Landlords - DIY vs. PM Company
Should a rental property owner self-manage and Do-It-Yourself (DIY) or hire a property management company (PMC) to manage their rentals? This is always a hot topic, as there are adamant advocates on both sides of the debate.
Let’s try to take an unbiased look at some pros & cons of each.
Ultimately, this question is one of balancing risk and reward for most rental investors. Doing it yourself saves you the cost of paying a professional PM, but, as your rental property portfolio grows, it can become increasingly difficult for some people to manage every aspect of their rental business themselves.
You’ll find landlords who come down on both sides of this issue - some who swear by self-managing, and some who prefer to hire a PM and spend their time on other aspects of their business. But let’s look a little deeper into what the real risks and rewards of each approach can be.
DIY Managing: Pros
“No one will care more about your property than you.” This is one of the main reasons DIY landlords give for not going with a third-party PMC. A DIY landlord has full control of their property - they know exactly what’s going on across all sides of their business, and can make quick decisions to keep tenants and others happy.
- Tenant Placement
When looking for tenants, a DIY-er meets every prospect and shows them their property with pride. The DIY-er gets to write the ads, take the pics and decide where to advertise. They get immediate market feedback, because they handle all the calls - or lack thereof - and can adjust their rental amount to adapt to the situation.
As long as Fair Housing laws are complied with, a DIY-er can also make snap decisions about a prospect based upon their “gut feeling.”
- Tenant Management
Handling the day-to-day also means that one can get as close to their tenants as they’d like to, which, for some landlords, means building personal relationships that can help encourage long-term tenant retention.
They can decide whether to give a past-due tenant more time to pay or start the eviction process, and then work out solutions with tenants directly, and maybe even avoid court.
DIY-ing is also a great way to learn about the industry through firsthand experience, and of course saves one the cost of paying a percentage of their rental income to a PMC.
- Maintenance
A DIY-er can save money by doing repairs themselves, because their labor is “free.”
They can also hire and closely supervise a maintenance person, and can easily monitor the quality of work before paying. A lot of times, a DIY-er can also get better pricing by offering to pay cash.
They can immediately respond to tenant maintenance requests, and make instant decisions based on verbal bids - all of which can help to keep tenants happy, so they renew their leases.
When you DIY manage, there’s no question about costs, and one can directly hold tenants responsible for any damages they cause.
- Documentation & Reports
Since a DIY-er collects all the rent and pays all the expenses, they’ll have access to all the corresponding receipts and documents. If they’re organized, there are several programs that they can use to scan receipts and input them into a spreadsheet or accounting software to produce whatever reports they want.
Overall, DIY managing one or just a few properties can be relatively painless, especially in high-demographic areas, and if the DIY-re in question is well-organized or has a great memory.
DIY Managing: Cons
The biggest challenge for a DIY-er is juggling their day job, family life and rentals to stay on top of everything. What’s more, what does a DIY-er do when they’re sick, trying to take personal/family time, or wants to go on vacation?
- Tenant Placement
While a DIY-er can go with their “gut feeling” on a prospect, they better make time to keep up on all the Fair Housing and local ordinances & regulations to avoid a potential lawsuit. All prospects should be treated the same, and screening processes should be defined in writing. Getting accused of a violation can not only cost thousands of dollars in attorney defense fees and possible penalties, but also result in mandatory training and ongoing reporting!
Finding time to write professional-level ads and take pics can also be a challenge. Manually entering ads on various websites to maximize exposure can be particularly time-consuming. If a DIY-er is successful with their advertising, how do they handle the onslaught of calls and schedule showing appointments?
DIY-ers are also often talked into accepting questionable prospects that push their emotional buttons with great stories, because they don’t follow a strict screening process.
- Tenant Management
Tenants are not a landlord’s friend. While they will act friendly when they’re getting what they want, as soon as they can’t pay rent, or a repair takes too long, they will look out for number one – themselves.
Too many DIY-ers forget this and give tenants too much leeway on rent payments and lease violations. Before they know it, a tenant is months behind on rent, or they’ve lost control of the situation, and more drastic actions are needed which could have otherwise been avoided.
- Maintenance
The cheap contractors which DIY-ers often hire off Craigslist are rarely properly licensed or insured. Their reliability is also questionable, turning a 2-day job into a 2-week job. And forget about warranty work.
At the other end of the spectrum, other DIY-ers often make the mistake of over-spending and maintaining a property to their personal standards - like they would want to have it if they lived in the property - instead of “maintaining to the market.” So DIY-ers end up losing money by over-maintaining their rentals.
While doing work themselves and paying cash to get better pricing is a strategy that works in the short term, there are negative consequences to this approach when it comes to their income taxes.
- Documentation & Reports
Every tax professional dreads the client that comes in at tax time with a shoebox of receipts to plod through. If this is the way a DIY-er accumulates their receipts, they most likely aren’t using a spreadsheet or software program to track their income & expenses.
If this is the case, how well do they really know their numbers? Are they making money each month? How do they charge and track tenant late fees and other bills? What happens if they lose a receipt and forget about it?
