Owning rental properties brings many challenges. An important decision to be made is how to manage the investment – self manage or hire a third-party?
Before reading further, it is important to note that hiring a property manager may not be the best option for you. There are situations in which self-managing is a better option than hiring a third-party. Some individuals possess skillsets which make them well-suited to self-manage their properties. This article will look at the benefits on each style. Then you can make an informed decision best fit for your circumstances.
In addition to the general day-to-day management of a rental property, you must also consider your need for support in the areas of Marketing, Taxes, Accounting, Maintenance and Legal advice. Some of these areas can be covered by a property manager and others cannot.
When most people consider hiring a property manager the first and foremost concern is that of cost. However, there are many other important factors to consider. Owning a rental property is essentially the same as owning a small business and the similarities, responsibilities and duties of each coincide closely.
Top 5 reasons to hire a Property Manager
Your Will Have More Free Time
In our experience, the primary reason for hiring a property manager revolves around time management. Many investors are focused on growth and are too busy to manage their own rental properties. Other investors place a very high value on their free time and prefer to spend time with their families, travelling or just not worrying about the next call from their tenant. Peace of mind is powerful and it is difficult to place a value on.
Your Rents Will Likely be Higher
Many who self-manage often let their rents fall behind the market. A property manager can often pay for themselves just by consistently managing a rental at or above market rents. Property management companies continuously work the market. They know how much they can push rents. As an example, consider a home renting for $1,000/mo: A market rent increase of just 5% translates to an additional $600 of income per year. This increase could be even more if the home is currently rented for less than $1,000/mo and the rent has not been increased for several years.
You Invest Out-of-State
Owning rental properties out-of-state or even in a different city can be a good reason to hire a property manager. Laws affecting real estate vary from state to state and from city to city. Having local knowledge is vital. You also need “boots on the ground” to ensure that your investment is preserved and cared for. Hiring a property manager is highly recommended if you do not invest locally.
Relationships and the Experience of Professionals
When you hire a property manager you get the instant benefit of proven systems and many years of experience. There are many situations in real estate where experience can save you hundreds or thousands of dollars. Hiring with a property manager can also be a great resource for you to learn the business by associating with people who have been active in it for many years.
You Don’t Know Where to Start
Let’s face it, some people just don’t have the time, knowledge or desire to self-manage a rental. But they still recognize the powerful wealth building capability of real estate and want to own a rental portfolio. A property manager can give this wealth-building opportunity to people who otherwise may not be able to take advantage of it.
Top 5 reasons to DIY Self-Manage
No Management Fees
The financial benefit of self-managing is usually very clear. If you self-manage you will save anywhere from 8%-10% of the rent collected each month. You will also save the cost associated with leasing the property which can range from 50%-100% of a full month’s rent. Using the example of a home renting for $1,000/mo: Your annual savings in management fees would be between $1,460 – $2,200 depending on your property manager’s fee structure.
Ultimate Control for Decision-Making
Being a self-manager means that you are the person making all decisions large and small related to your rental property. You will always have your own best interest in mind. Being in control squarely places responsibility on you to delegate tasks or handle them yourself as you see fit. Having a strong team in place will assist you in delegating.
Gain Valuable Experience
There is no doubt that you will learn may valuable lessons and insights by managing your rental properties. You will learn each step in the process by direct interaction. Each day carries the potential for something new to be learned. These experiences are invaluable to you as you grow your real estate investing career. Self-managing is also a great primer for interviewing property managers in the future should you decide later to hire one.
You Live Near Your Rentals
While on its own, this may not be reason enough to self-manage. But it can make a huge difference when all other factors point to self-managing. If you live nearby your rentals, you will be much better prepared for success as a self-manager.
You Have a Very Unique Home or are House-Hacking
Most property management companies are highly systematized. Properties that don’t fit into their systems are often overlooked because they don’t follow the normal flow of business. Sometimes, the property may not be unique but the circumstances surrounding the property are unique. Such as an owner-occupied single-family home with leases on some bedrooms – “house-hacking”. House-hacking is an ideal self-management situation.
Ultimately, how you decide to manage your property comes down to 3 primary factors:
- Cost OR Opportunity Cost;
- Location(s) of your rental properties; and,
- Knowledge OR Desire to Learn.
Be honest when you answer these questions for yourself and you will be rewarded with knowing you made the best decision for your specific situation.