Any buy and hold investor must ask themselves a very important question about who will manage their properties. Management should never be an afterthought. Property management can make or break you and every buy and hold investor must be very careful when making decisions about how to move forward with it.
So do you manage yourself or hire it out? Well, here are the advantages to each:
- Infrastructure– To begin with at least, management companies will have an office and staff and you won’t. They will also have leases, applications and other documents that you will have to buy or create (and then check off with an attorney). They should also have policies and experience that comes a long way in real estate.
- Save Time – The more time you spend managing, the less time you can spend looking for more great deals. Or more time to do anything else you would rather do than talk to an upset tenant about a leaky faucet or a backed up toilet.
- Who Gets the Headaches – Property management is very stressful. Most tenants are pleasant people, but unfortunately, those won’t be the ones you hear from much. Instead, the bad apples will continue to drag you down into the mud. It’s nice to let someone else deal with that.
- More Control – It’s easier to make decisions and implement them yourself or through your employees than through a third party.
- Avoid Potential Fraud – It is, unfortunately, by no means unheard of for management companies to receive kickbacks from contractors or pocket the rents from supposedly vacant units.
- Save Money – Most management companies charge around 10% of collected income and first month’s rent. Doing it yourself would save that expense.
- Gain Experience – Understanding the ends and outs of property management is a very useful skill for real estate investors. It will also give you a perspective on the areas you’re buying in that can fine tune your investing criteria.
- You Care More Than They Do – This is the big one (that is true with employees as well). No one will ever care as much about your properties as you do. And the effort that goes into making those properties perform will reflect that.
My personal sympathies lie with managing yourself and, once you get bigger, setting up your own management company. That being said, we’ve had some very bad experiences with management companies that let properties get run into the ground. One even asked us for the ability to automatically debit our account since the property lost money every month (at least it did until we took it over ourselves). On the other hand, I’ve known others who have had great success using property managers.
If you are looking for a property manager, a good place to start is the Institute of Real Estate Management, that offers certifications to managers and allows you to search for such managers. You can also ask for referrals, especially at local REIA meetings from successful investors. Interview those managers thoroughly, ask for references from them and interview those references thoroughly. And if a manager isn’t getting the job done, don’t be afraid to switch.
If you choose to manage yourself, make sure to talk to an attorney and familiarize yourself with landlord/tenant law and fair housing. And educate yourself on principles of property management. Trust me, you do not want to wing this. For one thing, you have to have thick skin and be able to say “no.” Many tenants will yell at you for things that aren’t your fault. And they are often not really angry with you, they just need to vent. You will need to be able to handle this. I recommend checking out Jeffrey Taylor, or “Mr. Landlord” as he’s known, as well as the articles on landlording here at REIClub.
Either way you choose, do not neglect property management. No matter how good an investment is on paper, it’s no good at all if it just sits around vacant bleeding money.