The biggest question in rental property management is “Should I Self Manage my property or hire a Property Management Company?”. While single family rental properties may be manageable for newly starting investors, large multifamily apartments and commercial shopping centers almost always require professional management services. Deciding whether to self manage or outsource to a third party management company usually comes down to a series of variables such as property type and personal attributes. Below we take a look at both sides of the decision to self manage or hire a professional property management company.
How Many Hours Are Required to Manage a Rental Property?
One of the first things to consider is the time commitment required to manage a rental property. The amount of time that will be needed to self manage a rental property will mostly depend on the number of tenants (i.e. doors) that the property has. The general rule is more tenants equals more time required to manage. A single family home might require only a few hours a month to manage, whereas a large mid-rise multifamily apartment with hundreds of tenants will require a full time schedule of 40 hours per week minimum. As the person in charge, property managers are also required to be on call after regular business hours in case of emergencies as well.
What is Self (Property) Management?
Self (property) management is a type of rental property management where the owner oversees and handles all of the day-to-day operations of the rental property.
Pros and Cons of Self Managing Rental Real Estate
Self managing a rental property can sometimes lead to great outcomes such as cost savings and obtaining hands-on real estate industry knowledge. In other cases, it can be a burdensome experience that should have been handled by a professional in retrospect. Here are a few Pros and Cons of self managing rental properties to consider before making your decision to self manage or hire a property manager?
Self Managing Pros
1. More Cost Effective – Probably the most common reason for choosing to self-manage an investment rental property is due to cost. With third-party management companies charging between 5% -15% it makes more economic sense for some investors to self-manage. For example, if a local property management company charges 10% of the monthly income, that means that by the end of the year they’ll have charged you more than 1 month’s rent, and that’s 10% X 12 months = 120%.
2. Greater Control of the Property – Unfortunately, owners and property managers do not always entirely see eye-to-eye. Whether it is a design decision or selecting the most qualified tenant, self managing allows you to have the final call. This usually results in quick and decisive decision making since you naturally only want to make decisions that you believe are best for your business.
3. Opportunity to Learn – Self managing your investment allows you to learn about your property and also the general business of managing investment rental real estate. From annoying maintenance requests, to properly screening prospective tenants, you will have to deal with it all. The good news is that the more you learn about your business, the easier it will be for you to grow it.
Self Managing Cons
1. Very Time Consuming – Even if you enjoy taking care of your investment property, unless you have a lot of spare time, you may find it difficult to properly give your investment property the time it requires of you. From maintenance requests, to paying bills, and properly screening prospective tenants, there is a lot of oversight required which all needs to be addressed promptly (Yes, even the 3am overflowing toilet floods).
2. Lacking Professional Expertise & Presence – You may have a lot of hands-on experience, but property management is such a vast field of topics that it is nearly impossible to stay on top of all the changing laws and regulations. Furthermore, maybe it’s human nature, but tenants seem to respect actual companies more, even if its just a DBA and Google Voice phone number.
3. Rent Collection and Handling Evictions – We may plan for everyone to promptly pay their rent on the 1st of every month, but that is just not the case in rental real estate. This means you may end up needing to follow up with some renters every month to get them to pay on time. In the unfortunate event a tenant decides they’re simply not going to pay, you will then have to start and see-through the legal process of eviction.
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Pros and Cons of Hiring a Professional Property Manager
Hiring a property management company (instead of self-managing) can bring about great peace of mind that your rental property investment is in good hands. However, not all professional property management companies have stellar reviews, which often point out the lackluster experience that some property owners have with them. Here are a few Pros and Cons of hiring a professional property manager for your rental property, to consider before making your decision to self manage or hire a property manager?
Property Manager Pros
1. Ease of Mind – Property management can be very stressful, regardless of how great your tenants are. Outsourcing this obligation to a property manager frees up your time to either continue growing your business by focusing on new acquisitions, or just enjoying life without worrying about getting a late night maintenance phone call.
2. Maintenance Response – Depending on the size, larger property management companies have dedicated 24-hour phone lines and available tradesmen to handle emergencies no matter the time. Even if they do not have maintenance staff directly employed, all property management companies have relationships with local vendors to get any job done quickly and effectively.
3. Enabling Growth and Scaling Up – If you’ve already gotten your feet wet self-managing, hiring a property manager might be a wise decision to help you scale up your business. Nobody knows the ins and outs of the rental industry more than property managers, and a good one can help you handle the mundane tasks and also pass along valuable market knowledge and insights.
Property Manager Cons
1. Cost of Services – The most common complaint of hiring a property management company is the cost. Fees vary depending on the services offered, but are usually a percentage or monthly rent. On top of the recurring base monthly charge, they may also charge a leasing fee, setup fee, cancellation fee, extra maintenance fees, renewals fees, etc.
2. Giving up Control of Your Property – Hiring a property management company means you are willing to hand over the day-to-day operations of your rental property. Should you choose to do so, you will need to accept the fact that they may not approach every issue the same way you would. For example, some property managers may work remotely, where you are a hands-on type of owner.
3. More Expensive Maintenance – Maybe you have a cousin who could unclog a drain for $20 and free lunch, however, the property manager is going to call a licensed plumber for that same job. Should you choose to have the property management company handle your rental property maintenance, you will need to be comfortable paying marked up prices for professional tradesmen to perform maintenance.
Hybrid Property Management Approach
Now that we’ve scrutinized both sides of the question to self manage or hire a property management company, we’ll offer a third viewpoint to consider: Perhaps the most effective strategy is hybrid property management.
In a hybrid property management setup, you could start out self managing to learn the ins-and-outs of property management and eventually switch over to third-party management once the time commitment no longer makes economic sense. These types of rental property owners possess an immense advantage whereas they understand the operations of management of their investment, however choose to outsource it to other capable professionals to free up time and resources that can be used to pursue other business ventures or just enjoy life less interrupted.