Should I hire a property manager for my first property?

Question

We are going to close on our first rental property this week!  A year and a half of analysis paralysis is coming to and end!  My question is would it be best to hire a property manager or manage ourselves.  Here is our scenario.

With property management, vacancy, maintenance, cap ex accounted for, we will net roughly $350/mo.  We won't rely on any of this money for living expenses, it's purely for reinvesting.

We live 35 miles away from the property.  My wife and I have full time jobs and I also have a seasonal business during the winter/spring that keeps me very, very busy (70-80 hrs/week with full time job).  We have two young kids and I am a football coach!  My wife is going to go part time next year to be able to spend more time with the kids while they are young/work on building our RE business.  I have been working on putting systems in place to help us streamline our business but this is all new so there will undoubtedly be bumps in the road.  Would it be wise to hire property management to take care of our investment leaving us more time to focus on acquiring new assets or should we save the roughly $200/mo in PM fees and manage ourselves?  My only hangup is that during my seasonal business I have to focus on that as much as possible and am worried about added stresses that may arise with the property.  I know it's a to each their own question but just looking for some insight from those that have experience.  Thanks in advance!

Steve Rozenberg · Answer

That is a really tough question to answer. I may be biased being an owner of a PM company but I am also an investor so i have the ability to disassociate myself from the business side. I started off as a self managing person. I would say that yes you can certainly do this yourself. Living in the immediate area is not necessary when owning properties. Just as when you own a stock that does not have to be in your immediate area. A property is the same as a stock in the sense that it is a vehicle to get you to an end goal of something.. that could be cashflow or appreciation, retirement etc...

The biggest lesson I learned was the value of leverage and understanding my ability and more importantly my inability and knowledge in certain subjects and areas. Under a normal situation things are normally fine, the time when a PM company earns their true money is when things go wrong and your facing a lawsuit for violating a tenants rights, discrimination suits, property code etc.. the challenge is that most investors do not take the time to educate themselves on these subject prior to purchasing a property and when things go wrong they end up in some form of legal litigation.

If you plan to take the time to learn the laws and local property codes etc it is definitely doable and not hard to run that business. If that is not how you wish to spend your time them then I would suggest looking into to outsourcing that part of your business model to a professional so that you can spend your time doing other things more inline with what you know or like to do.

IF you look to hire a PM company I would suggest that you ask them some serious questions to make sure your goals and business model aligns with theirs.. remember just because they are a management company does not mean you have the same values and goals, if this is the case then the business relationship will not work.

Below are some good questions to ask a PM company you are interviewing.. if they cannot answer these questions you may want to consider how well they run their own company.

Questions to Ask prospective management companies

What are your average days on market for vacant homes?

• What is your average rent amount for all properties managed?
• What is your average work order cost for the owner?
• What is your average make ready cost for the owner?
• Are all my invoices uploaded to my owner portal?
• How do you advertise your vacant units?
• Do I receive video of my pre and post make ready?
• Do you have a setup fee?
• Do you upcharge on maintenance?
• When do you make owner payments? How often?
• Are you a Certified Property Manager?
• Are you a member of NARPM?
• What is your Guarantee?
• Do you provide move in and move out reports
• How many pictures do you take of the property prior to tenant moves in and after the tenant moves out
• Do you get weekly reports when the property is vacant what prospective tenants are saying about your home
• Do you provide monthly newsletters to your tenants
• Do you hold investor education classes to help me become a better investor
• Do you have single point portfolio based management services?
• How many properties do the owners actually own themselves?
• What do you do to ensure that the tenant is responsible for security deposit disputes since that is the largest reason for owner lawsuits
• How familiar are you with the newly changed laws that can affect you the owner if they are not used correctly?

Patrick Liska · Answer

Ryan,

How much is your time worth ?

My properties are all out of state, 3 hrs away, i of course have a PM managing mine but i have determined that even if i were to purchase some close to me, i would hire a PM. My time is better off doing other things and having Family time, which is the most important to me. I am a general contractor and can do anything that is needed on a house but i will not, for these reasons, Time ( as mentioned ), Taxes and Liability.

As far as taxes go, how do you account for the time you were there doing the work ? you would need to keep very good track of everything, and i am not sure how the IRS would look at that if you were audited. I hire everything out, there is paperwork and all tax deductible.

Liability, lets say you do the work, something goes wrong after, who is to blame? you. you will have to fix it again when you could of had a PM send their guy back at no extra cost to you to fix their mistake. Not to mention, if you set up an LLC. to own this property, guess what, you just broke that protection that you set up, if you were to get sued from the tenant because of some something that wasn't fixed right, they will sue the llc and the contractor that did the work - you.

