| Rental Property Management - Self Manage vs Professional Property Manager |
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Wow! This is one article I love to write about, because it gets to the heart of why you are investing in Real Estate in the first place. First of all, let's disclose. I own multiple investment properties, and I also have a stake in property management as well. So I know the benefits and pitfalls of each. Also, there are different types of personalities that are suited for each (we will discuss those briefly too). I have seen many articles and public forum entries that suggest “all the property manager does is collect the rent, so you should self manage.” That is an interesting, but shortsighted observation. It is also what every Real Estate investor wishes for (simply collecting rent), but unfortunately, rarely receives. KEY CONCEPTS TO CONSIDER FOR PROPERTY MANAGEMENT. Most (including myself) will say the goal in owning investment real estate is for long term investment and passive income. Aha! ........(Click on read more below) Long term investment, like say a mutual fund? Some people might trade some of their own stocks, but they generally have a nice blend of mutual funds in the mix as well, correct? They don't try to buy and sell and track everything themselves (if they do, that should be their full time job, in order to do it properly). The other word REAL ESTATE = PASSIVE INCOME, indicates earning income without working at it. That is really the goal of real estate, right? I decided early on in my Real Estate investing career that there was no way it was worth my time to manage the properties. I would waste countless hours a month tracking down rent, handling accounting, sending late notices, coordinating maintenance, inspecting the properties, following and keeping up to date on the law and the like. I might spend 20-30 hours on a property a month average over the course of a year (if I wasn't, the tenants would be gone – or were trashing the place). Passive income means you should be earning money on your investment without effort.
THOSE WHO SHOULD SELF MANAGE. Ok, so there are some people who should self manage, and those are the ones trolling public forums and telling beginners to self manage as well (misery loves company). Who are they? Well, for one, IF YOU MAKE LESS THAN $9/HOUR, you should probably self manage. At that price point, you are borderline to the point where you would have to pay someone more than you make an hour to do any work. If you can pay someone less than your hourly value (how much you make an hour), to do any work, you should do it (and also read Timothy Ferriss' book The 4 Hour Work Week - more on this great book in Simplify your Real Estate Investor Life – blog coming soon). Another reason to self manage? IF YOU SIMPLY DON'T TRUST PEOPLE in general. I am not saying to blindly trust every property management company out there (in fact, the majority are not very good, so due diligence is necessary, but that fact should not point you in the direction of self management either). You have to be able to trust your property manager, obviously, but once you find one that has shown to be trustworthy, you need to let them do their job. I have friends who simply cannot let go and feel the need to double check everything (this may be good in the first month to understand how it all works, but after that, let it go, let them do their job and just spend your time relaxing or earning money in your area of expertise). IF YOU ARE A MICRO-MANAGER TYPE personality, you are probably best self managing. It is never a good mix for you or your property manager if you are going to run your own advertisements on the side, check on them every day and attempt to dictate how the property manager actually manages your property. If you can't let go, you should probably self manage (most good property managers will probably release you as a client if you attempt to micro manage them). I would like to say that the TRUST and MICRO MANAGEMENT personality traits are not necessarily bad traits, but they generally mean you will be less stressed to do things yourself (even though that will cause you to work for $1-4 an hour on your property). It always amazes me when I see people who make 75-100k a year, spending 4 hours calling vendors in the Yellow Pages (or internet) to see if they could have saved $5 on a carpet cleaning job the management company's vendor just performed. SPENDING $200 (100k a year person is about $50/hr) TO SAVE $5 IS JUST PLAIN SILLY and goes against the whole purpose of investing in Real Estate. But believe me, this happens every day. THOSE WHO SHOULD USE A PROFESSIONAL PROPERTY MANAGER. That last line of the last paragraph says it all. If your time is worth more than $9 hour, this is a no brainer. DO NOT PERFORM ANY WORK IN YOUR LIFE THAT IS BELOW YOUR PAY GRADE. I am not saying any type of property management work is beneath you, I am saying that until you manage a large amount of properties, you cannot possibly receive the ECONOMIES OF SCALE that a property management company can, so focus on your primary job (or source of income – even it if it is acquiring