Self Management - Yay or Nay? Why?

Question

I'm coming to a bit of a crossroads here - I'm considering self-managing my rental properties (or my wife rather). She's been pushing to work from home lately and the properties are generating enough in management fees (between placement and the 10% a month) to make it a possible option. It would be nice to have that money stay within the company.

In my state you have to be a RE agent - this is no problem. I have gotten my license but I work out of the country for many days out of the year currently so self managing just isn't feasible for me or something I want to take on.

Seems like we would be able to use a good landlord/management software, background checks etc - essentially copy what the current management company does as far as background/screening/showing etc. I think it MAY save some $ when it comes to tax time - I think we would have a lot more deductions possible to take, she could possibly have REP status. I have a decent network of plumbers/electricians/handymen from doing rehab work in the area. I think it would take some oversight to their work.

Then we have the legalities. Most contracts I can download online or through the state real estate commission. Then evictions. It's fairly straightforward process in my state - just time consuming relatively (costs $250 and takes 2 weeks - so pretty easy compared to a lot of states out there).

I think you could turn this into a small management company in time. I am trying to be more "hands-off" when it comes to things outside investing, but I'm trying to make this make sense at the same time. The numbers on buying a property will always be ran with property management budgeted in.

Thoughts on self managing vs hiring a management company? Did it help/hurt your current investment company? Is it a part time job managing ~15-20 doors or are we talking a major time commitment? As far a business ideas go - I have always liked providing a service as opposed to a product, so I think this fits that window.

Gwynne Wharton · Answer

Let your wife work from home and manage the properties!  Let that real estate create some freedom for her!  That was me 15 years ago... I took over managing our properties - I still outsourced problems but often cheaper as I found a good handyman and not every clogged toilet needed a licensed plumber etc...  I would drill the tenant more on the problem to find the true problem before sending an electrician to realize, the light bulb is just burned out, etc.  I tend to think the owner is always going to care the most about the property and its condition.  Our state only requires a RE license to manage someone else's properties but get experience on your own properties.  Doing a background check and screening tenants is not hard and automating rent payment is too easy these days.  We eventually did more fix up purchases as I had contacts in place from managing to fix up properties and then I found I really enjoyed fixing up properties and turned many of our long term rentals into short term rentals because I found I liked keeping them in better shape than our tenants did...  and now our short term rental business has grown that my husband just left his job to work full time with me so we can do more.  Power of real estate and freedom!  If she wants to manage them and leave her job, go for it.  Who knows what's next as a result of not being tied to her W2.

JD Martin · Answer

I am retired now, but for years while I was working I self-managed. All of my houses were local to me (though I worked 40+ hours out of town an hour away) so it wasn't a huge strain if I wasn't at the office. If I was at work, and I couldn't break away, then I had to have someone deal with it - but honestly, in all the years I did it there were so few emergencies I could count them on one hand.

In my experience, you need to have a good: HVAC guy, plumber, electrician, roofer, pest control, and handyman. Nothing else is an emergency. In your situation, working out of the country will definitely make it a little more challenging unless someone local can handle the occasional phone call. It also depends on what kind of condition your units are in. In my case, I made sure everything had a full rehab after we bought so that the number of issues would be relatively minor, and it turned out that way. Some houses I wouldn't see at all in a full year if I didn't make a concerted effort to go by there.

As for paperwork, still to this day I track everything in an Excel spreadsheet. I can use Quickbooks no problem but just don't have enough things to track to worry about adding complexity.

*IF* you can claim RE professional status - and this is where doing your own management comes in, if one of you doesn't have a regular W2 job - you can realize some major tax savings, especially because you can deduct any losses from the RE side from your W2 income. BUT - if both of you have W2 jobs already, forget it. You'll never meet the material participation requirements. For us, once the business got big enough, my wife retired from her job and took over the management side of things and became our professional. I went out and got my RE agent and then broker's license in case I want to start a PM company and bring on some other clients, to eventually outsource this whole thing to one person that I manage. But having had the experience of PM'ing as a business - we used to manage some apartments for another investor - I'd only do it as a way of freeing myself up from managing day-to-day while still not absorbing the cost of PM.

PS: Overall, I've preferred self-managing. I'm a bit of a control freak anyway, but having been the top executive my entire working career I've found no one gives a shit about your business more than you, whether you're talking about employees or managers. There's no question in my mind that our business is light years ahead because we did our own management, and not just from saving the management fees.

Chris Seveney · Answer

@Jeremy H.

Tough question- another way to look at it is, is there a better and more profitable use of time?

For example if you took the time spending on PM and used it to do something else real estate related could it drive more revenue for you?

The working in vs working on your business comes into play and determine who is best suited to do it versus how to get it done.

While it clearly solves a problem, if you want to Continue to grow it will be a roadblock

John McDonald · Answer

I'm coming to a bit of a crossroads here - I'm considering self-managing my rental properties (or my wife rather). She's been pushing to work from home lately and the properties are generating enough in management fees (between placement and the 10% a month) to make it a possible option. It would be nice to have that money stay within the company.

