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Updated about 5 years ago, 10/19/2019
Why do a lot of people say stay away from property managers
I am new to real estate investing. So please forgive any wording that is incorrect in this post. But, a lot of people I have talked to say to stay away from property managers and mange the properties yourself. Yet on here I see a lot of people say to use them. Which is the better option? Or is it situational?
Any response would be greatly appreciated. Thankyou.
#3 General Landlording & Rental Properties Contributor
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#3 General Landlording & Rental Properties Contributor
A few thoughts:
-no one will care more about your property than you will.
-managing your own property gives you more control and a better idea of how to handle problems as they arise.
-a PM costs money. You're looking at 8-10% per month PLUS the fee to rent it which varies. Some PM charge a full month's rent to rent it out.
@Theresa Harris
That definitely makes sense and I completely agreed with your points. The only other question I have is at which point do you own enough units to start implementing or using a property manager?
#3 General Landlording & Rental Properties Contributor
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#3 General Landlording & Rental Properties Contributor
@Shawn Ziegaus I think having a PM depends on your situation. If you have an out of town rental or you'd rather not deal with tenants, get a PM. The number of units you have, doesn't really come into the equation as the PM is paid per rental. I have a PM for one of my properties in the town I live in because I teach and it is a student rental, so I don't want a potential conflict of interest. My other properties are out of town and I manage them with the help of a family member who lives close to the rentals.
I self manage 19 local class B SFHs and best guess is it takes maybe 5 hours a week. I enjoy the work and it cash flows life. No way I would use a PM.
No doubt that are good reasons to use a PM and good PMs do exist. Just glad I don't have to deal with it.
Life is good. Clocks and calendars are for kids.
I think it depends on your situation, how close you live to the property, how good of a team you have and how hands on you'd like to be. For example, if you live far away, it might make sense to have a property manager. If you don't have a handyman or GC crew that can go in and fix items, it might make sense to have a property manager (often times they have these folks in house or have relationships that can ultimately save you money - volume business should be a way for them to save money and pass those costs onto you). The challenge with property managers is frankly a bunch of them are pretty bad at business. Don't communicate, don't follow through, etc. If you do choose to use a property manager, please make sure to vet them appropriately.
@David Barnett
I definitely think based upon what I have read and the given the situation that I am in and what I am trying to accomplish. That I am going to stay away from PM for the time being. Just because I definitely prefer the hands on method, and I would actually like to learn more at the same time. But thank you so much for your input. I really appreciate it.
@Terrell Garren
For starters, if you don’t mind me asking. What exactly are Class B SFHs? And I want to be more hands on. I was just under the impression that more hands on meant more time invested. Thank-you for taking the time to respond to this post. Your input is very much appreciated.
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#5 General Landlording & Rental Properties Contributor
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Three main reasons I don’t :
they are expensive
They are not cheap
they cost a lot
It depends. There are a lot of bad property management companies that simply do not care about your property the way they should. Usually, it is because they are being managed by someone who clocks into a 9-5 job and sees it as just that, their paycheck. You can find a property management company that cares about your property and your goals.
I've always felt that people claiming property management companies are expensive is laughable. If you want to self manage so that you learn the ins and outs of dealing with tenants, maintenance issues, evictions and turnovers then by all means self manage. But if you are doing it to cut costs then you are creating another job for yourself rather than investing in real estate. That being said, there are management companies that charge absurd fees and tack on fees for unnecessary items.
We also work with investors where we will just place the tenant and the owner can self manage going forward. If you place a good tenant then there is hardly any issues to deal with. At the end of the day it comes down to what your goals are and what your time is worth to you.
@Shawn Ziegaus I'll feed you baby bird.
https://www.biggerpockets.com/blog/2015-12-09-class-a-b-c-d-real-estate
Single Family House
For the most part, it can be broken into 2 parts, if you have the time to do it yourself OR if you are in proximity to your properties.
Oh, also, it depends on the asset (SFH OR small/large commercial assets).
The reasons you are seeing some people say that they use PMs are probably because they are out of state or really far away from the property and/or they don't want to hassle of managing properties and hassle is very loosely measured here as it is different for everyone. It is what I call temperament.
So for you, you have to take into consideration the points mentioned above before taking the plunge.
Personally, I encourage everyone to start out managing their properties if they are close enough to do it and then you can outsource it to a PM for whatever reason.
At the end of the day, you will learn a ton about people! It's like working in McDonald's as a teenager!
@Ola Dantis
I really appreciate the feedback and definitely have to agree with you and everyone else, who’s really given feed back on this topic. I am attempting to get my first property before the end of this year and since I am house hacking this one. I will just manage it myself and this way I can learn the most.
@Terrell Garren
I understand now so you focus on housing in the B class which is more of those blue collar workers working paycheck to paycheck. However those “B” properties can also be class A or C properties (depending on the circumstances). Is this relatively correct ?
@Austin Mountain
How do you tell a good PM company from a bad one?
