When do I need a Property Manager?

Question

This is a topic I have been thinking about before I even started investing in real estate. I currently self manage 2 single family homes and am not sure when I should consider finding a property manager!

I have not had too many headaches managing the properties, but do not want to press my luck and always prepare for the future. Since I am near the properties, I have not considered using a property manager until I would move away or invest long distance. I haven't fully considered using a PM this early in my investing career as I don't believe the 10% (or more) of management fees would substantially free up any time to impact other areas of focus on my portfolio. But maybe I'm wrong!

I have a lot of questions around this topic, but are there any investors who have scaled and have any advice on when to use a property manager?

How many properties was "too much" for you to self manage?
Do you wish you used a PM sooner OR later in your career?
What made you decide to stop self managing?

JD Martin · Answer

Here's my take on it: if your properties are within 15-20 minutes of your home and are less than 5, no way unless you have a demanding full-time job or are just completely uncomfortable doing/learning anything yourself. I think that once you start getting beyond 5, especially if they are SFHs, you will find more value in a PM. We manage our entire portfolio that we own, which is not quite 20 SFH homes, and some homes for others. *Most* of the time it is on auto pilot, but there are times - especially in a turnover - when it is *a lot* of work and where having a PM would definitely be worthwhile. Last year, for example, we had 6 turnovers in 3 months. Just worked out that way. We worked our asses off, even with our contractors doing most of the heavy lifting (cleaning, major repairs, etc). It was unusual, but not really so much - let's say the average tenant stays 3 years. If you have 18 units, you're going to average 6 turnovers a year. That's a lot of work, certainly closer to having a job than not having one. So I'm generally not the big PM fan but that's because as @Nathan Gesner noted there's a lot of shoddy PMs out there - the low barrier to entry (other than where you need to have a broker's license) means junk managers proliferate. In my case, the professional management group doesn't even have a chapter in our *state*, so we are on our own.

Tracy Streich · Answer

@Noah Bacon. If you are stopping and 2 or maybe even five you can do it yourself. I say this and I am a property manager. They question you need to ask is managing your property taking away from growing your portfolio. Are you chasing rent, posting doors, and scheduling maintenance instead of looking for more doors. You can for sure keep doing it yourself. Just make sure you get the right training and education so you are following the local/state/federal rules, But if you find it is hampering your growth. Hire someone to do it.

Nathan Gesner · Answer

There are too many variables to give you an answer, but I will tell you this: if you are nervous about self-management, then I recommend you go with your gut and start looking for a property manager. Do it now while you can take your time instead of waiting until you are in a bind and have to rush the search. Remember: cheaper doesn't mean you'll make more money.Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

Mike Dymski · Answer

If you are good at self-managing, you will pay way more than 10% for third party management (monthly fees, lease up fees, added vacancy, added maintenance costs). I recommend self managing for as long as you can (unless you are able to add substantial value to offset the higher cost).

Michael Smythe · Answer

It really depends on how organized you are, how much you value your time and how knowledgeable you think you are about landlord-tenant laws.

Mohammed Rahman · Answer

Pay them as their services are required - they're not a property management company, so they shouldn't be getting a cut of the pie.

Noah Bacon · Answer

When you say that the right team members manage the portfolio together, do you mean that these professionals are paid when their services are requested or they are taking a percentage of rental income monthly to be on call?

Theresa Harris · Answer

Good reasons to get a PM:-potential conflict with rental applicants (eg may be employees or co-workers)-you don't want to manage your properties (time constraints, don't know the local laws)-property isn't close to where you liveI use a PM as I teach and one of my rentals is often rented to students. That is the only reason I use a PM. Every person is different.

Mohammed Rahman · Answer

Hey @Noah Bacon - it's subjective question. You could own a 15 unit portfolio and if you're within a 10 min drive of all of them then it wouldn't make much sense to have a property manager - unless you had other obligations or just didn't want the hassle of driving around. At some point it becomes a full time job, hence the need for property managers in the first place. Some of the largest investors I know don't have PM, but rather specific team members in the right places (handymen, contractors, vendors, agents, etc.) to manage the portfolio together. Rental revenue is collected via payment software. There are a bunch of self-management software tools out there for free - a simple Google search can yield some results.

Richard F. · Answer

Aloha,A lot depends on your specific RE/construction/finance/law related knowledge and people skills. Just owning your own home is not much of a qualification to start managing others. There are a lot of laws and rules that need to be followed, and there are yearly changes in many applicable laws to keep up with. Failure to do so can result in very costly fines, lost rent, and and unnecessary aggravation. "I didn't know about that" is rarely an acceptable defense in this business. As a LL, you have a big target on your back...you are offering costly goods and services to the Public, THEY will often be the ones that hold YOUR feet to the fire...with free legal aid and advocates.If you do not already understand the fundamental systems in your property, you will have expensive learning sessions with plumbers, electricians, HVAC people, carpenters and installers. Some will point out issues to you, others will create them for you. It used to be that women were taken advantage of when they had car troubles at the service station. Now it's mom and pop LL's when they are in crisis mode due to Tenants, leaks, equipment failures, etc.; and the costs of those lessons are far greater.To be clear, no PM is "on standby" 95% of the time for your unit(s). They have scores, hundreds, possibly thousands of other units keeping them generally quite busy, and typically available 24/7 for legit emergencies. They are just very good at prioritizing, troubleshooting, decision making, delegating, and establishing standards for others (team members, contractors, Tenants, Clients and others) to achieve. If you think that your 10% management fee is too much...break that down into an hourly rate comparable to licensed trade people, while considering that the PM cannot take the kind of shortcuts an individual Owner might.