Self Manage or Hire PM?

Question

Morning everyone!

I haven't posted in a few days so I figured I'd jump in here and get a discussion started. I have a goal to post at least once a week to get to know you guys as well as make sure I'm consistently learning from people who are smarter than me :)

When I started reading and learning about REI I felt pretty strongly about hiring a PM. I don't enjoy the tedious repair work associated with my own home so I felt it didn't make sense for me to drive myself mad with repairs on rentals as well. The legal aspects also scare me a bit, but that's mostly out of ignorance rather than knowledge of what goes into it.

But since I've read a bit more it seems that hiring a PM might not be in my best interest. It seems PMs don't make a ton of money for all that they do and their incentives don't always line up with investor's incentives (i.e. getting paid more for turnover in terms of tenants when I'd prefer no turnover or vacancy).

Sorry for the long intro, but having said that, I have a few questions...

> What was the main deciding factor for you when deciding to self-manage or hire a PM?

> If you self-manage, has that been more difficult than you originally planned? Would you hire a PM if you could go back in time?

> When self-managing, are there any software or tools that are "must-haves" to make it less stressful for you?

I know that's a lot of questions, but any insight is super helpful. I'm just trying to hear stories of what factors played a major role in deciding how to handle this. I'm still leaning towards hiring a PM, but I want to be open-minded.

Thanks as always to everyone here for their help. I'm super thankful for a place like the BP forums to ask stupid questions and learn from smarter people!

Joe Splitrock · Answer

@James Rodenberg aside from the time commitment, there is a skillset requirement to self manage. There are lots of opportunity to make mistakes in how you manage and some can be costly. So you may think "I will save 8% by self managing" but you could end up losing 20% in a single mistake.

I self manage my own properties, but I made lots of mistakes early on. The biggest mistake was being afraid of vacancy. That fear leads landlords to make the mistake of:

a. Renting to the wrong person

b. Not dealing with bad tenants (letting them pay late, do damage, etc.)

Understand that vacancy is better than having a bad tenant. This requires patience when you have a vacancy and it means having money in the bank to cover the bills while you wait for the right tenant.

The most important thing you need when self managing is procedures and processes. When someone asks you any question, you should be able to answer it with a policy or deal with it using a procedure.

Software is less critical when managing a small number of units. I would just use online free tools for application, screening and rent collection. For backend finances, Excel is fine for a small number of properties. As you scale, there are software tools, but right now that shouldn't be your primary concern.

Another option is you can self manage, but use a PM for leasing. Since tenant selection is the most time consuming and highest risk activity, that may be a compromise to get you started. You only pay the leasing fee, not the monthly management fee.

My recommendation is read @Brandon Turner book The Book on Managing Rental Properties as a starting point. The book has downloadable forms and is filled with useful information. After reading the book, you may decide to not self manage, but it is still useful to understand the process.

https://store.biggerpockets.co...

Steven May · Answer

Since I live here and am within 15-20 minutes to all my properties I chose to self-manage. Put simply, No one will care about your money and your assets more than yourself. If you choose solid tenants then management is pretty easy most days. Connect with a good maintenance person to have in case you eventually get that overflowing toilet call. I also weirdly enjoy cutting grass so don't mind doing that and getting a tan while doing it at my properties haha.

I use Cozy for management. Its' free for me. Market your properties on FB market and put a sign in the front yard. $40 application fee - runs credit and background checks on tenants. Takes rent money directly out of their account which is usually deposited by the 5th of the month directly into my account. I drop off HVAC filters at the door and my tenants know how to change the filter.

Tell your tenants you are the PM, not the owner. Set up a Google Voice number so they can contact you on that and not your personal number. That is also free.

I believe in the beginning you should manage yourself not only because it puts more money in your pocket but because further down the line when you want to be more passive and hire PM, you'll have an idea if they are doing a good job or not because you have done it yourself.

Young Park · Answer

@James Rodenberg Although I do think it would be a valuable experience to self-manage, I prefer to defer it to PMs that know what they're doing. Living thousands of miles away from KC makes it a much easier decision as well :P

I calculate PM fees into my analysis (in addition to vacancy, maintenance/capX). Also, there are PM companies that charge a flat fee vs percentage. @Lee Ripma said it perfectly - use your freed up time to get more properties and/or do the things you're good at (unless PM is your thing then by all means).

Lee Ripma · Answer

I also agree with the idea that it can make sense at first so that you understand it. I personally did it myself for my first few units. I do not enjoy PM and I am bad at it. The skills I have are worth more than me being my own PM. However, it’s true that on your watch your properies will perform better. Even with me being bad at PM I retained more cash monthly than I do with a PM. However my time is free to go buy more props and do the things I’m actually good at. Trade offs, fact of life.

Alexander Szikla · Answer

I'd recommend you self manage at least in the 1st year. Will help your yield and give you insight into a properties quirks.

I also think as an owner you will select your tenants more thoroughly, complete work more quickly and at a lower cost.

No reason to hurt your margins if you can spare the time.

Peter M. · Answer

@James Rodenberg I think everyone should self manage when they start out because 1) starting out you have much smaller margins and saving the PM fee will help you stay afloat as you grow. 2) you learn by doing and you will gain good experience from dealing  with tenants and their problems, you'll also learn how the mechanicals of your properties work so you'll understand why problems are occurring. Then armed with this knowledge, when you do hire a PM, you will be able to spot any BS on their part. Same goes with contractors you hire later for similar issues you fixed yourself in the past.

Rich Kniss · Answer

@James Rodenberg, I think you can make either work, depending on what you want. There is no wrong answer. We chose to go with a PM, so we could focus more on new investment opportunities and minimize impact on our day job.

For me, the 10% has been worth it. Just be aware of the added services/costs, such as yearly inspection services, repairs, etc. Its nice to have the little stuff taken care of, but I'd get bids on larger repairs rather than automatically going with their guys. I've found they have good subcontrators to draw from and complete it in a timely manner, but it comes at a premium.

It's kind of like hiring an accountant to me. I could do it myself, but....

A Reed · Answer

> What was the main deciding factor for you when deciding to self-manage or hire a PM?

Starting out, I made the decision to treat my business as a business. Doing so, yes, there is a cost to having a PM that cuts into your profits. However what I bought is invaluable.

Ask yourself the following: How hands on do you want to be? (I recall you stating that you dont enjoy handywork)

Do I want to be in direct contact with my renters? And if something is needed or a tenant has or is an issue, do I want to inject myself into resolving it directly?

For me, it was a no-brainer. I interact only with my PM. If you go that route, you should and will, build a relationship over time. They will have a working knowledge of your expectations as an owner are(They work for you, so you have more time to conduct other aspects of your business or have more personal time).

Best wishes on whichever route you go!!!

Nathan James · Answer

I owned and self managed a restaurant for 10 years even though I had the chance to hire and manage out during. It was at that time that I realized in a brutal way the concept of opportunity cost.Now I apply that to real estate. If you are stuck in the business you're not running the business as an owner, you're really a technician and employee of that business.If you want to be an owner, great, learn to delegate. Letting go of that slice of control is hard but once you do it's quite freeing which is hard to put a price on in my opinion.

Self Manage or Hire PM?

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