When is it cost effective to have a Property Manager?

Question

Is there a "general rule" for the number of units where it makes sense financially, to use a Property Manager (PM)? For instance, 5+ units use a PM? I am looking into making the move from a SFH to a Fourplex. I understand there are numerous variables to justify the cost, however, I wanted to get thoughts and experiences from those who use a PM and are in small residential investing (2-4 Units). Is it worth the expense? I enjoy real estate investing, however, my concern is that I am worried that increasing the number of units, will also increase my stress (of course that will be a given regardless) level should I manage it myself. Am I correct that about 10% gross rent is the typical fee for PM's? Do you set up weekly meetings with the PM to discuss any issues? If someone is willing to share with me their specific process, and examples of working with a PM that I can learn from, that would be great! Thanks for help!!

Annunciata R. · Answer

If you find you can not move forward in expanding because you are hindered by the time it takes for you to manage then you know its time. You have to consider a couple of ways: either getting a high street property manager that will charge around 10% of the rents or hiring staff.

Remember to factor in rental income when compared to the number of properties, if you have several properties with low income then just hand it over to the property manager but if you have 1 or 2 high income yielding properties then a part time assistant may be your best bet as she can assist with future projects which you want to focus on.

Nicholas Jasmine · Answer

i deal with a property manager and let me tell you I love it.  It takes away from the landlord having to worry about tenants, legal contracts, evictions, and etc.  Yes it cost me 10% but I think this is well worth it for the job they do.

Ana Hyler · Answer

Personally, I think it is cost effective to hire a manager when you start going crazy and it can start affecting your well being. :) Just kidding.... or a little of truth?

Giovanni Isaksen · Answer

I think it comes down to a business decision; are you in the landlord business or the property owning business. Personally it's a deal killer if a property doesn't pencil with professional property management fully loaded but I grew up managing family properties and the fact that it only costs money, and relatively little at that, for the value is one of the best things about real estate investment.

You do have to manage the property manager of course because as others have said no one will care about your property as much as you do. Eventually if you acquire enough units in one area it will make sense to hire your own in-house staff and capture the profit that otherwise would go to the property management company. Most of the successful real estate companies end up with their own captive management company.

Good hunting-

Dennis Tierney · Answer

Most books I've read by experienced owners/investors say that PM companies don't get cost effective till you get to 20 units or bigger. I use them and have kept to 24 units or bigger. If you can't afford to go that big consider putting together  a syndicate that will allow you to invest in a bigger cost effective property and also allow you to move into the syndication business.

Yiv L. · Answer

I agree with Larry K. If you have time and ability to handle tenants, manage the properties yourself. No one, I mean no one, cares about your business and your properties as much as yourself. If you continue to lose sleep, then you should hire a property manager, but don't give up too easily. It will be a learning curve, and each tenant issue is different.

If you own multi-family units, you can also identify a reliable, handy tenant to be on-site (part time or full time depending on the # of units) manager and fix up simple things. It's a lot of value to have someone keep an eye on your properties 24/7.

Larry K. · Answer

I think better to manage by yourself as long as you can.  I have a few units and manage myself.  I have a good handyman who handles the field issues but I always take the call and usually check out the situation first.  In a way I like to get the call because I get the pulse of the tenant and when I go I see how they are keeping up the place.

Choose carefully.  You might end up paying for a guy in his car with a cell phone who does not have the touch you do.

Douglass Belt · Answer

Thanks Joel, Ana, and Kerry for the feedback and great points! Part of the reason I would be interesting in a PM is for the point you made Ana-start going crazy! what kind of details can you share about your experience with PM's? I am interested to hear what mistakes and success stories you have working with PM's. Thanks again!

Joel Owens · Answer

10% is typical for a 4 unit.

Now I have seen it where if you buy in an ultra safe area with high quality tenants a PM might go an 8 or 9% fee. If you buy in a decent to okay area they might charge 12% fee because of extra tenants collections and headache.

When you go up more in number of units the fee generally goes down for volume. 40 to 50 units or more is typically 5%.

When is it cost effective to have a Property Manager?

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