Do you know what I love most about real estate investing? Following up with the tenants…said no rental owner ever! And the piles of paperwork involved probably don’t add any appeal either. Managing rental properties is hard. It’s the reason most people just don’t bother. ‘Meh, I’d rather work until I’m 72 than have to spend my spare time talking to people, depositing checks, or hiring plumbers!‘
Well guess what? I hate wasting my time too, but I spend basically no time on property management and I own 7 rental houses. After eight years of trial and error, I figured out how to run everything VERY efficiently!
What’s coming – Managing Rental Properties
- What it takes to manage rental properties and how much it can cost
- A case AGAINST property managers
- A case FOR property managers
- A millennial’s alternative that I wish existed eight years ago
I have people managing my rental properties… for now
I get it. Having a stable of properties for “passive income” can basically turn into a full-time job if not executed properly. Your two options are to manage your rental property yourself or to hire a property manager.
The obvious pro to outsourcing property management is that you don’t have to do any of the work yourself. The obvious con is that they take their cut but you will find some worse aspects once you’ve been doing it for a while.
Over the past eight years, I’ve been on both sides of this landlording fence and I’ve found a way to make it easy.
In my early days, as a fresh-faced real estate investor, I had my first property managed by someone else. Here’s why:
- This house was really, really far away. Like… I have to fly to get there. (Actually, this is true for a lot of my houses.)
- It was already managed by a really good company. Being a newbie, I didn’t want to disrupt the status quo.
- I didn’t know then what I know now. And things sure are different now.
As for my most recent rental property – one I can actually get to with a car – I managed it by myself for a while. Mostly to see what it’s like with my current knowledge. I converted to a manager after a while since I had already vetted a really good one. Knowing what I know now though, I probably wouldn’t have hired him.
Maybe you have your own ideas about whether or not you want to self-manage… but trust me, you haven’t thought of the real pros and cons yet. So let’s talk about them!
Why NOT hire a manager: You want how much!?
My 2018 expenses for rental portfolio were $68,244. That’s mortgages, insurance, taxes… this all costs a lot of money, and my property management fees were $8,636. Ouch.
The standard fee is 10% of your rent. But given all your other expenses, it feels like you’re giving up a pretty hefty cut to those managers. That’s a lot of money for something you could do yourself. If you have managers already this is a good way to save a lot of dough although it’s not really an amazing part-time job I recommend to most people.
Also, it’s important to realize. It is 10% of your rent. Not your profit. Real estate always has a lot of fees associated with it so that 10% will actually be a huge cut of your take-home money. This is what it looked like for me in 2018:
Why NOT hire a manager: Can I… trust you?
The money is the easy part though. If you have a bad property manager, you’re really not saving yourself any work. You’re just trading dealing with a bad tenant for dealing with a bad manager, and then you’re paying them on top of that.
Don’t believe it could be that bad? Here are a few things that I’ve had to deal with:
1 – I’ve had managers I had to chase. I’d essentially have to call them to remind them to deposit my checks. Something that’s part of their job. Then I’d have to follow-up. Then follow-up again. It would take about a month to get the payment through. Then guess what. It was time to start over again. It’s like they didn’t realize ‘manager’ was in their title.
2 – I’ve had managers who don’t follow through. Bills don’t get paid and then I have to pay the penalties. There’s always a sob story about why it’s not their fault, but I didn’t hire a manager to hear excuses and I don’t think they felt the pain of those penalties like I did.
3 – I’ve had managers who don’t care about keeping costs down. I love saving, and I run my properties like that too. Some of your managers won’t feel that same sense of frugality and just hand out the repair to the first person who says ‘ok.’ Maybe I sound paranoid but 2 years ago I switched over the manager on 2 of my houses. The repair bills mysteriously dropped to about half! I know my new manager price shops and I was wowed by the difference.
If you have someone running the show so you can relax, you have to trust them to do a good job or you’ll end up even more stressed out. To me, this is the most important part of why managing rental properties is hard to hire out. Until you find someone you trust, you haven’t gained anything.
Managing rental properties is hard: So hire a manager?
What do I get for these fees and trust issues?
Okay, so bad managers suck and maybe you can do the job better yourself. So that means I’ve fired all my landlords right? Wrong!
Personally, I don’t want to deal with the details of self-management for the long term, and I consider my managers worth the expense. Especially, that I weeded out the bad ones. Being your own manager means you need to deal with: (Some of these are bolded and I’ll get to that later.)
