self-managing landlords are terrible at rent collection. They get friendly or even emotionally attached to the tenants and then can’t have the hard conversations or make the hard decisions. I met an owner the other day that said he let this tenant not pay for 9 months because he felt sorry for her. She owed him $12,000. Property managers are professional rent collectors and have a fiduciary responsibility to collect the money for you.
- Related to rent collection, I have found that most self-managing landlords do a poor job or no job at screening potential tenants. Many don’t screen them or if they do, they try to screen them by looking things up on the internet and not using a rental screening service, like Findigs. Or worse, they get a poor candidate and talk themselves into approving the tenant after listening to the applicant’s sob story of why they have a 500 credit score and 3 evictions on their record.
Property Management Pros
- Your property is being managed by professionals that do this all day, every day. Many property managers will have years or even decades of managing rentals under their belt. How long have you been doing this? Bringing that experience to the table should allow you to avoid all the issues that come with owning a rental property. Plus, they can be your sage advisor when issues do come up. No need to go onto Bigger Pockets and ask the forum for suggestions on how to solve a rental issue!
- Obviously, your property manager should handle all calls from tenants, prospective tenants, neighbors, vendors, city officials, etc for you. They then should just engage you when needed to get your approval or give you an update. They get paid to be the buffer.
- Most property managers will have a large database of vendors they can call on for just about any work needed. Do you have a roofing guy, a concrete guy, a plumber, or a electrician in your phone? Are you on a first name basis with them? At Rental Management Guys, we have long-standing relationships with many of our vendors and they take our calls and put us first in line for service. You generally can’t get that preferential treatment if you only have 1-2 house that they can work on versus our 700.
- When I was managing my properties myself, handling the accounting, bill pay and rent entry was not a big deal when I had less than 10 units. Once I hit 28 units at my peak, it was overwhelming. I had 28 rent payments every month (or more if the tenants paid multiple times), water bills, heat bills, electric bills for every property that needed to entered into Quickbooks. It can be a huge time commitment managing the units, taking tenant calls, scheduling maintenance, doing your 9-5 job and having a family. Property managers take that off your plate for you. You get a nice consolidated report each month of income and expenses and then one at the end of the year that you simply hand your CPA.
- As a property manager I get to know city officials and inspectors. If I am a good operator, they like working with my properties. I have found that while they are not ignoring the rules, they tend to be easier to work with than if you had 1 property and had never met this city person previously.
- Many cities will require you have a local property manager if you live outside the area where your rental is located. In Minneapolis, you must either live in the 7 county metro area or have a manager that does.
Property Manager Cons
- Scott Craft shows his understanding of the property management business in his statement that your property manager will be splitting their time between your property and others they manage. I wish I could stop at every one of the 434 buildings that we manage every week. I am serious when I say that I would enjoy that (yeah, I know I am a geek). But obviously that is not even remotely possible, practical or cost effective even with a small army. As property managers, we ware playing zone-defense and dealing with the squeaky wheel. If nothing is wrong at your property and all is quiet, your property is not getting any attention.
- The above realization can explain how major issues can go unnoticed or unreported. A water leak, a broken window, a tenant that moves out quietly can easily go unnoticed because no one is stopping by regularly. While we do inspections every 6 months, it would easy for a tenant to simply vanish and we would not know.
- Slower information flow is a common complaint when using a property manager. You have a question, email it to your property manager, who has to ask his maintenance manager, who needs to contact the vendor and back again. All with details in that game of telephone.
- Customization or deviation from standards may be difficult, impossible or result in problems. Just like any company, as a property manager takes on more units (gets bigger), they have to standardize in order to keep everything running. As I often say: This is a messy business. If you have an exception for 1 property or 1 owner, there is a great possibility that someone in your property management company will not know about that exception and it will get messed up. I have seen it too many times. For example: this owner is one of only 5 owners of 150 that has a warranty plan with Centerpoint Energy for all the appliances. Water heater goes out, new call center person calls the plumber who is there in an hour and replaces the gas valve. A $600 repair. Owner gets the bill and then calls asking why we did not using the warranty program-cause it was an exception.
- Related to customization or deviation, if you as the owner want to micromanage the property, tenant or processes, this may not be compatible with most property management companies. For example, most companies will not allow the owners to do their own maintenance or turnovers.
- Rent collection while more formal and rigid, in a management company, may result in less creative alternatives to collect rent or solve problems. As an owner, you can drive to your property and spend an hour working out a payment plan with a tenant to get their back rent paid down. Most property management companies need to stay within their standardized processes for not just efficiency, but also to prevent any accusations of favoritism or discrimination (if we could be shown that we give preferential rent collection treatment to any one group over another).
The article was correct that property management is a person decision and it can often be based upon the personality and motivation of the landlord. Spend some time thinking about how you would handle all these scenarios and make sure you are ready to make some concessions regardless of which way you choose.