You already answered your question. This is a personal decision, not a business decision. Happy wife, happy life. If it becomes too much for her, then you can always hire a company to take over. Do you have kids? Then it's a win-win. How much time it will take can be answered by your current management company. Most likely, the set up is the only full-time part.

Jeremy H. · Answer

@Chris Seveney

The time is exactly my hold-up - I have all my units handled by a property management company now and I like it honestly. They do a good job placing tenants, collecting rent, turnover when necessary, providing tax/revenue documents, they are easy to get ahold of. It takes me literally no time to deal with the properties.

I would have to think outsourcing most things that aren't related to deal finding and financing would help me the most. Especially ion this coming year where I am trying to eventually scale the LTR company (asset owning company)

The way I would have to approach this property management thing would be to create a new company entirely. So we would have the real estate company that controls the rentals then a property management company as well. I think the plan would be to grow it to a manageable size - possibly manage a few outside properties and go from there.

I have a family friend (fathers friend) that runs a big property management company in Texas. He only owns a few properties himself (actually sold most over time) because the property management company does so well. I don't know - I personally like owning the asset - that's where my passion is...but I don't think running a property management company would be a bad business idea either.

It's gotta be outsourced from my work and time ultimately - my wife would essentially be an employee. Hmmmmm decisions decisions...

Alecia Loveless · Answer

@Jeremy H. I have 25 units. I self manage with some backup from my contractor who also has years of experience in the management of other investors properties. We’ve been busy with a lot of projects this year so the contractor has had lots of subcontractors and other projects going at 2 of the properties one of which is going to carry over into the first 3 months of 2024.

For the most part it usually only takes me about 3 hours to actively manage the 25 units per month. Maybe 1/2 hour to deal with a few tenant needs and 2.5 hours to go to the bank and deposit rent checks.

Passively I spend maybe 6 hours a month visiting the properties once a week to make sure they’re neat and there’s no trash and any lawn care has been done. Also I pick up the coin op laundry money then on the two buildings that have it.

I’ve just quit my W-2 to focus full time on the real estate and working with my contractor to learn more of the jobs I can do to help him as he often can’t find laborers. I’m also focusing on finding more deals and getting my finances ready for when the next deal comes along.

I think as long as your wife can help find and analyze new deals as well as manage the existing properties there shouldn’t be any reason why she can’t manage them. I just think she’ll find out it doesn’t take as much time as she thinks if your portfolio is only about 20 units. When there is a turnover it may take a bit more time but I only average about 1 per year.

Be aware that you may occasionally still need to outsource some things to a lawyer for things like eviction notices that you may have questions about the wording on or something. I’m in that situation now and it will infinitely be worth $300 to get the legal advice given my particular situation.

Jeremy H. · Answer

Totally agree on the repairs - I used the same PM company for the past 2 years and just switched all my properties over to a different one at the beginning of this year.

Repairs were a big thing. I had specified my own AC company, plumbing company, and electrician to use. I had to ban one of their "contractors" from working on my properties due to a pattern of horrible work. Their "maintenance" team was too busy chewing crayons to diagnose even the simplest leaks. It got bad there at the end.

I honestly don't know if I have the confidence for things to get handled in house while I'm away either - as bad as it sounds. Probably just research it a bit this year and go from there.

Michael Smythe · Answer

What are the benefits to you DIY managing?

1) Saving management fees2) More control, can act faster as don't need approval3) Maybe saving money on maintenance

What benefits from hiring PMC?

1) Expertise to avoid problems that often cost DIY owner more than the management fees2) Things tend to take a bit longer in general, due to PMC often needing your approval and funds, having 100's of properties to tend to.3) Many investors pick bad contractors a get ripped off. A PMC should have own handymen and work with trusted contractors for owner benefit. Owner needs to watch for unnecessary work and overcharges though.

This is just a quick overview.

The #1 mistake we see owners make is not screening PMCs effectively. Then instead of owning their mistake, they want to bash all PMCs.

Corey Conklin · Answer

I think your post kind of speaks for itself. You know the steps and processes to managing properties already, your wife is looking for a flexible at home job, and it maximizes your properties.

I know a lot of investors are big on outsourcing things and leveraging their time but managing 15-20 properties is not that difficult of a task and even easier when your spouse can handle the majority of the work.

The time you spend managing your properties is just shifted to managing a property management company so it's not going to save you that much time in my opinion.

I'd stick to self managing if I were in your situation.

Tim Bratz · Answer

I think if you're planning on growing within the same area, you need to look at eventually hiring a property manager. There are things you can be doing to grow your business that are more beneficial than you managing the properties. Just keep in mind, when you do hire a property manager, you will have to manage them! Might be worthwhile to understand what you'll be asking of a PM (which you already seem to have a handle on) before you hire them.

Self Management - Yay or Nay? Why?

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