Newbie Question: Property Management: Why Not Always Use It?
Most Popular Reply
Member since 2016 · 13k+ posts · 12k+ votes
9yInvestors use PMs for many different reasons, some due to location, some are afraid of managing tenants, some lack the skills to be a landlord, some are simply lazy.
Reasons do not matter but what does matter is that you must manage your manager. There is no such thing a passive investing. Ignore your responsibilities to manage your investment and your PM can run you into bankruptcy. They need to be monitored and controlled as much as any tenant.
24 Replies
- Rental Property Investor · Phoenix AZ / Kendallville, IN · Member since 2016 · 293 posts · 149 votes9y
Hi Chris,
Most property management companies charge 10% of the total rent for their services. If you are not interested in self-managing, I would interview two or three management companies in your area if possible. Also try to get a reference of a great PM from other property owners that use a particular property management company.
If you get a good sales pitch from a property management company, you might get stuck with a lousy PM from that company. The key is getting a good PM that is of veteran status and knows the ropes that communicates well and follows through. That way you can have confidence that your properties are utilized to the maximum cash flow.
PM's are like a box of chocolates, you bite into one and you never know what you're going to get.
- Seattle, WA · Member since 2014 · 44 posts · 4 votes9y
Yeah, i second Kurt's suggestions regarding interviewing couple property management companies, and properties managers.
Our first experience with that was very position in 2006, we ran into the question whether we would want to hire a PM to manage our townhouse or doing it ourselves. We met up at our townhouse, had a 1~2 hours conversation, that lady practically taught us everything we needed to know to do it ourself! She told us if we would want to hire her, great; if not, that's totally fine with her too. We ended up managing it ourselves.
We also had bad experiences with other PM, mostly the bigger firms with hundreds if not thousands of properties in their portfolio, that's when the quality goes down and you feel that you are paying all these monthly fee for no service.
Good luck!
- Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes9y
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes9y
@Chris M. no management company takes 50%. All your expenses including management (but not including your loan costs) could definitely be 50% (search for the 50% rule here on BP).
As @Kurt K. said 10% is more typical. But they will also add additional charges for tenant placement etc.
To answer the question in your subject line, Property management costs money and many property managers are not that good. It is as important to screen your property management company as it is to screen tenants.
- 9yChris M.Portland, OR · Member since 2016 · 108 posts · 33 votesOP
Wow, awesome responses guys, thank you! I'll address each one individually:
@Kurt K. good to know! I'm not sure where I heard 50% gross... I think it was a Rich Dad audiobook of some kind. Maybe I misheard! Yeah, I'm gonna have to ask around... seems like other investors would be the right guys to ask, right? They would know which property management companies are worth pursuing?
@Bruce L. So to be clear: you manage all of your properties yourselves? How many do you manage?
@Jeff Bridges Thanks, Jeff, I'll definitely be reading this!
@Ned Carey Ned let me ask you this: would you recommend going with bigger more established PM companies, or smaller more localized companies? I'm wondering if the more localized and less amount of units for a PM company means my units would get extra care, or if that means the PM company is less experienced/reliable. Obviously a case-by-case basis, but appreciate your thoughts here.
- Aurora, CO · Member since 2016 · 158 posts · 118 votes9yJust from my experience I hired a PM for my first house. 10% monthly and 50% one month to put a tenant in. I fired mine because I believe they under charged for rent and waited a full month to fill my house. Might seem like I am being a hard @$$ but in Denver area for the property they had 16 application in a week. Plus side they did screen well so far.
- Ketchikan, AK · Member since 2016 · 30 posts · 9 votes9yLots of good recommendations. I'm in the research gathering stage. Something I did when I was studying PM companies was just look at google, yelp, etc. reviews. I found one that had great reviews from landlords and a few bad reviews from "needy" tenants. One lady gave it a 1 star because they wouldn't replace a piece of weather stripping she ripped off the bottom of the main door. My first thought was maybe don't remove the weather stripping lol.