- Calls at bad times
- Awkward talks
- Evictions
- Making and signing lease agreements
- Screening tenants
- Organizing repairs and following up
- Organizing piles of documents
- Cashing checks
- Chasing tenants
- Recording expenses and receipts for tax time
- Tracking car mileage
- Documenting chats in case of future reference
Okay, so that’s a lot. Add to that the fact that my properties are all over the place, I travel a lot and when I bought them I had a full-time job. I value my time and I’m willing to pay someone to avoid the headaches.
But things are different now. If I was starting now, I would have definitely given self-management the chance it deserves for one big reason:
- That bolded stuff above is the majority of the work.
- That bolded stuff is all easily automated.
Is self-management hard? (Not anymore!)
When I first started out in my rental investment journey self-management wasn’t worth the time. Plus, I had a horrible phone and typing out a text was agony. Smartphones were way less awesome, and they definitely were not the life-changing force they are today.
Apps?… Those were just for restaurant reviews and finding music.
These days, you can literally have a property management software app that does your landlord work for you. This makes self-management worth the time because you get to skip all the repetitive stuff.
Just hit a button and you have a credit report, criminal report, and job history within seconds. Almost every task involved in property management can be done in your bathrobe while enjoying your morning brew. (Unless you sleep naked, in which case BRAVO! You’ve just taken property management to a whole new level!)
Lazy landlords… meet Landlord Studio.
I searched around A LOT and I love Landlord Studio above and beyond all the other options. Why, you ask?
#1 – It’s an app
This app has an online portal but they made it as an app from the ground up. It’s easy to use and I would say it makes every task so quick it’s almost enjoyable…almost.
#2 – It’s cheap
It’s 1$/month/unit. (Plus 2 months free with my link!) That is an insanely small amount of money. I pay about 100$/month/unit for a property manager. That’s literally a 99% cost reduction. OMG. Where has this been all my life?!?!
#3 – It saves TONS OF TIME!
All that bolded stuff from before. It’s all automated! They didn’t cut anything out to justify the low price!
- Collecting rent. Automated.
- Screening tenants. Automated
- Making leases. Automated (kind of).
- Organize your docs and conversations to the cloud. Automated!
- Tallying up expenses for tax time. Automated!!!
- Calling in repair people. Semi-automated (you still have to choose one but you can do it from the app).
The time savings are so overwhelming that my eyes are welling up. This is my personal heaven. This is what I should have been asking Santa for all these years.
I wouldn’t recommend self-management without this app
Sure, there are other programs out there but I have tried a lot of them and I have a love affair with Landlord Studio. I review them all here.
If you are deadset on never talking to other humans and want a manager anyways, I get it. I am a hardened millennial. Conveying messages with my voice seems way outdated compared to smashing my details into an app.
I also value my time very highly so if these apps weren’t so great I would tell everyone to hire a manager and live with the downsides. Now, you don’t need to judge and fire your managers for years until you find a good fit.
My recommendation – at least try landlord work with an app and see if you like it. Even if you just do it for a few years, you’ll save thousands of dollars, learn something and might even get to like this whole property management racket.
As for me…If I can find someone to take calls when I travel, I would 100% fire all of my vetted property managers. It’s cold but I think I could enjoy an extra $9K in my pocket.
TL;DR – Managing rental properties WAS hard
- Property managers take a 10% cut, plus dealing with bad ones is worse than dealing with tenants. If you can trust yourself to do a better job, you might be better off without one.
- At the same time, the work they do and the time they save justifies the cost (at least for me)
- Now that we live in the age of smartphones, if you’re starting out – do yourself a favor and get Landlord Studio that literally does all of your property management for you. None of the effort and you keep piles of money! (Plus, get two months free with my link.)
What about you? Can you think of other pros and cons of property managers? (And have you discovered some crazy hack to keep your work and your costs to a minimum?)
Property management is indeed the trickiest part of real estate buy and hold. My husband and I have PM’s for all of our properties (10 rental units). I agree that no one will manage your money (and rentals are money) as closely as you will, but we wouldn’t have gone into rentals if we had to manage them — it’s not our interest or skill set. The money you pay to a PM is also about the time you save and can earmark for other things. We have passion projects that bring in far more money than what we pay our PM’s. That said, we do have to manage the PM’s and make sure they’re keeping costs low, getting the best tenants, etc. We’ve had to cycle thru various PM’s and it is hard to find a good one. But there is also opportunity cost to self-management and depending on what else you do it can be significant.
Yeah, I completely agree with you. I definitely think property management is a Pareto where you can easily do 80% of the work yourself, but that last 20% sucks. I have managers everywhere too…I just don’t want to pick up the phone 😛
I have two AMAZING managers and I’ve actually been disproportionately been buying houses that they can manage just to have more under them 🙂