Property Management Thought

[Patrick Wheeler]

I had a thought I was curios about regarding property management, especially when first starting out. I know the general rule is to factor in using property management, whether you initially intend to use it or not. However, what about leaving it out, at least for your first investment in order to feel more comfortable about the numbers working out? You could always just factor it in for each additional property you purchase right? Mostly just wondering if anyone else has done this when first starting out.

[Greg Pond]

I have worked with investors that have gone a similar route. I am a residential real estate broker in Denver and work with several investors just so you know where I am coming from. We also have a property management arm to our business. In my opinion, it is fine to "manage" the property on your own to save some money and enjoy better cash flow. If you go that route, I would highly recommend building up a cash reserve account to have a cushion. A lot of new investors do not plan for unforeseen costs and improvements like paint and carpet or even bigger expenses like a roof or furnace that your property will inevitably need. 

At some point your property will need an upgrade, so build up your cash reserve account or have access to a HELOC for those improvements. There are a lot of creative ways to do this and I'm hopeful the BP community will leave comments and elaborate with creative ways to prepare for improvements and future expenses. My goal with my investment property is to have around $10-$15k for upgrades and maintenance in my separate bank account for that property. By the way, my investment property is a single-family home that needs some cosmetic updates in the kitchen and needs new flooring.

I would only recommend managing it yourself if you know the rental comparables and have the facts about what properties similar to yours will rent for. In theory, a property manager can save you a lot of money in the long run if they have a track record of raising rents, minimizing expenses, and keeping vacancy low. I would ask questions about their track record, if you decide to hire a property manager. For example, what are your average vacant days for a property like mine? What is the average rental increase over the last 5 years? Try to ask the prospective property manager questions about their market knowledge and to see if they have your best interest in mind. In our market rents have been climbing for several years now, so a good property manager could pay for itself in the long run. 

Good luck!