Hiring a property manager vs doing it myself

[Greg Friedman]

Hi everyone, this is my very first post on the forum. 

My wife and I live just outside of the Boston area and are thinking very strongly about renting out our primary residence and moving abroad. I’m wondering if it is worth it to hire a property manager or to save money and manage the property ourselves remotely. A property manager would charge 7% to 10% a month, plus I am assuming a mark up on any maintenance issues that they coordinate. 

On the other hand, our house has a brand new roof, brand new hot water heater and recently renovated kitchen with newer appliances. The only thing I would anticipate needing in terms of capital expenses in the next few years would be a new HVAC unit which is on the older side, but we have already budgeted for that and have a service contract with a company that manages our HVAC, water heater and oil tank.

Am I crazy for thinking that a property management company would be an unnecessary expense in my case? The only thing I can think of that may be harder to deal with if I am not local is routine maintenance issues, but I was thinking I can just ask around for some handy man referrals to have at the ready in case those smaller issues arise, while I would instruct our future tenants to contact our service provider for any emergency issues. 

Is there anything else I am missing that anyone would recommend a property manager for that would be hard to do myself? Posting the property and finding/screening tenants? Navigating lease agreements? Collecting rent?

Thanks in advance for any advice!

[Deirdre Lizio]

Hey Greg,

I think part of this depends on how far away you are and whether you have neighbors or relatives that can visit you property in the event a visit is required.  Full disclosure:  I am a property manager in the Boston area.  What we find is that owners in your position can do well in a set of ideal circumstances:  the home is in great condition, they find excellent tenants who treat the property with care, and nothing crazy happens.  If you think you can put that in place, yes, you will save the cost of a property manager and keep more in your own pocket.  On the other hand, if anything unexpected happens, you want someone who is going to watch out for your investment.  This starts early on with preventing what could potentially go wrong by attracting an awesome tenant and looking at what vulnerabilites currently exist in your property.  Do you want to keep the property to return to later?  Is the move abroad sort of a "trail" to see how long you want to stay away?  How important is profit vs protecting your asset for a future use?  These questions really matter.  A guy recently came to us for advice: he rented his house in MA and moved across country.  When the tenants moved out, he discovered they had utterly trashed the place and the cost to bring it back to market standard (and thereby get a more desirable tenant) was beyond him.  He had to sell.  So you can see, of course it is possible and you can manage most things remotely, but you will be introducing a higher level of risk.   It just sort of depends what your goals are, how important this house is to you, and what level of risk you are willing to take!  Also, I highly recommend doing an analysis of how much you stand to make with and without property management, then see if the difference in profit justifies the risk. Some people are surprised by what they learn when they do the math.  Hope that helps!

Deirdre

[Nathan Gesner]

Quote from @Greg Friedman:

I recommend self-management if you have the personality, time, and energy. Do you now how to market the property, screen applicants, enforce a contract, conduct inspections, coordinate and supervise maintenance, etc?

If you are like most landlords, you'll make some expensive mistakes along the way that will cost you far more than a professional manager would charge. If you're willing to educate yourself and have the personality for dealing with difficult situations, then it may be a good choice.

Do yourself a favor: buy "Every Landlord's Legal Guide" by NOLO. Written by attorney investors, it's full of practical advice about the management of investment property, has sample forms that can be edited, and - most importantly - tells you what your primary state laws are and where you can read them. It's updated yearly and is the best $40 you'll spend as a Landlord. There is one book for 49 states and a separate book for California.

[Adam Bartomeo]

Simple... if you are moving more than 1-2 hours drive away from the property HIRE A PM!

[Drew Sygit]

@Greg Friedman if you weren't moving abroad and were going to be within an hour of the property - you could easily DIY manage it.

Otherwise, you will need either family & friends or a PMC to handle:

1) Emergency maintenance issues
2) Tenant nonpayment issues (eviction)
3) Showings & maintenance when the property is vacant
4) Preventive maintenance issues
5) RentReady repairs between tenants

[Jonathan Greene]

You definitely do not need property management. If you've been living in the area for a while, you surely have a handyman, plumber, etc, and friends who can be your eyes. You just have to know that you can't be MIA for requests. It's silly to pay 10 percent of your rent to someone when you can manage texting someone to go over there from anywhere in the world. I do think you need to do some research, but you will get skimmed beyond belief by a PM who knows you are out of the country because no good PM companies are taking a one-off residential for 7-10 pct., it's not worth their time.

[Daniel McDonald]

Hey @Greg Friedman, that sounds like a blast. I live just north of Boston and own two duplexes. I'll never hire a PM while I am local but moving abroad is a different ballgame. Could you hire a friend or family? 