I try and separate myself from the properties as much as i can, run it as a business.

Thomas S. · Answer

The answer for me is a no brainer. Managing your first local investment is kindergarten level property management. First time landlords should always manage their own property. You are starting a business and to do that you should know everything you can about it's operation when small to insure that your knowledge will grow with the business.

Personally I do not believe any investor can adequately manage a PM if they have no clue regarding the bones of the business.

Yes you can be a armchair investor but that leaves you in a position of having to trust others operate your business properly as opposed to  knowing that others are operating it properly. My business does not depend on trust to be successful. You need to know your business the same as you must know all your state landlord tenant regulations. Not knowing all aspects of your business operations is risky starting out.

Ask anyone that has invested out of state about problems managing their PM.

Matthew Olszak · Answer

@Ryan Cash, you got a great answer from @Steve Rozenberg. Let me expand on a few things:

1. If you want to "learn the business" like a lot of my "first-time-landlord" clients want to, you can do so through your PM if they are good. There are many different models of PM businesses - some have so many clients that you really never actually speak with them, while others have under 50 units and can walk you through their process. Find one that fits your style/requirements.

2. A 35 mile drive each way will suck to collect rent or unclog a sink. You COULD find a maintenance guy and.or get rent collection automated, but on the first month rent doesn't get paid through the system or your maintenance guy doesn't answer his phone, you'll be in a bad spot. Its better to pay a slight premium to a PM who has been through all that and has systems in place to handle those issue already. That way, your only job is to look at your bank account each month to ensure rent has been deposited and to check-and-balance the PM's work orders and accounting.

I compare the "should I hire a PM" question to retailers. Wal-Mart, which is huge, can justify owning the manufacturer of a lot of their items. But John's Food Mark on the corner, they can't afford to package their own water. They COULD do it, but is their goal to be a water bottler or a retail store? Its much less costly to just let someone who has the processes in place take over.

Dave G. · Answer

First of all congrats on getting your first property. What an exciting time for you!

Lots of good replies on this thread and obviously there is no right or wrong answer. Many years ago I managed my own properties and experienced the ins and outs first hand. Now I have a professional career with demanding hours and must have a PM. Plus I travel a lot. But as an earlier post indicated, how do you manage your PM if you have not done it yourself? And don't believe that is a hands-off/no work situation either. You're either managing the property or managing the property manager. You must be sure to let them know you are paying attention by reviewing the leases, the monthly statements, asking questions about your properties, etc so they remember they have a customer they are accountable to.

All that being said, the two things I believe you must have great confidence in before you could do the management yourself would be 1) exceptional tenant screening & selection and 2) a reliable maint man that you could call upon nearly any time.

Lastly, I remember my first property and what a pain it was to deal with compared to my stock investments. I almost dumped it since it was all this extra work I had not experienced before. But know that after you get multiple properties and start getting some economies of scale, the aggravation shrinks relatively and the effort really starts to pay off. So hang in there and good luck with your decision.

Michael Noto · Answer

I know it may come off to some as harsh but what @Thomas S. responded with in this thread is spot on.

Add to that, if the property is in a A or B area there is not a ton of day to day headaches. Even if you get a call or email with an issue there are not many issues that will require you  to physically drive to the property. Throw a lockbox on the house somewhere or have the tenants coordinate with any contractors that may need to address maintenance issues and you will be fine.

All PMs are not created equal and to leave your investment in their hands before you know the ins and outs of the business is going to be tougher sledding than dealing with the occasional phone call.

Ryan Cash · Answer

wow! Thank you all for great insight and recommendations!  All of you make valid points to think about. I believe I will interview the PM and see where that goes per @steve rosenberg. @Patrick Liska your points on liability and separating myself are what I am leaning on as that is my mindset as well. Time is important!  Again thank you all for your time and insight!

Matthew Olszak · Answer

@David Faulkner I encounter your point of view frequently - that first a landlord should self-manage so they know what they are paying for. Rather, they are appreciating the amount of work they are paying for, and I opine its totally unnecessary to experience it first. When purchasing a property, do you suggest that home-buyers also pour their own concrete foundation so they can understand the cost of doing so and the labor involved? Or that they refinish their own floors? Or that they milk the cows and pasteurize the milk of the cows who produce the milk for their cereal?

I would hope not. Just because "Property Management" is within reach, IE anyone can list a property and collect rent, doesn't mean it should be performed by most or even experienced by most. Its not an assembly-line task that can be performed by whomever has the time to do so, it takes skill to do so properly. By doing it themselves, a landlord won't learn anything faster UNLESS they want to be a property manager and not an OWNER.

Should I hire a property manager for my first property?

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