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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.
Personally I am happy to pay the 8-10% (assuming the property still cash flows well). I have 0 interest in managing subs or receiving phone calls from tenants. All about personal preference. If your time is worth 8-10% of monthly gross rents then by all means manage your properties yourself.
Hi Shawn, The way to tell a good Property Manager from a bad one is by learning how to be a good one yourself. Then as you start interviewing PM's you will know what you want done and how you want it done. You will be able to ask them the right questions about how they normally do things and then ask if they will do it your way if their normal way is not how you want it done. If they refuse to do it your way, find one that will.
FYI there is a LOT more to tenant screening than just verifying income and checking the prospective tenant's credit score. Ask about their tenant screening process. If they just do those two things, it is not enough to protect you from "Professional Tenants" who work the system costing landlords a lot of money. Do Eviction Searches and Criminal Background Checks and speak to two PREVIOUS landlords, (Current landlord may not have been inside the unit since they moved in and may not know everything. They may also be trying to get rid of a problem tenant, so may not tell the whole truth.), before accepting any tenants. My favorite questions to ask a previous landlord...
1. Did you have to deduct anything from their security deposit when they moved out?
2. Would you rent to them again?
Let me know if you have any questions. \i am happy to help.
@CJ M.
Oh ok I get it. That definitely makes sense.
@Ryan Hall
This definitely helps a lot I really appreciate you taking the time to respond.
@Jan Kerr
Thankyou so much for taking the time to respond Jan. Your response is extremely helpful and I would love to have a discussion with you at some point regarding some other questions I have, if you have the time. Again I really appreciate the feedback:)
If all properties are local and the investor wants a FULL TIME job (working for return) then some manage the property themselves.
The question becomes do you like doing it and the WHY you want to do it.
When someone is a busy professional or already has lots of wealth then tend to gravitate toward more easier assets that require less management.
So my clients for commercial real estate are in a different world typically. These are people making 400k to over 1 million a year or more and want to buy high quality assets that are not a headache. They give more passive yield for return.
Conversely someone who is worth say 75,000 net worth just starting out making 60k a year at their job NEEDS those first deals to really do well so they do not get hurt too much financially if things go south. In the residential space there tend to be fewer quality property managers than in commercial and other fields. The reason is lots of residential property managers do not like it. They do it out of necessity to make some money to survive in between getting the commissions from selling houses.
What would the average person want to do? Manage a house for maybe 1,000 bucks a year in fees or sell a house and make 5k or 6k at a time or more? So what you tend to get is residential PM's when they need the money are all over doing a good job on an asset but as soon as a regular sale comes along their interest becomes minimal managing the property and more focused on the sale. Additionally some PM's only work particular areas so then the investor has to find multiple management companies for various areas at a time. It's really hard to scale residential houses as an investor due to so many variables and things to keep track of.
In other asset classes there are more specific management companies that only focus on that and nothing else.
- Joel Owens
- Podcast Guest on Show #47
@Shawn Ziegaus if you are starting out and not “He’ll Yes” on using a property manager, you definitely should self manage to start. You will learn how to manage the property and that will help you manage a PM in the future if you choose that route. If you know how to manage units your self, you have a MUCH higher probability of successfully managing a PM in the future.
Bonus Points if you write and build processes as you go while you self manage.
@Shawn Ziegaus
I started out using a bad PM on my first door. Then moved to self managing doors 2-6. Then I found a good pm. He’s managed doors 6-28 for me.
It’s helped me grow much faster because I can focus on buying, selling, and brokering deals.
@Rob Drum
So if my goal is to scale up quickly the better option would be todo what your saying here and use a PM ( a good PM )? Right ?
Or would a good option be possibly self manage the first property or unit. Then throughout that process learn some of the inns and outs yourself. On the next property, is when the PM can start to be implemented?
Thankyou for your response btw. It’s greatly appreciated.
@Shawn Ziegaus -- I'm with Quintin on this one. Generally, if you have a smaller business portfolio in REI (ie. only own anywhere from 1 to few units), it doesn't make as much sense to go the property management route, rather, manage it yourself with a bit of guidance. Generally, you're going to be paying 6% + out to a property manager -- not to mention that many property management companies ask for a portion of the first month's rent (or even a full month's rent). If you're just starting off, it makes sense to consider managing it yourself to better learn the process, cut back on costs and make sure that you have a sound understanding of what's required so when you do scale up and decide to go with a property manager, you'll know which things to look out for.