- Member since 2016 · 13k+ posts · 12k+ votes9y
Investors use PMs for many different reasons, some due to location, some are afraid of managing tenants, some lack the skills to be a landlord, some are simply lazy.
Reasons do not matter but what does matter is that you must manage your manager. There is no such thing a passive investing. Ignore your responsibilities to manage your investment and your PM can run you into bankruptcy. They need to be monitored and controlled as much as any tenant.
- 9yRobert GilstrapPro MemberResidential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
Chris,
I own a mgmt company in Atlanta and much of what has been said here is right on. Research, interview, ask lots of questions and in the end remember the reason we hire anyone to do anything: We want to trade our money for the other persons time, talent and skillset. The added benefit is that anybody who does something for a living almost always can do that task better, faster and cheaper than we could do it ourselves.
- 9yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
I think that property management is too expensive for the first time investor to reasonably consider. It's both expensive in terms of direct income loss now and in the income potential you have down the line.
I manage my properties right now, and am slowly developing systems for dealing with problems that will serve me as I expand my portfolio in later years. I believe it will be quite difficult for an inept or unethical property managemer to pull one over on me, as I develop so thorough an understanding of my properties.
Furthermore, property management, to my experience, is simply not that demanding of a job. Once every couple of years, per unit, you need to hire a crew to clean out and freshen up your units, post an ad to postlets, and show the property a few times. You need to schedule a couple of inspections, and react to problems professionally.
At the high end, I'd say that I spend 1-2 hours PER MONTH managing my properties, that net a total of $5,000 in gross rent. 10% of $5,000 is $500. $500 /2 = $250 PER HOUR.
I don't know about you, but nobody else is willing to pay me $250 per hour to do any type of work. Until that changes, I'm going to be managing my own properties.
I believe that property management absolutely makes sense once you reach a certain scale, but for those of us that are not making $250K+ per year, and invest in decent parts of town that don't require intense management with certain types of tenants, I believe that property management is just way too expensive, given the effort.
And again, you miss out on valuable experience that will help you avoid mistakes when you are scaling your business down the line when you have many units.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes9y
I've always used property management. They aren't usually perfect, but just for the fact they make me not have to deal with tenants (or laws or repairs or drama or headaches), I will only use them to handle my properties. 50% of gross rent is crazy. More standard is 10% of the monthly rent as their monthly fee is standard...some charge less.
This is an old article I wrote, but may shed some light-
https://www.biggerpockets.com/renewsblog/2013/01/2...
Hope that helps!
- Investor · Des Moines, IA · Member since 2015 · 380 posts · 201 votes9y
I use a PM. Roughly 12% once you factor monthly PM plus lease fees.
I use them for two reasons.
1. I'm too nice. I know this is a weakness of mine, so hiring a PM helps to ensure protocol is being followed and I don't end up losing $$ by cutting too many breaks.
2. Vacancy between tenants. I'm busy, prior to a PM, I'd let a house go empty, spend a week or two working on it to clean it up, and then list it for lease again. Others are more on top of this than I was I'm sure, but with a PM, the place is re-leased before the previous tenant moves out. On my most recent one, there was only 2 days of no payment of rent between tenants. This savings of a couple of weeks vacancy alone paid for their lease fee.
3. Discipline. Because I'm very busy with my day-to-day business, I was not good at proper move-in forms, move-out forms, lead based paint forms, etc. Having a PM helps ensure these protocols are followed, which will save you down the line if you have a deposit dispute, etc.
If you have extra time(showings and paperwork), are somewhat detail oriented(paperwork and screening) and can be stern when necessary(no/late pays), then do it yourself. If you have problems with one or more of these, hire a PM.
