Being your own property manager

[Willie Marquez]

Many investors are intrigued with the idea of owning rental property. The stories of successful investors who quit their dayjob, retire early, and live off rental income is enticing.

Yet for those getting started on becoming a rental property investor, a big decision you will need to make is if you manage your properties yourself or hire a property manager. If you work a 9 to 5 job, you may not have the time or bandwidth to show your home, run background checks, collect rent, and oversee maintenance. Yet, hiring a property manager will eat into your cash flow.

In this post, I’ll cover how I came to the decision to property manage two of my properties and three lessons you can take away to decide if you want to manage your rental properties.

In July 2018, I owned two empty rental properties in Stockton, CA. Rather than sell the homes, my strategy has always been to hold rental properties long-term so I can build a steady stream of income to complement my 9 to 5 job. At this point, I knew I had two options to fill the vacancy: 1) Hire a property manager or 2) Rent the property out myself.

Working a 9 to 5 as a Sales and Market professional, I didn’t have the time or bandwidth to actively manage the homes, so I first reached out to local property managers.

Lesson #1: Property managers are focused on being efficient operations.

The first lesson I learned is that property managers are focused on being efficient operations. After finding several property managers via Yelp and talking with each about how they operate and their fees, we came to a cross-roads on one topic: the rent rate. My goal was to rent my 3 bedroom / 1 bathroom for $1,800 and my 4 bedroom / 2 bathroom for $2,000. I came to these rent rates because of the high demand these areas command and the pristine condition of the homes. The property managers saw things differently: they wanted to list the 3 bedroom / 1 bathroom for $1,400 and the 4 bedroom / 2 bathroom for $1,600. The property managers’ recommendation would lead to a potential variance of $800 a month and prevent me from cash flowing on both properties.

While I pressed the property managers to list the homes at the rate I wanted, they refused and this is what ultimately led me not to move forward with a property manager. This back-and-forth now leads me to believe that Property Managers are focused on being time efficient. In this example, their goal was a lower rent rate to increase the pool of applicants and begin collecting on fees. While I can understand the approach from their perspective, this strategy runs counter to my goal of maximizing cash flow.

Lesson #2: Today’s rental manager tools make property management easy. 

The second lesson I learned is that today’s rental property management tools make property management easy. After exploring hiring a Property Management, I decided to look into how I could manage the property myself. After a quick Google Search, I noticed that Zillow Rental Manager offered no fees to list, send and receive applications, run background and credit checks, and accept monthly payments. For me, this was a no-brainer since this helped me in my goal of cutting costs to maximize cash flow.

While Zillow Rental Manager helped with finding applicants, I needed a resource for day-to-day property manager duties, such as maintenance and repairs. One day, I heard on a BiggerPockets podcast of a property manager who put a clause in the rental agreement that the tenant will need to find a contractor to make any repairs and that the landlord would reimburse the tenant. This clause is made easy with the rise of Yelp and tenants now having the tools to find positively reviewed contractors. I thought this was a brilliant idea and worked a similar clause into both rental agreements. While this may cause me to pay a premium for contractors who may not be the best value, I am willing to make that tradeoff for peace of mind.

In the back of my mind, I was concerned about those exception situations, such as rent not being paid or, in the worst case scenario, eviction. While my goal was to properly screen tenants so it would never need to get to that situation, I learned from my conversations with property managers that I can utilize them for those one-off situations. This put my mind at ease.

Lesson #3: Local non-profits are looking for homes to rent. 

The third lesson I learned was that demand comes in all shapes and sizes. When I listed one of the homes for rent on Zillow, I received an inquiry from a local non-profit looking to house homeless people. After speaking to a representative of the non-profit, I learned that the organization was government funded, the organization had their own internal maintenance crew to do minor repairs and maintenances, the organization was required to keep one employee in the home to keep an eye on the house. Further, the non-profit was willing to pay a premium given the perception of homeless people occupying the home. This addressed all of my worries and helped me make the decision to manage the property myself. I have now provided this non-profit a home for the past two years and have had no issues.

In conclusion:

Lesson #1: Property managers are focused on being efficient with their time. You need to ask yourself if the cost of a property manager is worth the trade-off to your cash flow.

Lesson #2: Today’s rental manager tools make property management easy. Leverage Zillow Rental Manager, Yelp, and contract clauses to make things more hands-free.

Lesson #3: Local non-profits are looking for homes to rent. With homelessness on the rise, seek out non-profits in your area.

In conclusion, on the surface, Property Management looks intimidating. You hear the stories of tenants trashing homes, not paying rent, or being evicted, but I will tell you this is the exception not the norm.

If you use the tools available and screen your tenants right, self managing is not as difficult as it sounds. Yet, if you are looking for more peace of mind and you can afford a property managers’ services and still cash flow, working with a property manager may be right for you.