If you buy a rental property, you have two choices when it comes to the day-to-day operations. You could choose to manage the property yourself, or you can hire a property manager to do the work for you.
While a property manager isn’t cheap, it’s important to consider the value an experienced and reputable property manager can bring to the table before you decide to do it on your own. Here’s what you need to know about the costs and benefits of hiring a property manager before you choose which way to go.
The cost of property management
Just like most other service-based businesses, the fees charged by property managers vary from one company to another. They generally depend on the reputation and experience of the management company, the level of services provided, the nature of the rental property itself, and your local market.
Having said that, for a long-term rental property, 8%-10% of the collected rent is standard.
For example, if you have a four-unit property that brings in $4,000 in monthly rent, 10% of your rent translates to $4,800 per year if the property remains fully occupied.
Management of single-family homes is often more expensive than multi-unit rental properties, and if you have a large portfolio of properties, you might have some room to negotiate a better deal. For vacation rentals, the cost of property management is significantly higher (expect at least 25% of collected rent), as the costs and time commitment involved with managing a property of this nature are significantly greater than those of a long-term rental.
Here’s what you get for your management fee
At first glance, that 10% may seem like a large expense, but consider what you get. For one thing, a property manager generally has an excellent knowledge of your local rental market and knows how much they can get for a particular property. If a property manager can successfully rent a property for more than you had hoped to get, this benefit alone can justify paying the management fee.
They also handle all of the marketing related to your property, and since property managers generally have several properties available at any given time, they generally spend considerably more to bring in prospective renters.
Most importantly, a property manager will deal with the day-to-day operations of the property. When the property is vacant, they’ll show the property to potential tenants, conduct credit checks, verify references, and otherwise facilitate the move-in process. Once the property is occupied, the property manager will collect the rent, deal with maintenance issues and tenant complaints, help facilitate repairs, and in a worst-case scenario, initiate the eviction of a non-paying tenant. They can also handle certain bills on your behalf, such as water, garbage collection, sewer, and more.
Should you hire a property manager?
In general, I feel that most real estate investors should hire a property manager, as the value you get can make the cost well worth it. For starters, it takes a great deal of time to self-manage even one investment property, and a portfolio of several properties could easily start to feel like a full-time job. Hiring a property manager to deal with the day-to-day operations of your rental properties gives you more time to focus on your career, family, and on finding your next property.
In full disclosure, I hire a property manager to deal with my own rentals, even though I feel that I know the management process pretty well. Simply put, I do know how to do all of the things I mentioned in the last section, but my property manager does them better and more efficiently.
To be fair, there are some cases where self-management makes perfect sense. For example, if you want to treat your real estate investing as a job and not just as a passive investment activity, managing your own properties can help maximize your profitability. For most investors, however, it’s a good idea to take time to consider the value an experienced property manager can bring to the table before deciding to do it alone.