[Nate Monson]

I think if you have confidence in a property manager in your area it can be a good decision. There are many out there that aren't worth their salt. But as a previous post mentioned if you have some flexibility in your profession (time) and the personality to engage with tenants daily then it is truly possible to run things remotely when you go abroad. If you focus on putting the right tenant in there the first time around, you will likely be just fine if you run things on your own. Good luck!

[Theresa Harris]

It depends on the PM. Mine does not mark up on maintenance, they hire people and charge what it costs.  If you are moving abroad, do you have a good handyperson who can take care of problems if they come up?  Do you know your neighbours who may tell you if things aren't going well?  When things are good, it is easy; but when things go bad (which is less frequent), it helps to have someone there.

Also not all PMs are the same. Interview them and find out what they offer, how they do things and if it works with what you want.

[Nina Penuela]

hey @Greg Friedman

Given that you’re planning to move abroad, one key consideration is the time zone difference. Even with a well-maintained home, routine issues can pop up unexpectedly, and it might be challenging to coordinate repairs or address tenant concerns from a distance, especially if there's a significant time difference.

While the 7% to 10% fee for a property manager can seem like an unnecessary expense, it can provide peace of mind, especially if you won't be readily available. Property managers can handle tenant screening, lease agreements, rent collection, and even routine maintenance with a network of reliable contractors, which could save you the headache of finding a trustworthy handyman remotely.

That said, if you feel confident in your ability to manage these aspects remotely and have reliable contacts in place, you might be able to save money by doing it yourself. Just keep in mind that emergencies can happen, and it’s important to have someone local who can step in if needed.

If you do decide to manage the property yourself, you might want to set up clear communication protocols with your tenants and ensure you have reliable contractors lined up for any potential issues.

Good luck with your decision, and I hope your move abroad goes smoothly!

[Chris Berry]

I don't live abroad, but I do self-manage all of my properties remotely.  I use an investor friendly real estate agent that you can find here on BP.  I pay them the 1st months' rent to find a quality tenant to put into the house.  One of the houses I also talked to the same agent who had a good rolodex of different vendors to help with maintenance requests.  I also pay her every six months to walk the property and take pictures for condition.  I believe it is worth self-managing especially with one property that sounds like it is in decent condition.  You are also not in the middle of nowhere living outside of Boston so you should not have an issue finding people to work on the house.  If you have any other questions you can reach out to me directly.

[Sean O'Keefe]

@Greg Friedman already a lot of great feedback on the thread.

There are some tax benefits to self-managing depending on your level of participation and REPs 

[Jim Fong]

I think it would be a big mistake to not use a PM especially if you are moving abroad.  It may seem like an expense when times are good and you have a good tenant, but if or when anything more major comes up that requires an eviction, you would be wishing you had a person locally to handle these issues.  

[Greg Friedman]

Thanks all for the great feedback! Where to start...

@Deirdre Lizio We are not sure yet about wanting to come back to the property or not, but I would say this is a realistic possibility so yes we would want to take that into consideration. I think it is a good point and one of my biggest worries, if not THE biggest worry is finding the right tenant. But I still wonder if a property manager is needed for that aspect. 

One other thing I didn't mention is that our timeline for moving is extremely flexible and we would not make our plans until after we have found a suitable tenant (even if that means staying with a friend or renting something short term locally), so at the moment I am a bit inclined to want to try things ourselves using some of the recommendations from @Nathan Gesner, @Chris Berry and others.

I also did a a rough analysis based on the two local PMs I have researched and the potential cost savings would be over $6,000 a year. Not a small chunk of change and is money I could put towards some of the unexpected issues that others have warned about.

@Daniel McDonald and @Chris Berry I love the idea of hiring a friend (we don't have family in the area) neighbor or relator to walk the property every so often to send updates. @Chris Berry do you mind sharing how much you pay your realtor for that service?

Lastly, since my biggest concern is finding a quality tenant I am still considering paying a realtor for the initial placement service, but is the going rate for that always one month rent? I'm anticipating renting the place for $4,500 to $5,000 so that is a hefty cost. Is there any precedent for realtors or other placement services charging a flat fee instead or half month rent?

Thanks again!

[Daniel McDonald]

@Greg Friedman where are you located? Is this a SF residence? 

[Joe Scaparra]

@Greg Friedman, I am going to dive a little deeper into your question and give you something more to think about than just a property manager.  There are still some unanswered questions that could have major implications going forward.   So, I am going to make a few assumptions that could be wrong.  These assumptions greatly influence my answer.

Assumptions:

1.  You have little to NO INVESTMENT real estate experience.

2. Your current home is in a nice neighborhood and is mostly if not all owner occupied (based on your estimate rents $4,500-$5000).

3. You like the idea of being able to move back into the home but sounds like that is not a priority. It is likely you won't be coming back for several years or more.

