Self Managing Vs Professional Management...Which is Right For You

Self-Management vs. Professional Property Manager: Which One is Right for You?

Buying the first rental property is a heady time for a real estate investor. The transaction itself is exciting enough, it’s almost easy to forget that after closing escrow, the work really begins. One of the most defining questions most real estate investors face is: self-manage, or hire a professional property manager?

Both choices have advantages and disadvantages, some of them obvious, others less so. Here’s a side-by-side comparison of some key considerations to take into account when making the decision of self-management vs. professional property management.

Expenses

Self-Management—Save Money

One of the most obvious reasons to consider self-management is that you don’t have to pay a manager. Managers usually get paid in the form of a percentage of the gross rents collected. If you self-manage, you get to keep that percentage for yourself.

Property Manager—Save Time

If you budget for a good property manager (and this is best done before you buy) and the deal still shows a profit, a property manager can save you a lot of time. Property managers handle all the day-to-day activities it takes to maintain the property, including leasing, bill payment, repairs, paperwork … the whole shebang. You just collect the rent checks (minus expenses, including the property management expense).

What can you do with this extra time? Keep your day job, spend it with friends or family, cultivate hobbies, or—perhaps most profitably of all—look for the next rental property to add to your empire. Best of all, you already have a property manager ready to go for that next rental.

Expertise

Self-Management—Learn as you Go

With everything, there is a learning curve. Real estate investment is far from an exception. There’s a lot more that goes into running a successful rental property than just buying a house and handing over the keys to a tenant.

A landlord will need to master such skills as marketing, eviction law, real estate contracts, and negotiating with contractors before the investment is a well-oiled machine. Everyone makes mistakes along the way to learning new things … but with rental properties, mistakes can carry thousand-dollar price tags.

Property Manager—Seasoned Expert

An experienced property management team doesn’t have to learn as it goes, because the team has done this job hundreds of times before. They know the pitfalls to avoid, efficiencies to exploit, how to keep your investment compliant and maximally profitable.

Of course, you are placing a lot of trust in the hands of these experts, so do your due diligence—make sure you are hiring a reputable property management company that knows its business!

Maintenance

Self-Management—DIY or Contractors

Some landlords consider themselves handy. They don’t trust anyone but themselves to work on their valuable property. This heavily impacts the landlord’s time (see above), but if you just love home maintenance, go nuts. The downside is that if the tenant’s toilet breaks in the middle of a rainy night, it behooves the DIY landlord/handyman to take the call, drag out of bed, and go fix that toilet.

Self management does not necessarily mean doing all the repairs yourself. You can contract out maintenance, including emergency midnight maintenance. However, negotiating with repair vendors and getting the best deal is a talent in and of itself.

Property Manager—Manager Handles It

One of the things you pay the manager is to take those 2am broken-toilet calls—or to contract someone to take them for you. If something breaks at your property, the manager is responsible for getting it fixed, including collecting bids and negotiating with contractors for the best price. The landlord often has final say on which bid is selected.

Many property managers have preferred contractors who offer preferred rates and priority service due to the volume of business they send the contractor. Other property management companies may have full-time maintenance staff.

Leasing

Self-Management—DIY or Pay Realtors

Many people think of rental property income as “passive income” or “mailbox money.” Setting aside the maintenance and paperwork, this belies the basic truth that houses and apartments don’t just rent themselves. You need to find a tenant—preferably the right tenant, who can prove they can afford the rent and pass a background check for rental history and a criminal background.

To find this unicorn, a landlord must know the most fruitful channels to advertise their property to tenants. Then they have to make the ads. When they start getting responses to the ad, they have to show the property to interested prospects. When a prospective tenant is ready to sign, the landlord needs to prepare the paperwork, run the background check, and execute a legal lease.

Landlords can pay a real estate agent to do much of this, but real estate agents often charge substantial commissions in exchange for placing a tenant.

Property Manager—Manager Handles It

Property managers usually handle the leasing process end-to-end—advertising the property through the best channels, coordinating with prospects, showing the property, closing the sale, running the background check, and executing the paperwork. Property managers may take a commission for leases, but this is usually at least as good a deal or better than a real estate agent’s commission.

Team-Building

Self-Management—All On Your Own

Landlords who self-manage are, in a sense, on their own. They have one less pro in their corner to offer expert advice on how to run the property. Let’s face it—learning a new skill often involves learning things the hard way. Hard lessons in landlording can cost a fortune.

Property Manager—In It Together

By partnering with a property manager, you expand your team. Your property manager has a lot of incentive to talk straight to you. Once the listing agent or seller closes the deal, (s)he is scott free. Your property manager, however, has to work with you long-term and actually execute the management strategy they propose.

Especially if you choose your property manager early in the process, you can ask your property manager a number of questions, including:

• Am I getting a good price?
• Are my assumptions about immediate repairs reasonable?
• Are my income and expense assumptions accurate?

… all this, while factoring in the property management fee so there are no surprises. Once you are ready to buy your second and third rental property, your property manager will be locked, loaded, and ready to advise you on the next one.

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There’s no doubt—you can save a little money and learn a lot by self-managing your first few rental properties.

However, the time saved by hiring an expert property management company can often far exceed the money saved … on top of which, they might be able to save you on expenses, as well as guard your property against expensive mistakes. For many landlords, the expense is well worth it.