A debate by two Millionacres pros
Pro property-manager stance by Matt Frankel/Pro DIY stance by Laura Agadoni
When you buy your first investment property, you have a big decision to make. Should you try to act as the property's landlord yourself, or should you hire a professional property manager to do the heavy lifting for you? There are certainly pros and cons to both approaches, so we asked two of our experts which way they prefer to go.
Property managers can more than justify their price tag
I hire a property manager to handle my investment properties for a few reasons. For one thing, I don't want my real estate investing to be a "job." I find the 10% of rent my property manager charges well worth it for turning my properties from active investments to passive. My property manager finds and screens tenants (do you really want to run credit checks and call references), collects rent and deals with nonpayment and eviction situations, coordinates maintenance and repairs, and can pay bills on my behalf.
More importantly, my property manager adds value in several other ways. One of the most important things they bring to the table is their market knowledge. A good property manager knows how much rent a particular property could bring in without sitting on the market for an excessive amount of time. As a specific example, one of my properties was rented for $1,000 per month when I hired my property manager, and as soon as the lease expired they immediately put a new tenant in place at $1,200. I never thought the property would rent for that much, and this knowledge more than offset the property management fee.
In addition, a good property manager typically has maintenance crews on call that will not only do whatever repairs and maintenance you need at reasonable prices but in a more timely manner than you might be able to get on your own.
I could go on, but the bottom line is that a property manager brings value to the table that can more than justify the cost. And this is especially true if you don't want your investments to take up hours of your time each month.
Save yourself some money with DIY
The main reason for DIYing it regarding property management is to save money. While prices vary depending on the property management company, you should expect to pay between 8% and 12% of the monthly rent. On a $1,500 per month property, you'd be shelling out between $120 and $180 a month or $1,440 to $2,160 a year. Are you comfortable handing over everything you make for one month (or more) to a management company? Plus, the price you pay starts to really add up once you factor in all your other landlord costs.
Keep in mind too that some management companies charge additional fees for things like new tenant placement and evictions. If you're operating on a slim profit margin as it is, you might be better off investing your money some other way than by owning rental property and using a property manager.
Keep control of your own business in these 2 ways
I don't know about you, but my expenses as a landlord went up this year -- both property taxes and insurance. And with COVID-19 making finances tight for many people, I chose not to raise rents, despite my increased expenses. I took this pay cut to keep my tenants. Because I don't use a property manager, I was able to afford to do this. Otherwise, I might be looking at some vacancies right now.
Probably the most dreaded aspect of the rental business for me is the repair and maintenance part. It would be nice if I used a property management company that could handle all that for me. But at what price?
Property management companies typically have their own maintenance crew, and that could be more expensive for you than hiring your own people and having the ability to negotiate deals yourself. The property management company will probably not be as motivated as you are to get the best deal, unless perhaps you negotiated in your contract how much the management company can charge you. Still, you'll likely come out ahead if you're in charge of maintaining your property yourself.
Managing the property manager
I have used property management in the past. And every time I found myself managing the property manager. The problem is that, unless the management company tacks on fees every time they do something, the incentive to provide great service isn't there. In fact, in some cases, property management companies fall short on the most basic functions of the job, like inspecting the property and handling maintenance requests in a timely manner.
A company I once used to manage a property I owned out of state said they conducted periodic drive-by inspections to make sure the home's exterior was being maintained. But when I came to town to view the property myself, I found the tenant was using the front yard as an auto-repair zone, and the lawn became a dirt field as a result. If the loss of a lawn to an auto-repair business slipped by the purview of the management company, then it's clear hiring them was not money well spent. Another company failed to replace a tenant's nonworking oven in a timely manner (and during Thanksgiving), so I did it myself from across the country -- all the while paying the management company.
You can DIY
Here's what most property management companies will do for you:
- Market your property to get tenants.
- Be up on landlord-tenant laws.
- Handle maintenance requests.
- Screen tenants.
- Collect rent.
And here's how you can easily get those tasks done on your own:
- Use a service like Zillow Rental Manager or Zumper to market your property yourself.
- Research landlord-tenant laws by typing in a search engine, "landlord-tenant law [your state]."
- Handle maintenance duties for your properties, especially once you gather a team of experts you can call on.
- Screen your own tenants. There's no shortage of tenant screening services out there.
- The days of landlords collecting rent by knocking on the tenant's door are long gone. With the myriad methods of rent payment today (Zelle, Venmo, Paypal, etc.), it's no problem collecting rent.
There are instances when using a property manager makes sense for your business. If you have so many properties that you can't manage them all, if you're an out-of-town landlord and find it too difficult to manage your properties yourself, or if you just want a totally hands-off experience, you might want to use a property management company.
But if you have a system down for marketing, screening, and collecting rent and you have a team of people you can count on for maintenance, you should find that not only can you do a better job yourself; you can immediately start earning more money on your investment by kicking your property management company to the curb (or not hiring one to begin with).