We always teach new investors to start out managing their own properties so they can really get the experience and learning that comes from it and then eventually work your way up to professional property management so you can focus your efforts on doing more deals. Time is money in this business. Putting all of your time into doing more deals can more than make up for the costs of management.
And even though they start out managing their own properties, we also always teach them to how to thoroughly vet prop mgmt co's to find the best ones and how to run their initial numbers to include the unexpected, like potential vacancies (using the area vacancy rate which you can find on BestPlaces.net) and property mgmt costs just in case your situation changes and you are unable to manage the property yourself (unexpected illness, accident, time constraints, you just don't like doing it, etc).
Here's an example of the kinds of costs you should include in your numbers when analyzing a potential cash flow property:
Projected Monthly Rental Income Minus All Monthly Expenses:
- Vacancy Rate (BestPlaces.net)
- Prop Mgmt Fees (even if you are managing yourself so it’s in the budget to pay a prop mgmt co later if you need to).
- Prop Tax (look up at the county what the exact prop tax is for this property)
- Insurance (get quotes)
- Maintenance (estimated lawn care, landscaping, snow removal, etc)
- Repairs (lifespan of appliances, property wear and tear, start with $50 per unit per month, adjust later with actual costs)
- Utilities (during vacancy, start with $50/mo per unit, per utility, adjust later when you find out actual costs)
- Debt Service (mortgage pmt)
Equals Your Monthly Cash Flow
There is a lot involved in learning all of the in's and out's of property management, way more than can be answered in a post. If you have more questions about how to thoroughly vet property mgmt co's to find the best ones, just ask and I'll be happy to teach you a lot more about it all.
Originally posted by @Shawn Ziegaus:
@Austin Mountain
How do you tell a good PM company from a bad one?
The short answer: Research and interview different companies. Talk to others in the industry and learn from their experiences with property managers in the area.
The longer answer:
Clearly define your expectations and what you are looking for from the management team. Are you mostly concerned with communication, quality of service, experience, reputation or price?
Communication: How quickly does your property manager respond to your phone calls, emails or texts? Do they even text? Are they available only during business hours or can you always get in touch with them? Business hours are expected and necessary for tenants, but owners should always be able to contact the person responsible for their assets.
Quality of Service: Are they truly putting your needs and goals first or do they simply go by their systems? Systems are important for scale, but your needs and expectations are unique to you. Maybe you want to be the one who handles maintenance at your property, do they allow for that or do they force you to use their contractors or employees? This is not an excuse to try to cut corners and use unskilled, non-insured contractors but you should have a say on major expenses to your property.
Experience: Are you concerned with how long they have been in business or how many units they manage? Do you want the more personal touch of a smaller operation? Large operations should be able to offer the same, but they often fail in that aspect.
Reputation: Check around with other people who own rental properties and see who they use or what they know about different companies. Do they have a poor reputation amongst their owners, tenants or contractors? Some people fall into the illusion that if their tenants think of them negatively then they are doing a good job being firm. This is incorrect. There will be times when poor reviews come from tenants who were evicted or applicants who were denied but there is no reason you cannot have happy tenants. Firm but fair. Rule with a velvet hammer.
Price: What does the management company charge for their services? Are all fees clearly defined? The cost should be clearly defined, and you should never get hit with a hidden fee. They should be willing and able to produce copies of all bills paid on your behalf.
With all this being said, now you must interview and meet with different companies to see who you fit best with. Avoid companies that speak in guarantees or make promises they cannot reasonably keep. There should be no rush when searching for your property management team. Take your time and find someone that you mesh well with and feel comfortable working with. Working with the wrong company can cost you unnecessary money, cause you unneeded stress and put a bad taste in your mouth about rental property investing. Finding the right company will give you the ability to spend your time how you choose.