4.  Part of your decision to rent is born out of easy way to go verse selling.  Normally that means money is not tight and you have some or a lot of equity in the home. 

Ok buckle up if these assumptions are good:

Over the years I have seen a lot of things go wrong and very few right when someone took a primary residence and made it into a rent home, having no experience and the property is not something you would buy originally as a rental property.  Meaning if you had the equity out of this home, and you were looking to buy and INVESTMENT PROPERTY would you be looking at a home like the one you live in now.  MOST OF THE TIME THE ANSWER IS NO.

Renters do not take care of property they don't OWN....by and large.  The risk that you come back to this property trashed is HIGH!!!  I don't see a lot of appreciation in the near term due to the unprecedented run up in property values since COVID.  My recommendation is sell and take up to a $500k TAX FREE PROFIT (assuming your married). If your conservative you can put the profits in a risk free T-Bill paying better than 5% with no phone calls to unclog a toilet.

If you decide not to sell, then let's tackle your question about PM.  If you are confident that you can line up a GREAT tenant before you leave, I would opt to manage it myself.  However, you need to find a very good handyman that you trust to do most anything to your property.  It could even be a friend that you trust to handle the coordination to hire a professional tradesman if needed.  Also, locate a good Real Estate agent specializing in locating rentals looking to rent.  The agent will handle all the issues with acquiring a tenant and then hand them over to you to collect the rent.  Yes they usually charge 1/2 to 1 full month of rent.  If you hire a PM to do it all you won't be happy long term.  Most people are not especially with housing that is NOT a TYPICAL rental property.  Some property managers charge a months rent just to renew the client so read the fine print.  Most keep the late fees ect.  It never cost just the stated 8-10% as quoted.  Be sure to know the exit plan should you want to fire them!!!!!

I have been a real estate INVESTOR for 21 years.  I have small multifamily duplexes that I bullet proof with no carpet and usually 2 bedrooms.  I would NEVER consider renting out a large family home that is generally occupied by owners......not renters as you WILL BE disappoint on the care of you home.

If on the other hand this is a one year trial and you do plan on moving back to it in a year then disregard my advice.

[Camille T.]

@Greg Friedman there are pros and cons to both. One thing I have experienced is tradespeople way overcharging and doing shoddy work. So unless you have someone good, it might be cheaper in the long run to have a solid manager who has in house employees or contracts with the trades and supervises their work. Definitely research everything and get referrals. And double check any work done.

[Deirdre Lizio]

Most brokers in the Boston area will charge the tenant the leasing fee, so the landlord usually doesn't pay this.  You can get a great tenant with the help of a thorough broker without committing to property management.

I agree with @Joe Scaparra, selling is a very sensible option.  Aside from the benefits he mentions, @Greg Friedman, you absolutely must be familiar with how foreign income is to be taxed in your destination country.  Having lived abroad myself for many years, I can say I underestimated what a pain taxes would become.  There is often a time limit on how long you are exempt from paying local taxes on foreign income, and of course you will owe the US for life.  Last thing you want is to decide to sell after you've been abroad for a while, and then owe both the foreign and the US government on the capital gains.  Also note, as I learned the hard way, different governments define and calculate capital gains differently! :/

[Warren Lizo]

Love this thread! Just want to impart some local experience here after 20+ years in PM & investing in Massachusetts:

1. Massachusetts punishes landlords. Laws are pro-tenant and it can be difficult to enforce lease terms. An eviction takes 8-12 months and recouping legal fees is rare. Charging lease fees is highly regulated as well. If you don't have a strong process in place when SHTF, consider if the risk to your home/wealth when 'under-managing' is worth it. Property managers fundamentally do two things: manage your asset (lease, maintain, accounting, anticipate) and reduce your liability.

2. Brokers can rent a property or call contractors to do work. Are they using a generic, untested lease? Will they respond at 2am when the basement floods from the ice maker? Do they have software in place for accounting, tenant ledgers, or inspections? When was the last time they took a Fair Housing class? Do they get price discounts from vendors because of bulk business? If you go this route, get references from their other management clients.

3. Screening of tenants is something PMs can do exceedingly well because, well, the PM has to 'live' with the tenant. At PropertyCraft, we have a written Resident Selection Plan, a process to ensure we check off all the boxes and treat every applicant lawfully.

4. Quality PM's have tons of experience that lends to good judgement. Why hire an investment advisor to manage your retirement savings when you can do it yourself through the Fidelity dashboard? Because advisors know their business. The rational for hiring a PM to protect your +$2M property and its income is the same. GOOD PM's actually create value for you.

In all honestly, the quality of property managers can vary significantly. Mass doesn't have licensing requirements for PM's so there are some fools out there. Our company does not work on the North Shore, but if you personal message me with your town, I will send you the name of a good shop around you.

