Should I pay someone to onboard a tenant?

Question

I'm 25 and just closed on my 2nd property that I will be owner occupying / house hacking and moving out of my current house hack to rent out to a family/tenant. It's a 4 bed 2 bath house. I found a local property management company that offers a "lease only service" meaning that they will take pics, market/list the property for rent, handle showings, screenings, and paperwork to onboard the tenant and then hand it over to me to manage. I've decided that I want to manage it myself for at least a year to not only save costs but because the property is local to my next one, I've lived in it for over a year so I know the maintenance of the home, and I'm a PM for a home builder so I have all the handyman/tradesmen relationships that I can use for any repairs. The PM company charges a fee equal to first months rent for this lease only service. I would rent the property for $2000. Do you think it's worth $2000 to have a company handle the full tenant onboarding process?

Since I'm young and haven't done this leasing/renting out process before (my house hack roomates have been friends), I'm afraid of onboarding the wrong tenant or drafting up paperwork/leases that doesn't fully protect me as a landlord. Plus doing a bunch of showings and processing applications doesn't sound too fun either. Is the tenant onboarding process really that difficult or strenuous to where it's worth utilizing this lease only service despite the fairly hefty fee for a process that will probably take the PM company roughly 2-3 weeks to do?

Zachary Ware · Answer

Hey Ryan,

If you are the one who will be handling the tenants for the next year or more, I think picking them yourself is worth it. It sounds like you have a strong grasp of the PM aspect and this is an opportunity to build your skillset. There are tons of free resources, not to mention the BP forums, where you can learn about and find documents on, Leases/Applications/Regulations. The items that will cost capital will be background checks/ possibly credit reports. All in all, doing it yourself will save you money and cost more time but I think the biggest gain is the experience of doing it and being able to decide firsthand if your tenant is the right one for you and your property.

Jim Lynch · Answer

I think you answered your own question...if you don't want to do the legwork/don't have the skillset to do the legwork, it's worth it to have a PM do the marketing, qualifying and leasing of a new tenant. And that's a pretty standard fee structure. You're saving all the monthly management fees, don't skimp on the most important part of the process, the tenant qualification (assuming they do a thorough vetting).

Jason Cox · Answer

Morning update to my post:

I think you can handle the paperwork side of this. It's not that hard. You will have to buy a rental  application and a lease from someone. An attorney. Or maybe this website has those available for purchase. You would also need a simple Holding Fee agreement. As you go on being a landlord you will find things you want to add to your lease based on experiences you have with tenants.  Take the paperwork part out of your decision.

The real issue, if you want to do this on your own, is how much free time do you have to spend on dealing with the applicants and how long can you afford to let the place sit vacant with no income coming in. Is the house mortgaged or free and clear. You may get lucky and find a good tenant quickly but more likely this is going to be a slog of a couple months of showings with some frustration involved since you are new at this process.

Jason Cox · Answer

It's hard to answer because I don't know anything about the PM company in question. My concern with someone who does a one off service like this is that they are gone once the tenant is placed  -- do they have incentive to take the time to find someone good or will they just put the first person who they consider marginally acceptable in there.

There are some PMs whose default criteria are kind of weak -- they will take an applicant with an old eviction, credit scores in the 500s. That would not be my choice of tenant. That is something to find out about in advance before agreeing to this.

Do you get to read the lease they are offering beforehand, at least?

If you try to place the person yourself, yes it will be tedious, not only because you are new at this but also because this is the time of year when it starts to get hard to find decent tenants. You will need to come up with the correct rent amount for the unit which isn't as easy as it sounds -- it can take some trial and error and price drops. You could conceivably have a vacant unit until some time next year, depending on the demand/quality of tenants in your area.

Sorry if this is not the most helpful answer. Both options have unknowns and drawbacks.

Should I pay someone to onboard a tenant?

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