I think property managers are needed for many reasons, not just once your business gets too big but even for first time investors. As an out of state investor/buyer I have to rely on local PM to succeed. There is no way I could mange my properties in my chosen current market without management. They also get the calls you don't want to deal with. But you have to find the right one! I had a management company in Texas which I paid 10% of the rents to and I could have probably managed it myself as I had no maintenance issues and the tenants were a dream but that was a lucky scenario. I was basically paying $150 a month in insurance again there being a problem r need or the PM. In my current market I rely so much on my PM that I literally owe my investing success to this point to him and his team.@Frank Procopio They have saved me $$$$$ and at such a low cost ( 5%) it's money very well spent! So Property management has it's place, each market is different.
@Shawn Ziegaus
Using a property manager immediately takes around 7-10% out of your gross rent all while you are not learning the process. It is important to know the process of how to manage a property so that down the road you understand how a property manager should do the job for you.
I think most will agree about priority of costs? I also think this is why you start out doing yourself because otherwise you won't know if they are doing a good job on the two most important costs.
1. Repairs and Maintenance - a good PM will save (or a bad one will waste) way more money here than their fees. This is HUGE.
2. Efficiently turning over a unit and re-renting - Vacancy will cost you WAY more than PM fees.
On strict performance, Renewal Rate is the most important performance metric for the PM. Industry average is about 42% turnover each year. A PM than can reduce that to 21% as an example will dramatically increase your profit (reducing vacancy and turnover costs). Low turnover happens from responsive and good communication from the PM and tenants knowing the PM cares about living experience.
Doing and learning this first hand will allow you to measure and intelligently evaluate and coach your PM on what is truly important to your business.
@Kata Walters @Shawn Ziegaus @Joel Owens @CJ M. and others - a great system/process to help with tenant phone calls when self managing is to use one of the answering services that specialize in this. Many PM's actually use them as well. There are a few good ones out there and they also help you think systematically about how you want to handle various situations.
@Dave DeMarinis
What kind of answering services are there? Do you have any examples or recommendations?
one annoyance I have with the PMs I worked with is that it seems they are always quoting inflated prices for repair jobs, not even considering the service fee some charge to coordinate a repair. I was between PMs for a few months and was able to get repairs done at much cheaper rates... and I live out of state.
@Shawn Ziegaus
I think so. A good pm is the key though. It’s hard to know what that looks like until you’ve tried doing it yourself.
For me, good means:
1. Not stealing from you
2. Transparent pricing
3. Being able to get a fast response on issues that pop up. Preferably over the phone.
4. Strong market knowledge.
@Shawn Ziegaus
A good PM should be able to fill vacancies quicker, find higher quality tenants, stay on top of delinquencies, keep the financials organized, and eliminate daily headaches for the owner. At some point you have to decide if you want to focus on investing, or managing property. Good PMs are very rare, we started our own company after having several bad experiences.
Our property manager is worth every dime. You just have to do your homework and find the right company. They are a team member. He also got us another deal off market because the existing owner wanted to sell and he thought it would be a great addition to our portfolio and it has performed wonderful. So my two cents is do the homework and they will be a value add to your business.
@Shawn Ziegaus great question! I personally manage all 18 of my units. With a full time day job, a family, and trying to scale my investing business, self managing can be a time consuming headache that I would love to out source. The problem is not the 10% fee that I would happily pay someone else to take this on. The problem is that most encounters I’ve had with local property managers were less than favorable; high vacancies, lower than market rents, lack of responsiveness to tenants for maintenance requests and prospective tenants with viewing requests. Bottom line is I don’t feel like I can trust any one to take care of my properties the way I do. That being said this is something I am going to have to figure out or get over sooner than later if I want to scale any more. Good luck!
@Shawn Ziegaus they say that because they don’t value their own time enough to use one. That being said you do have to manage your manager and it’s not a ‘set and forget deal.’ Ive made more money and bought more deals since getting a manager.
@Shawn Ziegaus Abodea is who I use. (used to be SuperTenders) and I've been impressed. AppFolio I believe has a service and Buildium might as well as options if you use their software.(I use Buildium but already had Abodea)
@Shawn Ziegaus. I’m a property manager and investor.
Property managers cost money so your asset makes less. However, a good one will handle all of the things you don’t want to deal with.
You can manage all of your own units until you have 30 and a full time job. Or want to invest out of town. We have clients from areas that it is too expensive to invest, so they come to a cash flow market, and calculate on PM costs.
Everyone has a different strategy, you need to make this decision based on your strategy.
- Matthew Irish-Jones
