When to hire a property manager?

Question

Hello everyone!

I was just curious to get feedback on when hiring a property manager would be appropriate. Do I need one after my first rental property? I am willing to deal with tenants, research companies for repairs if needed. I'd have to educate myself on obtaining/screening for tenants. I can see the value of having a good property manager once I start having more units under my belt. Based off your experience, what suggestions do you have?

Thank you for your input!

Greg Weik · Answer

Depends on the PM more than it depends on your property or what you're willing to do.

For example, a great PM is going to know the law, the market, how to screen and evaluate tenants, have the best lease possible, the best way to reach prospective tenants, they're going to have the best vendors possible (who usually are willing to do more for a PM than they would for a private O), they're going to have the best systems, and they're going to be a lot faster and more efficient than you could hope to be because they have processes, systems and checklists for everything.  They're also going to reduce or nearly eliminate the turnover time between tenants, which is the major killer of cashflow.

Great PM makes clients more money than they save by DIY management.  On the other hand, most PMs aren't great - but many are decent.

If I didn't own a PM company, I'd hire one for my rentals - that is, if I could find one anything like the one I run.  :)

Tim Wasson · Answer

My first property was a 3-unit multifamily that was in a bad part of town and very inexpensive. I managed the property myself. My tenants were very low-income, most didn't have a bank account so they paid in cash. Anyway, long story short, managing the property, collecting rent, screening tenants, etc, was quite difficult and I made an absolute ton of mistakes.

I ended up getting a property manager for the property after about 4 years of self-managing. She hooked me up with her contractor who was amazing and because I was under her "umbrella" of properties I got much better, faster service. This was after quite a few bad contractor experiences.

She managed to get a tenant evicted who hadn't paid for 9 months but I failed to evict personally. Her contractor renovated 2 of the 3 units and we nearly doubled rents on the rehabbed units. Even after paying her 10% I am making far more on the property than I did while managing it myself.

Even better... the new tenants who she has placed do not know my name or phone number. Emergencies and complaints are filtered through her. It turned my property from a part-time job to 100% passive. I sit back and once a month, she drops money into my checking account. She handles the headaches and I get the money. Life is good.

But like most people in this thread, I'd really recommend managing yourself for a time so that you really appreciate the job a PM can do. I wish I would've gotten a PM earlier, but I'm thankful for what I learned during my time of self-managing.

Greg Weik · Answer

I disagree with almost everything @JD said.  In fact, I would go as far as to suggest that property management probably shouldn't even be legal without specific training.  Kind of like driving a car.  Here's what I mean:

Private landlords can (and have) literally kill people.  We've taken on the management of so many properties over the years that were veritable death traps before we came in and brought them to code; non-working smoke detectors, missing CO detectors, mold issues, myriad safety issues and on and on.  Those landlords "took it upon themselves to learn" and were a danger to society.  Many had been at it for years and years.

I'm not a "big government" fan, but being a landlord is a situation where the lives of other people hang in the balance.  It should be regulated.  Even now, I'm pushing for radon mitigation to be required (it's not in Colorado, and it absolutely should be), because it's the number 2 cause of lung cancer, behind smoking.  Tenants move into a property and often have no idea if it's safe, but they assume it is.

Unless you're willing to truly take on the responsibility of knowing what you're doing (unlikely, in my experience) you should probably not learn on the job, potentially at the expense of the public.

JD Martin · Answer

Everyone should manage their first property themselves. It's difficult to figure out what you should be looking for in a property manager - everyone has similar and different needs - if you've never done it. But as a blanket statement, I would be more keen on hiring a PM in a tenant-friendly state than in a LL-friendly state right off the bat.

It depends on how much time & effort you want to put into managing your units. If you like managing your units, like I do, and you are willing to put in time and effort to learn, you will outshine any PM, professional or not, great or not, because you have absorbed their profit margin for yourself. But many LLs are unable/unwilling to learn how to manage their units, and thus they do worse than if they had a PM.

It's not much different than most things. I do a lot of my own work because I enjoy the work and I do it better than most people. But I'm not good at everything, and there's some things I don't/can't do any more. I have a bad knee now and climbing ladders and kneeling in crawl spaces is difficult so I don't do much of that any more, even things I like or don't mind doing. I always pay for drywall because even though I'm good at it, I'm slow and time often equals money.

Evan Polaski · Answer

@Antonio Licup, I agree with JD that doing it yourself will make you wiser than all the research in the world.  As Greg mentions, professional PMs will be better than you, but you won't know whether you have a good or bad PM until you have had multiple and/or been your own.

In my experience I went through 3 PMs in the matter of about 2 years (maybe less) and I made far less money while doing a lot more work than when I self managed.  I will never hire a PM for single family rentals again, but also have friends that have had great experiences.

I would approach all investments as if you were going to hire a PM, to make sure the budget allows.  10% management fee, one month leasing commission for new leases, 1/2 month for renewals, and 10% premium on all construction costs are typical in management contracts.  If you can find a property that will handle these costs, PITI and healthy reserves, you are in a good spot.

Hai Loc · Answer

@Antonio Licup

If it was a higher end condo apartment I would not bother.  I would spend the extra few hours on marketing the unit to find a AAA professional tenant. NNN STNL is not necessary.. leasehold mobile home parks depending on set up I wouldn't either.. almost every other asset classes I would 100%.. at the end of the day you should be focusing on leveraging your time

Peter Tverdov · Answer

You should hire one when you value your time properly. Most people do not understand time value. "I can fix it myself, it's way cheaper" (doesn't factor in time it took to find part, get part, drive to house, drive from house, time it spent to do repair at house, etc).

I would also add that most landlords do not know what they're doing. Very rarely do we take over the management of the property and the tenant tells us how great the owner was. Usually it's the owner had people living in the attic but looked the other way. Fire extinguishers are empty, multiple things broken, ridiculous lease stipulations, etc.

This site is very pro do it yourself landlord and you CAN do it yourself. But most do a terrible job.

Drew Sygit · Answer

There are great arguments above from both sides, which show that there is no answer for everyone.

Now that you have all this info, you should be able to make a well-informed decision that suits you.

Carlos Ptriawan · Answer

Also if you have a demanding good job and career, it's always wise to hire a PM. Those that said always DIY maybe doesn't have anything else to do :)

Carlos Ptriawan · Answer

Tim how do you screen tenant if they don't have bank account at first place ?

When to hire a property manager?

Most Popular Reply