Getting property management company for first rental property?

Question

I'm looking to get my feet wet in buying rental property soon. And I was wondering if it's a completely foolish idea to hire a property management company for my first rental house, probably single family.

I understand that I would want to do it myself to get a handle on everything and to gain experience, but my main goal is to get a small amount of cash flow (around $100) a month and get the first property out of the way.

What are your thoughts?

Mindi B. · Answer

I would also advise against the PM. They don't care about your property, and they don't care about your cash flow. Nobody will manage your property better than you do. It's really not that hard once you get the first few tenants behind you. I would recommend joining your local REIA group, or finding a landlord group on Meetup. Asking other landlords about how they handle situations is a great way to learn.

I have never met a landlord that was happy with their first PM, or with PM's altogether. They are constantly getting screwed and looking for a new one, which in my opinion is just as time consuming as managing it yourself.

Some PMs offer a tenant placing service, for around $500 they will advertise, locate and screen a tenant and guarantee they stay for 6 months. Then you would handle the property after that.

Bryan Hancock · Answer

Property management companies for smaller units or SFRs tend to think in terms of what is best for THEIR business and not what is best for yours.  I wish you luck in finding a good one, but almost everyone I know has been disappointed by their management company.  It is a tough business to run!

Seeking advice from knowledgeable investors in your area is probably a good idea.  Keep in mind that companies tend to specialize in certain locales too so a good manager might be terrible in a different area of town.

One of the key things to ask about is their marketing plan.  To me about 80%+ of the value a property manager adds is procuring tenants.  A reduction in vacancies is a huge issue if you are only getting $100/door/month.  One prolonged vacancy can blow through your cash flow for years.  Thus the marketing plan is paramount when you interview people you are entrusting to manager your asset for you.

Lynn McGeein · Answer

Trevor,  Everyone has made good suggestions.  Wanted to add that if you hire a manager, make certain it is a group w/ more than 1 property manager.  I hired a broker who had good references for managing property, but when she had family issues, it was a battle getting my money, even though tenants were paying her.  I had to pay mortgages for all 3 properties she handled the entire time, 3 months worth until she finally settled up.  I don't think she meant to cause me trouble, but it could have been fatal if I didn't have a good emergency account built up. When I called the real estate bureau, they told me (off the record) that I should never go with a single broker, always best to have a reputable management company to make it easier to force compliance and also so someone else is available when your main manager isn't.

If you're skilled at painting, plumbing, hvac, etc., or have great local contacts that will come in an instant like when a pipe bursts on Superbowl Sunday, and can do efficient background checks by yourself, then worth it to manage yourself; otherwise, management company can actually save you money ... no emergency fees for outside electricians and plumbers, and everything always seems to happen when you're out of town.  And the other reply about being incognito is really worth it.

Also, heads up, the managers I interviewed for my Washington State (southern part) property mostly seem to use property management as a way to build their own handyman companies, so make sure they allow you to put in a clause where you can do the turnover work yourself if you choose or be notified if repair is over a certain $ value and have the right to get other estimates unless it's an emergency.  My company did when I asked them to, although I haven't taken them up on it yet as they seem fair if sometimes a bit high.  It's very weird there, different than I've seen elsewhere.  One I interviewed even has in their contract something like the vertical blinds must be cleaned once a year by their own vertical blind company, and for my house it would have been hundreds just for their cleaning.  Weird.  Didn't hire them for sure.

George P. · Answer

One last thing - make sure you educate yourself about 50% rule.
With $100/mo cash flow the property easily becomes an cash-eating alligator.

Jason A. · Answer

Trevor,

I suggest keeping the money and managing the property yourself. Find your self a bulletproof lease (these vary by state), and screen for a good tenant. Remember to "train" the tenant by being responsive but strict. Don't put up with any BS and stick to a system. Some of my better tenants I see less than once per year now. Why pay a property mananger to collect a check for you?

Mark Updegraff · Answer

You said you wanted the experience.  So I would recommend doing everything yourself on this one.  That way you're more knowledgeable of the potential problems when your trying to vet a PM co.

Cheers,
MC

Account Closed · Answer

While there are property mgt companies that will accept a house, they will probably charge more than a local RE broker. I would suggest going to your local REI club and ask for referrals. You'll probably hear names of RE brokers who handle property management as a side business. Be sure they are responsive to tenant requests/complaints, and they know the legal procedure for eviction.

If you are looking for prop mgt for larger properties, then go to irem.org and use their search thing to find managers in your area.

Getting property management company for first rental property?

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