I can do it myself! (aka. Who needs Property Management?)
You can save up to 10% management fee (management fees ARE negotiable by the way – especially if you have multiple properties) and a bunch in repairs when you do it all yourself: fix up the house after move-outs, market for new tenants, take calls, show the property, take applications, collect rent, make repairs, handle evictions when necessary. Yup, you can do it – there is NOTHING you can’t do that I just mentioned. You will make more money from your rentals this way. The question is – is this the right choice for you even if you are Bob Vila with a legal degree, an accounting degree and a real estate license?
The answer is: it depends. Play to your strengths and consider the value you place on your time. If these activities are not your strengths or more to the point you HATE them, hire property management. If you don’t mind the time commitment that comes from managing directly, making repairs and going to court as needed then the money saved will be worth it to you. At some point in everyone’s portfolio, they generally reach a point of inability to keep up. Even before you reach that point, you may decide that before you reach the end of your rope and give up on your investing dreams that property management is your best option.
I’m what I call moderately handy. I can do some light plumbing, electrical, very rough carpentry, drywall and painting work, etc. Nothing too complex. As you read this you may be a General Contractor or someone that doesn’t know which is the business end of a screwdriver. Either extreme has to ask the basic question of “what do I want?”. Do I want time or money? For many, the answer is money at the beginning. Then at some point, they may not stop to re-evaluate the whole “time thing”. Your time is your most precious commodity – literally the currency of you life and you are spending it everyday. The question is: what are you getting back for your investment? Because we don’t live in a Star Trek universe where money is no longer required (in the Federation at least), when we start making our own money, we have time but not money. As we make money, sometimes we forget to “buy back” our time. It seems as I look around that fewer people are unaware of trading time for $$ than in the past. In fact, there is a significant number of youth that are stretching this idea of not trading time for money to the point of trying to get something for nothing. We all know that doesn’t work either.
The right choice.
This right balance of time for money where property management is concerned is very personal. Be aware of what you really want: I want to be home; I want to be at the beach/mountains/pool/gym, etc; I want to be busy; I want more control. There is no right or wrong way to feel – there is only how YOU feel about your time. If you were REALLY hung up on the money part, look at it this way: if you had 5 properties rented for $500 per month with property management at 10% (again, negotiate that!) that’s $250/month in fees. That’s half a months rental for one property from one perspective, but if you ADDED one more rental to your portfolio, then that covers all your fees and then some on all 6! AND you got your time back. Of course, base on what we do here – selling discount properties for investment – I would say BUY MORE, right? Of course, but this is also my thinking for myself. Once I got to about 10 properties, I was so done with the calls, court, fix up, etc. I was beginning to hate my journey in real estate.
I don’t own a property management company and I’m not affiliated with one, but I think it is a great deal. So what if they make money off your properties? You are getting your time in exchange (something priceless) at 10% gross rent. I mentioned that those rates are negotiable and they are. I’ve seen rates as low as 7% and heard rumor of rates even lower. Just make sure that whomever (and I mean a real estate broker or a firm with a broker in charge or BIC) you get to manage has some court experience and is a FRIENDLY person in court, but can be stern with tenants if necessary. They should be willing to provide monthly statements in a readable format for you or your bookkeeper with all details. Pay attention to the contract before signing – you don’t want a property management company that has a lot of fees for your tenants. For lower-income rentals in particular, high fees can be a real hurdle for tenants and keep properties vacant for a long time. Personally, I like the property management company to collect their major fee when they find a tenant. That way, they have huge incentive to get the property filled. They drop the fees to the tenant for credit and criminal background checks (a MUST) and work faster to get the big payday (up to 100% of first month’s rent, though 50-70% is more common).
The secret of successful real estate investing is to keep going. If you are fueled by doing the work yourself, then do that. If your butt is dragging and you wonder why you every tried this, then consider property management. If you are worried about the money, adding a property or three to your portfolio after the switch will cover the fees and give your time back. Once you have your time and catch your breath, you will want to keep going. You will also realize…hey, with property management, could’t I have properties anywhere??….