Newbie: Self-manage or Property manager?

Question

Hi! I will be closing on my first property, a duplex, May 18 in Dayton, Ohio. My plan is to house hack and start a property management business and manage the other half through my own property management business. As I get closer to closing I'm just not sure anymore. Am I trying to bite off more than I can chew? is it better to self-manage or get a property manager starting off and only having 1 unit to manage? And if I go the route of self-manage do I incorporate or set up an LLC for security and tax benefits?

Any advice or book will be highly appreciated. Thank you. I just really want to make sure I go into to this right so that my kids are good.

Laura Cardenas · Answer

@April Littleton

Hi April! Congratulations on having your first house hack under contract. That's so exciting! I am not sure of the laws in Ohio but in New Hampshire you do not need to own your own property management company to manage your own properties. In fact, in order to start your own property management company in NH, you have to have a brokers license, which takes 2+ years to accomplish!
I think starting off with a duplex is a great idea. I’m confident that you can handle managing it yourself! Make sure you read some property management books. I’ve read Brandon & Heather Turner’s Book “The book on managing rental properties” about 6 or 7 times(I’m sure there are other great books out there too, do some research :).) I’m still new myself, so I wanted to make sure I really knew the material. I have been self managing for about 6 months now and currently have 4 doors.

I use Cozy.co, a free property management software. I run my credit and background checks through there. My tenants are able to pay rent on the software, they can submit maintenance requests on there. I upload all important documents to their portal so they always have access to them in case they misplace their physical copy. I have not a single bad thing to say about this software!

Best of luck in whatever route you choose! I’m Happy to help where I can if you have any questions feel free to shoot me a message!

Martin Neal · Answer

@April Littleton I would also suggest self managing for a year or so. It’s always good to know what goes into managing before you turn it over to a company that will take 10%.

Kenny Dahill · Answer

Congrats @April Littleton!  Exciting times for you.

Self-manage or hire a PM is a common question that new landlords have.  There is not a right or wrong answer, it depends on your own criteria.

If you decide to self-manage,

• Is it easy for first time landlords?  Yes.  But that heavily relies on the type of property you bought.  Difficulty is about tenants.
• Do you have to self-manage everything?  No.  A lot of landlords do not like to lease the units themselves, so they hire a leasing agent.  Typically leasing is the most difficult and time consuming.
• Get software to help.  Even though you can survive with Excel, there are plenty of free software solutions for landlords.  This will provide you a template of what you need: rent collection, maintenance tickets, screening reports, etc.  Plus when you start to expand your portfolio you are already set up.

If you decide to hire a property manager,

• Excepted cost:  8-10% per month, a 1 full rent check for leasing.  That comes out to 16-18% of your annual rent.
• Hiring a PM:  Interview multiple PM's and find the best fit.  If they cannot explain any-and-every way to they earn income from you or your tenants, don't hire.
• Maintenance:  This is where most landlords get frustrated.  Cost of maintenance.  Majority of PM's only push their maintenance requests to a handyman and don't try to resolve directly with the tenant.  Plenty of stories about a $100 light bulb here on BP.  Know going into management that your maintenance costs will be higher than self-managing.
• Read the Management Agreement.  It is important to understand all clauses in their agreement and ask questions.  They should be able to clearly explain it.

Congrats and best of luck!

Nathan Gesner · Answer

I recommend Brandon's book but I also recommend "Every Landlord's Legal Guide" by NOLO. It's full of practical advice from marketing to eviction and includes updated, state-specific laws as well as sample forms.

Yes, you should try being a Landlord so you can learn the ropes. But that means educating yourself constantly. Too many Landlords put renters in the house, collect rent, and think they're geniuses...until the tenant gives a sob story about their Aunt Matilda dying of cancer, stop paying rent, and cause $10,000 in damages.

You have to use the good times to prepare for the bad through education and by developing policies and procedures. You'll need to do the same if you ever want to be a property manager so you might as well start now.

Remington Lyman · Answer

It depends on what your medium to long-term strategy is. I would recommend self-managing until you get to 10-15 doors. Then give it to a manager. Then if you really want to start a management company, bring the units back in house when you have access to 300 doors. That will allow you to make management your full-time job.

Michael Wegner · Answer

@April Littleton

First off, congrats!

I just went through this decision making process  myself (pulled the trigger on my first property, house hacking a fourplex) and I have decided to self manage!

It is definitely a little scary but I’m so happy that I’ve decided to take the leap of faith because I know that I will learn a ton and that the experience is truly going to be invaluable. Of course we will make some mistakes along the way but we just gotta use those as lessons learned - it will pay huge dividends in the future!

You do obviously however want to make sure to avoid the huge mistakes so I would get those leases reviewed by an attorney and like many others have suggested, definitely read Brandon Turner’s book on managing rental properties. Knowing you’ve done your research and due diligence will help give you that extra little boost of confidence.

Feel free to reach out. Good Luck!

Bjorn Ahlblad · Answer

@April Littleton I say go for it! The book by Brandon Turner-'Managing Rental Properties' is really good investment. You can buy it here on the site. I would forgo the LLC for now get some liability insurance. All the best!

April Littleton · Answer

Hi BP fam I have an update on my journey and need tons of advice. So I still haven't closed. The original bank that I got my pre-approval through changed their guidelines due to covid. So I scrambled to get a new loan, which I did and they even have a better interest rate. The underwriter however is being extra thorough and has pushed the close twice now. I guess that isn't a bad thing though because I was just informed of a restructuring within my company and I may be losing my job or moving out of state. Thus all the advice needed. So here is where I stand. I have put up the $500 earnest money, paid the $545 inspection and the $645 appraisal for about $1690 already spent. The property I was buying was a converted duplex in Dayton, Oh. I offered $120,000 and it appraised for $130,000. Cash to close is about $10,000. I plan to house hack and live in one side and rent out the other at $750/month. At a minimum I'll need to add a fridge and stove to the other side. Now to the questions:

1. Should I still close knowing I might be moving?

2. What happens if you can't stay in your fha home the entire year?

3. The side I intended to rent out is not functionally obsolescence or however that lingo goes, you have to go through the kitchen to get to the only bathroom. Should that deter me from buying?

4. How would I change the setup of that side so you can access both separately and not make it so weird?

I hope I've provided enough information. If not just let me know. I'm a newbie in desperate need of help and FAST 😞

Jonathan W. · Answer

@April Littleton you are starting with a Duplex? You are not biting off more then you can chew. In fact, that is a fantastic way to start! Reading the law, reading parts of the IRC or anything additional when it comes to safety in homes and screening your tenants like a proud my opinion is the most important focus. Yes you want to deliver a product for rent and keep the books organized but tenants from hell and lawsuits are the first things you want to avoid :)

Good luck!

Newbie: Self-manage or Property manager?

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