I have met many people that feel investing in real estate is all focused on property management, which is far from the truth. However, if you buy and hold real estate you will have to address the issue of property management.
There are four major elements to consider when making the decision on which way to handle management (do it yourself or hire a property management company) – Proximity to the Property, Time, level of Expertise, and Financial.
Proximity – if the property is more than 60 miles away the decision to hire professional management becomes easier. The issues that often arise with rental property are often emergency in nature and if you are more than an hour away it can be difficult to deal with these issues in a timely manner. Also, it is important that someone keep an eye on the property, tenants are not very good at telling you things that are wrong, if they’re not affected directly. There is also the element of understanding the rental market and all the nuances.
Time – is broken down into two basic categories – 1) getting the unit ready and rented. 2) Maintaining the unit once it’s rented to a good, responsible tenant.
Renting a unit will entail rehab (this can be a minor or major work), marketing, showing the unit, screening tenants, getting the paperwork in order and the tenant moved in. Once a tenant is in place, they should be checked on periodically, repairs have to be addressed and rent collected. There is also the long term maintenance of property, paperwork and accounting records. All these or just a few of these processes can all be done by a management company.
Personally we often will rehab ourselves and then turn over to a property manager to market, screen tenants, deal with the ongoing maintenance issues and collect the rent. This works well for us. It saves us money and keeps us more in touch with our property, but allows us not to deal with the everyday aspect of management. We have only done this on property within a couple hundred miles from our home, not out of state property.
Expertise – a professional property manager deals with rentals 8 hours a day, 5 days a week (at least) so their expertise will surpass mom and pop management. However, mom and pop can learn what they need to know. The major best practices a professional should know are: how to get top dollar for your rental, how to best market a property to quickly find a good tenant, how to structure a lease that will best protect the owner, how to work with the fair housing laws and how to legally and quickly (as possible) evict a tenant. They also have teams in place so they can respond quickly to issues and most likely have long term relationships with vendors that can save time as well.
Financial – will you have positive cash flow if you have a property manager? Most mom and pops don’t know the answer to this question. In the Professional Real Estate Investing Class, we teach how to “run the numbers” and we have built into our models the cost of a property manager. So, the question becomes not will you have positive cash flow but can you have a larger profit if you manage the property yourself.
Property manager’s charge anywhere between 8-12% of the collected monthly rent. All other expenses are charged on top of that. Property managers can also just charge a one-time fee to get a property leased.
It’s also good to remember that a property manager can often increase your revenue by reducing vacancy rates, addressing inexpensive problems before they become expensive ones and providing cost efficiencies.