Deconstructing & Valuing The Components of Property Management

To elaborate on my previous post a bit, I want to now focus on some of the industry and consumer shifts in the property management industry.  As an owner of a property management company for 17+ years, I have two different business models: 1) full service and 2) less than full service. Allow me to explain. The first type is the traditional model of PM which includes everything (soup to nuts), making it as simple as receiving a monthly "mailbox check" for the owner...which is now of course a monthly ACH transfer to their preferred bank. A list of these traditional PM services generally includes:

• Rent
  • Collection
  • Tracking
  • Late Fees
  • Tenant Receipts
  • Rent Increases
• Maintenance
  • Trusted & Vetted Vendor Pool/List
  • Maintenance Requests (emails, calls, texts, online)
  • Coordinate Vendors
  • Bids
  • Quality Control
  • Facilitate Access
  • Troubleshooting
• Leasing
  • Phone Calls
  • Marketing/Advertising
  • Showings
  • Draft/Execute Lease Package
  • Walk Throughs (Move In & Move Out)
  • Screening (criminal, credit, eviction, references, etc.)
• Admin
  • Pay All Property & LL Bills
  • File and Record Storage
  • Bookkeeping & Trust Accounting
  • Financial Reporting
  • Online PM Software (Tenant & Owner Portals)
  • Annual Vendor 1099's
  • Legal Tenant Notices
  • Site Visits
  • Photography
  • Phone Calls (Business Hours & 24/7 Emergency)
  • Security Deposit Dispositions
  • Local, State & Federal Compliance (Code Enf., LL/T Laws, Fair Housing, etc.)
  • Section 8 - Housing Authority
  • Owner Consultations (calls, texts, emails, etc.)

This is certainly by no means an all inclusive list, but it establishes at least a foundational list of daily PM services. Depending upon your state and location, a LL will likely be looking at paying in the range of 8-10% of the gross rents received for full professional management. Therefore, if the rent is $1,500 per month, the LL can expect to pay the PM up to $150 p/month. Point of warning: when selecting a PM, you should always inquire about the list of services provided for the monthly fee, but also ask about any additional services that may not be included and subject to an additional pricing sheet. These hidden costs can add up fast and at the end of the year your management fee can really harm your bottom line.

There are also a series of additional value add or other services (legal, transactional, etc.) that a robust management company may be able to offer, but that is a topic for another post.

For the DIY'er, many property owners will attempt to maximize their cash flow by self-managing their own investment property. For those will full time jobs and little appetite for tenants, toilets and trash, this can be overly time consuming and emotionally taxing. That said, many do this successfully and it can be an excellent way to boost the returns if you are willing to treat it as a source of "active" income rather than passive.

There is one other option that has emerged in the market, which is a bit of a hybrid approach. Over the past 17 years in this industry (as with many industries) I have noticed two primary shifts: 1) in technology; and 2) in consumer expectations. The first is exemplified by online tools such as management software, screening, rent collection, maintenance coordination, bookkeeping, electronic signatures, etc. The second, is the willingness and capability of some investors to locate, acquire and manage properties themselves. 

My proposition is this: It is my belief and it has been my experience, that a DIY individual LL will spend monthly an amount equal to or greater than what a hybrid service would cost. The Hybrid Model simply providing all of the full services components LESS those that required a physical presence at the property (ie. attend pre-scheduled showings/walk throughs and on-site quality control visits). Consider only some of the actual monthly costs to a DIY Landlord that easily exceed $70:

-Property Management Software ($20 p/mo)
-Legal Forms from Attorney or CA Apartment Association for Leasing, Noticing, Contracts, etc. (min. $30 p/mo)
-Online Rent Collection ($10 p/mo + fees)
-Tenant Credit Checks ($15 p/adult)

Additionally, consider the intangible and less quantifiable costs to your time, including:
-24/7 tenant communications (calls, maintenance requests, emergencies, etc.)
-pay property bills
-bookkeeping & accounting
-ongoing education to stay in compliance
-online advertising and screening tenants

The real question becomes, what is your time worth?  The actual costs would likely match or exceed the cost of this hybrid service, but when combined with the vale of your time the choice becomes unequivocally clear.

I'm hoping this post triggers some additional discussion and even some constructive feedback from DIY investors who have been successful managing their own properties. Looking forward to hearing from many of you and your perspective or personal experience on this issue.