Property Management: DIY? Are You Sure?

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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To Self-Manage or not to Self-Manage, That is the Question!

In a post earlier this week I wrote about evaluating a property with a realistic view of what actual expenses are. One of those expenses is property management and I suggested any investor always calculate what these will be and add them to your evaluation regardless of whether or not you intend to self-manage. There are a couple of reasons for this. The first is that if the property doesn't cash flow unless you self manage, it isn't a very good deal in the first place nor something you probably want in your portfolio. Secondly, and the reason you don't want the property in your portfolio, is that there will be a time in your investing career when you don't particularly want to self-manage. You may get older and want to go to Phoenix for half the year. You may get sick or have some sort of mishap and not be able to self-manage for an extended period of time (even one week can be detrimental to your property if its the wrong week), you may have so many properties in your portfolio that it is now too difficult to self-manage, or you may simply value your time more than at a few dollars per hour at some point in time. Property management can be very rewarding, but it is difficult to do properly. Let's look at the numbers and reasons you may or may not want to self-manage.

The Costs

Generally speaking the cheapest you will find a manager for a single family home is around 10% of the monthly rent without extra fees, but this is difficult to find at times. For a multi-unit property you can get as low as 4% of the monthly rent per door. The reason it is less expensive per door for a property with many doors is that the manager finds it easier to manage 30 doors within one buildng than 30 houses scattered all over the city. Know that there will most likely be expenses on top of this base price. The two most common are: 1. A fee every time tenants leave and new tenants need to be found and 2. A fee whenever the manager is called in to do anything (fix something, call someone to fix something, evicting a tenant, dealing with any difficulty at all in any way, etc.). When looking for a property manager always ask lots of questions regarding the contract and know that everything is open to negotiation. Also, have a lawyer that specifically works with real estate look over any documentation before you sign it. In summary: When you charge $2,200 in monthly rent, you will most likely pay at least $220 per month to a property manager. Sometimes this amount seems huge. For example, when the same good tenant stays in a property for 4 years in a row and never complains about anything it looks like the manage isn't doing anything, but they are still collecting rent and looking over the property, both inside and out (if they're doing their job properly). However, if you find a good property manager s/he is worth her/his weight in gold! Think about this for a moment. For a very small sum of money a person is willing to fix all your problems, deal with volatile situations, and spend hours each time a tenant leaves fielding calls. On top of that the manager is on call 24/7. That's not an ideal job in many ways. The way I see it is that if I have a terrible manager, this manager will be costing me a lot of money in my expenses because more tenants will go through the property and I'll pay more in expenses. If I find a great property manager I will gladly pay more than 10% because I will have tenants that don't cost me as much money in repairs or vacancy. One month of vacancy every year easily eats up any savings I would recognize with a 10% property manager.

Positives and Negatives

The strengths of either doing things yourself or having someone do them for you usually comes down to lifestyle. If you have the mindset that you have a ton of time and your time isn't worth very much or you simply love managing tenants (there are a few who do, myself included) then self-managing might be worth while. If you want your property to basically run itself and simply want a cheque each month, then it will be worthwhile to find a good property manager. Keep in mind that it is difficult to find a good one. Would you want to be paid a few hundred dollars each month to be on call at any hour of the day or night and deal with headaches and angry people each and every day? I respect good property managers! I know a manager whose average tenant stays in a property for over 4 years! This individual has also never had someone cost them thousands of dollars by destroying property. That's what I call a great manager. Often the biggest reason an investor is self-managing is that the property simply isn't a good investment and doesn't cash flow without self-management. This is a terrible reason to self-manage. My advice is to sell the property and use the money to purchase a good investment. If you don't know how to do that, send me an email and I'd be happy to walk you through the process no matter where you live in Canada or even in North America. One more positive of having a property manager is that if the tenant knows you are the landlord, there are ways to ask for favors. When no landlord is communicating directly with the tenant, there is a degree of separation that allows the property manager to often have a better relationship with the tenant because there is a different understanding of expectations and the property manager can always play the "I'll see what I can do for you. I'll talk to the landlord and see what s/he says".

The Final Question

The question you want to ask yourself, in the end, is this: Do you want worry free investing, or do you want a little more money in your pocket at the end of each month? If you don't believe me... own 4-5 rental properties for a few years and you'll understand what I mean. Only the best of landlords are able to do the job properly. There are often positives to managing your first property for a while to understand everything involved. Regardless of what you choose to do, make sure you are consistently purchasing property that can support a manager if needed.

Happy investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html