more properties). “Well, I am not going to give $100 a month to a management company just to collect rent,” you might say. I would say the “rent collection only” properties are very few and far between, and now with the current economy, they are virtually non-existent. Tenants are more in tune with their rights, and they should be. Things need to be fixed in a timely manner or the tenants will be gone. Items need to be handled in a legal manner, or you may owe the tenants more money back (in Arizona, improper handling of tenant notices, and deposit returns can yield the tenant 2.5 times their deposit back). As an investor, do you want to deal with that? Do you know all the laws that can affect the lease? Do you know in what ways tenants can legally break their lease? Because, these days they know, and they also play more shenanigans now as well. What if the tenant needs to pay late this month? Do you waive the late fees because you are a nice guy and you know how to handle people? Guess what, you do that once and they will always pay late (and you are setting a legal precedent that may allow them to avoid all late fees in the lease). Do you have a good plumber, mold remediation, AC guy, and the 100s of other specialists in your Rolodex? If you do great. Do you want to coordinate at 3am? See, to me, if I have to handle something at 3am just once, it is not worth saving a years worth of management fees. GOOD PROPERTY MANAGEMENT companies have specialists in each area: leasing, maintenance, tenant coordination including late rent notices and collections, accounting, and someone responsible to you as the owner. Believe me, the stress of even wondering why the rent has not arrived is just not worth it to me. Let someone else worry about it, and give the tenant a hard time if they don't pay on time. I am the investor, I need to worry about investing and getting more properties. I cannot do that if I am spending time managing a property to save a buck. Still not sure, check out this video about how to decide from a professional property rental management company. There is a great saying that goes “IF YOU LOSE MONEY AT THE BLACKJACK TABLE, DO YOU HAVE TO WIN IT BACK AT THAT TABLE OR SOMEWHERE ELSE IN THE CASINO?” I love this saying (another great quote in Timothy Ferriss' book) because it gets right to the core. If I have a property I rent out for $1000 a month, and pay a $100 management fee to a good property management company, do I try to earn that $100 a month back by doing property management grunt work myself? Or do I try to earn it back in my area of expertise where I can do it in a couple hours or less (or spend that time finding another good rental property in this great investment climate). I have a lot of friends who are engineers, and they are the biggest culprits of this. They are very smart people, but think they are actually saving money self managing, when they earn lots of money per hour at their primary job. Work smarter not harder everyone and happy real estate investing!!!! (George B is a rental property investor in multiple states for 17 years, and all of his properties are professionally managed)
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  written by Application Rental Form, July 06, 2010
Just wanted to say thanks for the interesting read... I've always been of the belief that sometimes it's worth it to pay for convenience, and having a property manager is one of those times!
 written by RobertF, February 19, 2011
As a manager, I meet with the owner who has contacted me about my services. I get with the owner and spend about an hour with my owners presentation, covering the services that my firm performs and the management agreement. After spending an hour talking about getting the property in rent ready condition, marketing the property, qualifying and showing prospects, getting the rental application verified, tenant selection, lease meeting, move in inspection, security deposits and rent collections, lease terms, how we handle maintenance, preventative maintenance, property visits, lease violations, emergencies, lease renewals, move out inspections, damages, return of security deposit, tenants who break leases, and more - then the owner has no doubt that I know my stuff and also that my fee is worth it!
 written by Property Management Profile, March 12, 2011
The other day I had to locate a repair technician for my Mothers refrigerator that stop working. I must of spent 2-3 hours on the phone calling Sears and seeing if she was cover under a warranty, calling my sisters to find out where the paperwork was located....blah..blah..blah. We finally got it taken care of but it was alot of work (on my day off).
It just made me think about what property managers must go through when the "fires" start coming in. I self manage one property myself and the rest...I completely outsource to a property manager. Robert (previous post) I wish all my property manager would like you, cause I'd hire you in a heartbeat. THAT's exactly what its all about TRUST in my Property Manager to get the job done better then me. Property Management Profile
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