What is your experience with management companies and how did you scale with them?

[Andrew Brady]

I'm currently in the process of beginning my real estate investing journey. I've been doing a lot of preparation work such as putting together the tools need to scan and find good deals, screen tenants, secure sources of financing and I'm working with an attorney colleague who is helping me draft an airtight rental agreement. However, one key missing piece of my puzzle is managing the property itself.

A lot of my research has shown me that a lot of property management companies in my area and region provide the white glove service of screening tenants, dealing with evictions, maintenance requests, marketing, etc. While this might work out well for someone who wants to have a completely hands off experience with their property, I've found that in most cases using a property management firm eats away a lot of cash flow in a potential deal. There doesn't seem to be some kind of hybrid service that a company offers. For example, if I wanted to screen the tenants myself and do the marketing/leasing myself, but outsource the maintenance/maintenance calls, this service doesn't seem to exist. It's either all or nothing.

Typically what I see from these companies is: "The fee for our services is 10% of the monthly rent throughout the term of the lease. We charge 100% of the monthly rent when the lease is renewed." Say for example you have a 1700 sqft 3bd 2ba SFR that you bought for $200k at 20% down, which is renting for $1800 (at least that is what a decent one goes for in my area). After Operating expenses, taxes, insurance, maintenance, the mortgage/financing, and a small Capex reserve the investment cash flow is roughly -$180 a month! Obviously these numbers aren't an example of an actual deal but not totally unrealistic. It seems such a bad idea to rely on a property management company, especially with a small portfolio of less than 5 units.

All that said, my question is this: Do property management companies really prevent that many headaches? Is it really worth it? And if it is worth it, how did/do you scale with it? Any insight would be greatly appreciated!!

-Andrew