Is it better to use a property manager or manage my properties myself?

I can understand the appeal of managing your rental properties yourself.  After all when I started off I managed all my properties myself, and it was years before I hired a property manager to do it for me.  I’ve experienced the good and bad of having a property manager taking care of the day to day issues with my properties, and I’d be lying if I said there weren’t potential downfalls to it.

There are several things to consider before making this decision.  I can tell you it’s one of the most important factors in your investment strategy.  Ask these questions of yourself and if you answer them honestly the decision should be easy.

  1. Do you have the time to manage your property properly Depending on the qualify or “class” of your property the typical daily time requirement may be fairly low.  (Class A or A- property generally don’t require much time from a landlord, while class D properties are usually extremely time consuming).  While this is the case when the property is occupied, it’s the vacant periods that are most time consuming and most important to devote your time to, because that’s when the property isn’t making any money.  If you’re avoiding using a property manager just to save money, you may actually be LOSING MONEY by not having enough available time to show and promote the property.  The best value a property manager can deliver is having ample available time to manage your property.  It is not in your best interest to hire a neighbor, cousin, brother, or anyone else that isn’t a full time property manager, because their primary focus WILL NOT be on your property, it will be on what makes them the most money, which is their day job!  (This also applies to the “free rent” some property owners try to offer in exchange for managing their properties, I have never seen that work out to the property owner’s benefit)
  2.  Are you ok with “letting go”?  Whether you’ve decided to be a landlord, or purely a real estate investor, you’re going to have to “let go”.  I don’t mean to say that tenants and property managers shouldn’t have some oversight, but you have to acknowledge the fact that the tenants have leased the right of possession of your property, so if you are extremely particular about the way your property is kept, owning rental property may make your cardiologist more money than it makes you.  Some tenants are fantastic, and will keep your property as well or better than you would if you lived there.  On average thought that will not be the case, and tenants may not tend the lawn as frequently as you’d like, or pick up rubbish that is in the yard or on the porch.  You have to keep in mind that as long as they aren’t doing anything to permanently damage the property, or cause you direct undue financial harm, everything will be just fine.  In line with that idea, if you have determined that it’s in your best interest to hire a property manager to oversee your investments, bear in mind that you hired them because they are a professional (MAKE SURE THEY’RE A PROFESSIONAL!) and breathing down their neck or questioning their every move won’t help to make you any more money, but will likely increase your fees and charges when the management agreement renews.  Real estate investment is supposed to be passive, that’s the real value in it!  It’s understandable to be hesitant in the beginning, but at the end of the day if you know you are a micro-manager it’s probably best for you to stay out of the business entirely, or invest in a managed pool of funds.
  3. Do you have a solid grip on laws surrounding real estate?  If your tenant doesn’t pay and quits communicating with you tomorrow do you know what to do?  Do you know how long it will take to have them removed through legal means?   Do you know what your rights are and what your tenant’s rights are when they aren’t paying their rent?  Do you know what the alternative options are to courtroom eviction?  If you can’t answer all of those questions with a confident “yes” then you need to do some serious studying or hire a professional to do the job.  Violation of tenant rights can land you in jail in some parts of the country, if that happens to you a property manager will be looking extremely cheap!
  4. Are you good at managing and budgeting your money?  Chances are if you can afford to buy an investment property you have some financial literacy, but do you manage and budget your money well?  Saving up a down payment and making monthly payments isn’t the same thing as being able to pay for a $5,000 air conditioner, $1,200 water heater, or even the $3,000 deductible for replacing the 20 year old roof that a tree just fell on?  A good property manager can help to buffer these expenses, but they may not offer the services automatically, so consider asking them about it!
  5. Do you have a list of contacts for repairs, and would you know who to call for what?  I’m a fan of doing a lot of my own work around the house, always have been.  So when I started investing in rental properties I tended to try to do all the repairs myself there too.  It sounded good in theory, because I thought I was saving money, and it gave me an opportunity to “check in” on my houses and see how things are looking.  That was true for the items that weren’t of immediate concern, both for the tenant and for the house itself.  I was working a full time job and didn’t have the time to rush to fix some of the small things all the time.  I learned that those small things, when not taken care of immediately, turn into big things, and when they turned into big things I wound up contacting several different repair people to get the jobs done, because I wasn’t familiar enough with who I should be calling to do what kind of job!  Looking back I would have been better off to pay to have the work done right away, because it satisfies the tenant, which helps encourage them to stay longer, and prevents larger problems from happening, which quickly erase those DIY savings.
  6. Do you know what potential tenants are looking for in your area?  Most property managers operate within a particular segment of market.  They can tell you the pros and cons of investing in every type and class of property, because they do it everyday.  Beware the managers that only manage subprime or class D properties, as their income comes mostly at your expense (they make their money off eviction fees, late fees, and generally a higher management percentage than others).   Once you’ve made a decision on what types of properties you want to invest in, find a property manager whose portfolio resembles your target properties.  They already have a pool of potential tenants contacting them regularly, which you can benefit from.  You can also solicit advice from your property manager to focus purchases or renovations on what those potential tenants are looking for.  Having that information will help keep vacancies low, and return on investment high.
  7. Do you know how to screen and what to look for in a potential tenant?  This is probably the most important out of this entire list.  The expense of one bad tenant could pay a property manager’s fee for 4 or more YEARS!  Between lost rent, legal fees, and repairs/damages to the property the costs add up quickly!  You should do some extensive research on tenant screening before you approve a tenant.  I cannot stress how important this is in factoring rental property success.

There are a lot of things that go into determining your strategy when investing in real estate.  This is not even close to a comprehensive list of things to consider, but hopefully it helps get you started thinking about the most important factors!