Once a DIY-er expands their rental portfolio, managing multiple properties while maintaining the quality of crucial processes, like tenant screening and essential maintenance, may become too much. Unless their day job and family are extremely flexible, and they have a thoroughly-organized plan to keep track of tenants, finances, maintenance, and inspections, things can go south really quickly.
Many of those who champion the ease of DIY management only own type A properties, which usually have minimal tenant quality and repair issues. If a DIY-er has type B-C-D properties, they’ll not only have a lot more demands on their time, but the problems they have to deal with will be much bigger.
Working with a PMC: Pros
If you’re spending a significant amount of time collecting rent and handling maintenance and tenant relations, hiring a PM can help you shift your focus towards managing & building your portfolio, rather than on day-to-day tasks. Shifting your priorities could also help you make more objective business decisions, since it removes some of the emotional attachment that usually comes with DIY managing.
- Tenant Placement
A PMC should know all Fair Housing and local regulations, protecting the property owner from liability.
They should have robust procedures for writing ads, taking professional pics, and placing ads on multiple platforms. A rental comparative market analysis should be provided for the owner to approve the rental amount. Reports on calls & showings should be regularly provided, driving discussions about adjusting the rental price, if needed.
Applicant screening should be a written process that is consistently implemented to find tenants of quality, relative to the property. This can reduce rent non-payment issues and tenant-turnover, saving an owner money.
- Tenant Management
Ever have to deal with a retired tenant, or one on Section 8, who has nothing but time on their hands? They can “waste” a lot of a busy DIY-er’s time, telling lengthy stories before getting to their point. How about dealing with an upset tenant’s yelling and cursing? A PMC protects a rental owner from all of this.
A PMC is not interested in being a tenant’s friend, just in maintaining a friendly business relationship. So they can still proceed with evictions or other legal procedures when necessary. This should avoid horror stories of tenants who are still in a rental after not paying rent for 3+ months, which also saves the owner money.
- Maintenance
Many DIY-ers point to higher maintenance costs as a reason not to hire a PMC. A good PMC will only use properly licensed and insured personnel, which actually protects an owner from potential expensive lawsuits. How many property owners are driving their cars without insurance?
Very few tenants take care of a property like they own it. So rental properties experience more wear & tear than an owner-occupied property. PMCs save owners money by not over-maintaining properties and holding tenants accountable for damages they cause.
- Documentation & Reports
A PMC will also track all documents, income, and expenses for an owner, providing monthly reports and an annual report for tax purposes.
Overall, the decision to hire a PMC instead of DIY-ing usually comes down to trading time for money. Those with a lot of time can save money by DIY-ing. Those with little time, or patience, can spend money on a PMC to save their time.
Working with a PMC: Cons
In general, a good PMC should do a better job of managing a rental property than an average DIY owner. We’re going to get away from the 1-4 comparisons we’ve used above and just focus on two potential issues here.
- For “rookies” that have bought a rental property and hire a PMC - because they have no experience managing rental properties, and don’t want to learn - their biggest challenge is hiring the right PMC. Hiring a bad one can cost thousands of dollars in lost rents, questionable maintenance expenses, and other charges, including lawsuits. Too many rookies make the mistake of either going with the cheapest PMC they can find, or the one that talks the best talk. This is no different than a DIY-er falling for the story of an applicant who turns out to be a nightmare tenant.
A PMC should be thoroughly vetted, based upon their standard operating procedures and policies. These should be in writing or published on their website.
Just like buying a rental property should only be a logical decision, made based upon ALL the facts, so should the evaluation and hiring of a PMC. Make sure the management agreement/contract is thorough and covers everything that can go wrong. Many PMC horror stories revolve around what was NOT spelled out in the management agreement/contract!
- For DIY-ers who’ve reached the point of wanting to hand off management to a PMC, the biggest challenge is adjusting their expectations. The DIY-er has their way of doing things, while the PMC has their way. Both are probably mostly fine ways of doing things, but the PMC has the additional challenge of needing standard operating procedures for their staff. They can’t run their business doing things in the specific way that each of their owner-clients want them done. So, unfortunately, the DIY-er is usually going to have to accept how the PMC they hire manages their properties and tenants.
Unfortunately, too many DIY-ers spend too much time focused on PMC charges and fees, and not enough time on understanding how they operate and what their standard operating procedures are. So DIY-ers expectations are rarely adequately met, leading them to despise all PMCs.
Are there bad PMCs that take advantage of rental property owners? Most definitely. There are also PMCs that mean well, but are disorganized and really not experienced, which still ends up costing a rental property owner.
Finding a good PMC is not easy and one should put more time into screening PMC’s than they do screening tenants. Not sure what to ask? Look online for questions, but don’t forget to ask about standard operating procedures to weed out unorganized PMC’s.
The bottom line is that there are really no winners or losers in this debate about DIY vs PMC. It’s just a matter of personal preference. Both sides should learn to appreciate the viewpoint of the other. More importantly, when asked for a recommendation, both sides should do their best to share the pros & cons of both options, and let the rental property owner make the best decision for their situation – which may change over time.
Image Courtesy of Kelly Lacey
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