- Real Estate Agent · Denver, CO · Member since 2016 · 10 posts · 7 votes9y
I've had a similar experience to @Scott Trench. I think a lot of it depends on the type of investment you are making. Are you doing an out of state investment from a considerable distance? If so, you will need a property management company unless you have a partner on the ground to do it for you. However, if your property is in your area, I would recommend doing it yourself, especially if it is one of your first properties. I self manage my rental and aside from some initial issues that were addressed within the first month of the lease, I have had pretty much no headaches. In some months, I don't even have any contact whatsoever with the tenants. I have set up online payments now as my most time consuming property management task was picking up rent checks at the beginning.
The key to this is doing intensive screening of your tenants. If you get a good tenant and your property is in a good location that attracts high quality renters, you will probably not have much to deal with. Another key to this is having a property that is in good condition and making sure that required maintenance gets done on the property. Overall, I would recommend self managing yourself at the beginning if possible. If anything, it will teach you what qualities you need to look for in a property manager.
- Rental Property Investor · Dallas, TX · Member since 2015 · 243 posts · 70 votes9y
My partner and I own properties in Lubbock, Texas. For our newest acquired MF, we are self managing and testing a diversified approach. We have long term(1 year lease agreements) tenants and are using Airbnb for tenants seeking shorter term. For the Texas Tech Red Raider football season, this is great as fewer hotel rooms exist than those seeking a weekend stay. Our fee includes cleaning, so we are not the ones doing this. We also have an executive staying for a month as he makes a business move and looks for a home. We are exceeding short monthly rents with the Airbnb strategy, realizing a careful analysis of the best balance is in order. We will ultimately have a third party manage the property, however the typical property manager would not have done what we are doing with the Airbnb approach.
- Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes9y
How you are self managing Lubbock property from California?
Why you choose Lubbock for investment? you must research Texas geography and i am researching same to find out best place in Texas to invest in MF. If you share your vision, it will be great help.
- Rental Property Investor · Dallas, TX · Member since 2015 · 243 posts · 70 votes9y
I also own Dallas properties. I grew up there and know the market plus have good property management in place. Let me know a number to reach you and I will call you when more time for more discussion.
- Investor · Hummelstown, PA · Member since 2016 · 70 posts · 28 votes9yI have a few properties that I have house hacked. I definitely recommend this approach because I really understand the houses I own inside and out. I know what's most likely to need maintenance and what will probably need repaired next (though there are always surprises). I don't live near them anymore so I have to get creative for getting them rented. The advantage to living in them is that I got to know neighbors and people in the area who can "watch" my house. I never thought I would need that until a neighbor called me to say he heard water running in my house while it was between tenants. Very valuable to have good neighbors who know you. If you get to know your own house, you don't need property management. You also need to get to know it, because you can't trust your PM to take care of your property and your money the way you would. The one time I hired one, they allowed that pipe to burst by not turning on the heat. They also neglected to get my house the right certifications to be a rental. I don't live near them so I need help showing them to prospective tenants. I have friends and neighbors show them when possible, then I do a lot of screening on the phone. I have also used real estate agents. They'll charge half a month or a month to get the tenant in there, but they won't take a portion of rent after that. I also don't know why I'd give up that much profit. At $2000/month rent, you're paying $200 to a property manager. At $500 cash flow before PM, you would give up 40% of profit!! It's really not that hard to manage a property. Until you have more than 5 or 6, I don't know why you would give up that control and learning experience.
- Aurora, CO · Member since 2016 · 158 posts · 118 votes9y
@Kathy Stewart I just sent you an email about some information concerning Lubbock. If you have time I would greatly appreciate any help you might have.
- San Jose, CA · Member since 2016 · 30 posts · 11 votes9y
Hey @Chris M., thanks for sharing your situation.
I'm not an expert on the Portland market but here in the Bay Area and Seattle, I have found full-service property management companies that charge as little as 3.5-5% all inclusive. Again, this may be due to the market or just certain companies in the area.