Enjoy your travels!!

[Ryan Dunn]

I did long distance management. It worked but when i added on 6 new doors i added it in. It is 10% and first  oths lease up fee. it has taken a ton off my plate but i still question if it is going as good as if i was running it.

[Nina V.]

One piece of advice I want to share is get a copy of the tenant lease! I was vetting PM the in a new area and one thing I noticed was the one company did not want to readily share their tenant lease. I kept at it and finally got a copy. OMG I saw why. In this area it's common to pay a lease renewal fee. But this company was also charging the tenant a lease renewal fee. Between the owner and the tenant it was a total of $500 for a lease renewal! It's like they want tenant turnover. Plus they had a bogus $40 a month tenant fee to use the portal to pay rent, request maintenance. When I asked they said its for the renters insurance (um no it says portal fee on the lease agreement). 

[Greg Friedman]

Quote from @Joe Scaparra:

@Greg Friedman, I am going to dive a little deeper into your question and give you something more to think about than just a property manager.  There are still some unanswered questions that could have major implications going forward.   So, I am going to make a few assumptions that could be wrong.  These assumptions greatly influence my answer.

Assumptions:

1.  You have little to NO INVESTMENT real estate experience.

2. Your current home is in a nice neighborhood and is mostly if not all owner occupied (based on your estimate rents $4,500-$5000).

3. You like the idea of being able to move back into the home but sounds like that is not a priority. It is likely you won't be coming back for several years or more.

4.  Part of your decision to rent is born out of easy way to go verse selling.  Normally that means money is not tight and you have some or a lot of equity in the home. 

Ok buckle up if these assumptions are good:

Over the years I have seen a lot of things go wrong and very few right when someone took a primary residence and made it into a rent home, having no experience and the property is not something you would buy originally as a rental property.  Meaning if you had the equity out of this home, and you were looking to buy and INVESTMENT PROPERTY would you be looking at a home like the one you live in now.  MOST OF THE TIME THE ANSWER IS NO.

Renters do not take care of property they don't OWN....by and large.  The risk that you come back to this property trashed is HIGH!!!  I don't see a lot of appreciation in the near term due to the unprecedented run up in property values since COVID.  My recommendation is sell and take up to a $500k TAX FREE PROFIT (assuming your married). If your conservative you can put the profits in a risk free T-Bill paying better than 5% with no phone calls to unclog a toilet.

If you decide not to sell, then let's tackle your question about PM.  If you are confident that you can line up a GREAT tenant before you leave, I would opt to manage it myself.  However, you need to find a very good handyman that you trust to do most anything to your property.  It could even be a friend that you trust to handle the coordination to hire a professional tradesman if needed.  Also, locate a good Real Estate agent specializing in locating rentals looking to rent.  The agent will handle all the issues with acquiring a tenant and then hand them over to you to collect the rent.  Yes they usually charge 1/2 to 1 full month of rent.  If you hire a PM to do it all you won't be happy long term.  Most people are not especially with housing that is NOT a TYPICAL rental property.  Some property managers charge a months rent just to renew the client so read the fine print.  Most keep the late fees ect.  It never cost just the stated 8-10% as quoted.  Be sure to know the exit plan should you want to fire them!!!!!

I have been a real estate INVESTOR for 21 years.  I have small multifamily duplexes that I bullet proof with no carpet and usually 2 bedrooms.  I would NEVER consider renting out a large family home that is generally occupied by owners......not renters as you WILL BE disappoint on the care of you home.

If on the other hand this is a one year trial and you do plan on moving back to it in a year then disregard my advice.

 Thanks all for the continued great advice.

@Joe Scaparra you are pretty much spot on in your assumptions, though while I do not have any experience in real estate beyond purchasing primary residences, I am actively working on buying my first rental property (in another state). So I am trying to learn as much as I can and at the same time figured that renting my current home might be a good way to get some experience with a bit less risk given that I know the ins and outs of the home in terms of what is more likely to need replacing/fixing and I know the area to be able to source vendors. You definitely gave me something to think about though in terms of selling and reinvesting in something else. Part of my hesitation though about doing that is that I live in a pretty highly appreciating market and am locked in at a very low interest rate of 3%.

@Deirdre Lizio thanks for the tips on foreign taxation, however that should not be an issue for us as we are not actually planning to stay in one place but rather be digital nomads. So it is highly unlikely we would run into that issue since we would just be moving around on tourist visas and working remotely. 

@Warren Lizo your first point is actually one of the biggest reasons that I am not fully sold yet on renting our home. Definitely something to look into more.

@Nina V., great suggestion. If we do move forward I will 100% insist on that up front.

Thanks again for a lively discussion!