@Shawn Ziegaus
Hi Shawn, a close friend/mentor of mine has 150-175 doors and self manages them.
That said, they have an awesome team of contractors who they can reach out to for just about any need...and because of the amount of work they give these guys, their rates are ridiculously low in most instances.
This shows the power of having systems, and having a great team.
I think it depends on your capability, risk profile, ROI goals and the specific deal/area e.g. Most deals in Austin won't cash flow if you are paying a good chunk of your profit for Prop Mgmt. The flip side is if you have a good system set up it with a PM, it will free up your time to find and close new deals. Just have to weigh the pros and cons.
@CJ M.
When you say having a system? What exactly are you referring too? I understand basic’s of it but I could use a little more knowledge on the subject. Thank-you for taking the tome to respond btw I really appreciate it.
@Neil Narayan
That makes sense. I will definitely take a closer look at the pros and cons. Thank you for taking the time to respond.
@Shawn Ziegaus. Great question. It is almost more of a preference than it is a requirement. A good property management company, is a very valuable and extremely effective tool in your investment portfolio. A bad property management company is about as useless as that caulk removing tool that you can buy at Home Depot, it just doesn’t work. Since you’re just starting off, you could probably handle a few properties yourself. Unless, you do not want to be bothered at one or 2 o’clock in the morning with a busted hot water heater. Not saying that’s gonna happen, and it usually doesn’t. Most maintenance calls , are something simple and something that could be handled during normal business hours. Do your homework, interview a few, ask a few investors that you’ve networked with in your area who they use, or who they may suggest. There’s a lot out there that are pretty shady, and there’s a lot out there that are great. Roughly expect to pay 8 to 10% of the gross rent, and expect to have a cushion of around $400 of pre-authorized repairs in case of emergencies. Anything after that you would need to require them to submit to you 2 to3 estimates prior to any major repairs. There’s nothing wrong with requiring them to show you pictures as proof of completed work. There’s lots of other things you should consider as well, take your time and interview them as if you’re interviewing a babysitter that was going to take care of your five-year-old daughter. Just my simple two cents. Good luck!!
@Shawn Ziegaus
No problem...I'm still learning myself :)
By systems, I'm just referring to the "people" and "processes" a person has in place that help limit the time and energy they have to spend on running their business.
The last thing any of us self-managers want to do is be tied up for a ton of hours every week dealing with all aspects of the business.
@Ola Dantis
This is very good advice Ola. You never seem to disappoint as I will certainly remember this going forward.
@Shawn Ziegaus
As with most things in life, the answer is “it depends.”
Do you have a 9-5 / W2 / Full time/ day job like a lot of us? If so, property manager is the way to go in my opinion. You want investing to be you secondary job, not prop mgt.
There is also a strong argument for “it depends” on the type of rental properties you own and what your current time commitments are.
example: SFR should result in a "greater sense of ownership" from your tenant and fewer minor/recurring maintenance calls (in general), so being your own prop mgr should require less "day to day" time if you properly screen your tenants.
For a different example: multi-family will have many more small maintenance calls that you (or your prop mgr) are required to address, so being your own prop mgr will take a lot more time.
And most should agree, if you get a prop mgr, make sure he/she is a good one or you'll lose money and won't achieve any goals as a REI. If you have a bad prop mgr, Do Not Hesitate to change them out, there are some great prop mgrs out there, ask around.
Hope this helps and best wishes!
@Shawn Ziegaus another factor on PM is if you have knowledge of maintenance, tenant law, and have experience with tenants. While we encourage our clients to start out managing their first property to gain experience it can be a steep learning curve that can cost dollars to learn.
If you need to call a contractor every time something breaks you will be paying much too much. If you don’t know how long things should take you may get ripped off.
If you don’t know landlord tenant law, you will quickly find that your tenants know it from the free attorney they get. If you are unaware of fair housing laws you may get away with things for a while or may never get caught, but if you do get caught you will likely pay dearly for a very hard lesson learned.
If you don’t know what to expect and the usual scams that tenants play you may lose some money in the process. Before I opened my own brokerage I was a regional property manager and can tell you that even experienced managers vary greatly in effectiveness. Inexperienced managers struggle. Providing a good lease and process for recording tax information is invaluable. Marketing properties and knowing when is too soon and too late to market and the venues is another reason to use a PM.
With this all said, we recommend to manage yourself for the first property with a mentor. After you have 5-10 you will likely want to hire a pm. Your pm if good, will save you money in long run.
Property managers make sense when your business is bigger than you can handle as an individual and the rents justify property management as an expense. But just starting out it makes more sense to manage it yourself for a few reasons.
It will save you on expenses that your business may not be ready for.
You get to learn your business in and out by being forced to learn (tenant acquisition, rent collection, and maintenance?
You will gain more maintenance contacts for future properties and know who is good and who isn't.
The most important thing is you will learn your properties so well that when you do turn it over to a PM you will know right away if something is off and be able to correct it immediately and/or get rid of an incompetent PM.