Regarding property management more broadly, I would suggest a couple of things when interviewing property management companies. Firstly, make sure that you know explicitly what services are included in your fee. There are many different variations of "property management" so make sure your needs can be accommodated by the companies you're looking to work with. Equally importantly, make sure you find out what these companies' economic incentives are. For example, many property management companies make a lot of their profit margins off of markups on maintenance requests. This generally defies common sense given that, if they are making money every time they have to fix a problem, they are certainly not going to take a proactive approach to managing your investment. This is just one example of how understanding the fees and included services in your property management agreement can have a tangible effect on your expenses.
All the best with your investing career! Please feel free to reach out if you'd like to discuss management solutions further.
- Property Manager · Denver, CO · Member since 2016 · 107 posts · 43 votes9y
@Chris M. The 50% figure must have been referring to short-term (vacation) rental management - that can often be between 30-50%, but is a whole different animal than long term management where 10% is standard. Full service management is often not the answer for a newcomer who is very dependent on cash flow, but sometimes is the only option if you're unavailable due to living out of town or other obligations. Lease-only is another option. Property management is my field and I'm happy to answer any other questions you may have - just shoot me a PM.
- Fayetteville, AR · Member since 2016 · 13 posts · 8 votes9yI'm still working on my education as well. Until recently I hadn't been accounting for PM when I analyzed a property, but on one of the recent webinars Brandon mentioned that it is a good idea to include it in your analysis. His reasoning was that once you begin to scale your business you will be able to hire PM so you can focus on running and improving the business rather than maintaining the day to day operation. If you don't account for this early on it is possible that you will stuck managing it yourself, because the numbers just aren't there. As a side note there is a webinar on MF analysis on Wednesday. From what I can tell if you just sign up for it, then you can watch the replay until Sunday. It was like that on the one last week anyway.
- 9yChris M.Portland, OR · Member since 2016 · 108 posts · 33 votesOP
Hey guys, wow, thank you so much for the abundance of replies. I read through so many different perspectives and experiences on property management and it was truly educational. There were a few common threads:
1. It would best for me to start my real estate investing career managing my own properties to learn the ins and outs of the business so I can better choose a property management company in the future.
2. When it comes to finding the right property management company, my best bet would be to ask other investors, look up reviews, certifications, portfolios etc. before making any decisions regardless of company size, name power etc.
3. Property management won't necessarily be needed for me in the first 5-10 units as I plan on sticking in the Portland metro area if I can. However, once I get past 10 units PM will be something that I'll strongly consider (but who knows, I could end up creating systems to manage the properties effectively myself).
@Thomas S. makes an important point: even if you have property management you still have to manage your managers. However, I will say that this sounds much more preferable to me than dealing with tenants / maintenance / listings etc. On the flip side, I've heard from some that managing properties really isn't that much work overall. Still, for me personally, because I run a successful business in a completely different industry that keeps me plenty busy, I think PM is something I will almost certainly utilize.
You're right there's no such thing as completely passive investing... but I want to get as close to that as possible with my investments. First, it seems to me the best way to learn is to get my hands dirty, buy and manage a few or more properties and see how I feel after everything I've learned. Like I said, PM is still a strong possibility, but you guys have given me a lot of perspectives to consider. This thread has pretty much made me certain that I'll wait on PM until I've actually got some units and preferably a year or more of experience managing properties.
Absolutely determined to take action in 2017. Right now I'm still renting, so I plan on buying a single or multi family home and house hacking/BRRRing it then starting to buy other properties from there. I'm going to try to buy at least a few investment properties in 2017 and really start going at it. The rest of 2016 is dedicated to education. Thanks again for your thoughts here, guys, truly helpful.
- Investor · Portland, OR · Member since 2016 · 47 posts · 36 votes9y
For the 50%, I think you heard they can take up to 50% of your Net profit, not gross rent. If you have a place renting for $1000 a month, having $200 left over each month is a reasonable number. If you hire a PM who charges 10% they get $100 and you are now left with only $100.
My opinion is if you are buying close to home, do it yourself. If you have a sound property and good tenants, It really doesn't take much time. You are giving away too much money for someone else to collect the rent and hire a plumber once a year to unclog a drain.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.