For those unfamiliar with real estate investing, the thought of it can be so tempting:
Rental Income – (Mortgage + Expenses) = Profit
What is not often taken into account in the above equation is the actual property management – or what could be called the landlord’s obligation.
At first glance, managing a property may seem like a breeze. But don’t be fooled. It’s nothing like shooting fish in a barrel. Finding tenants to rent the houses, hunting down rent payments, and dealing with the maintenance issue can be time consuming – if not overwhelming. Investors really need to consider all of the factors before deciding what to do about property management or self-management.
Real estate management vs. self-management
Whether you own a property or are interested in buying a property, there are two ways of managing it. You can either manage the property yourself (self-manage) or hire an external specialist (property manager) to look after the property. When asked which option is better, there is no right or wrong answer. It all depends on the circumstances of the individual investor.
In order to best address this question, it might be nice to point out the advantages and disadvantages involved, then the final decision rests with the investor.
More on BiggerPockets property management
The benefits of self-management
The best part about home improvement management is saving management fees. And for those who believe in the saying, “If you want something to be done well, do it yourself,” soaking your toes in self-management will do well. They will feel better that they can handle this better than anyone else could.
Self-management of the property also means a greater say in the selection of tenants. The landlord can personally evaluate the application forms and speak to the potential tenants. Since the property is theirs, they go the extra length to make sure it’s rented out. In the meantime, property managers with multiple properties to manage may be too thinly spread out, with your property not always being the top priority.
The disadvantages of self-management
Managing a property is not the easiest job. It requires a high level of commitment from the owner as there are constant administrative tasks like chasing late payments, tenant welfare, regular checks, etc.
An experienced property manager has the most up-to-date, critical information necessary to keep business running smoothly. Depending on the investor’s experience, this can mean that he does not make well-founded decisions, which not only affects his turnover, but can also have legal consequences.
Property managers have access to an abundance of property resources that are vital to effectively marketing the property. This cannot be said of self-government, which could ultimately affect rental returns.
The advantages of real estate management
A property manager can add an extra cost to overheads, but one of their biggest selling points is that they make the job easier and minimize the stress for investors. Property managers know the market well and know the basics of property management.
Emotions will always get in the owners way when it comes to dealing with some critical situations. Nevertheless, property managers can reliably deal with deviating tenants and possible damage to the property.
Property managers usually oversee the management of multiple properties, which has resulted in many of them either taking on professional maintenance services or partnering with them. This eliminates the process of “outsourcing” workers every time a problem arises. Ultimately, good maintenance management bodes well for the end result.
Here are other services that a property management company offers:
- They take care of the search and placement of tenants in the investment property.
- They take emergency and repair calls from tenants.
- They coordinate with the craftsmen to fix the repair.
- They conduct regular property inspections to ensure that tenants are taking good care of their apartments.
- You take action against tenants if they do not pay the rent or if they do not adhere to the terms of the contract.
- If necessary, they will take care of the evacuation process.
- You collect monthly rents and deposit them in the landlord’s account.
Basically, they do all of this and get a monthly fee for it. This can be interesting for new investors as they don’t have to learn the ropes. However, this depends on finding a good enough property management company to carry out this task.
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The disadvantages of real estate management
No matter how professional, there is always the possibility that a property manager is not managing the rental property well, especially if they manage multiple properties.
Entrusting the rental to a property manager could end up in the hands of an incompetent or dishonest person. Some might charge too much for maintenance, and others might even raise extra money from tenants to fill their own pockets.
When hiring a property manager, the question of costs always arises. They take a cut on rental income, and a professional management company will typically pocket 5-10% of the rent per unit they manage, in addition to other fees.
Others charge a placement fee for each new tenant, which is often the equivalent of a month’s rent. There may also be additional maintenance costs. These are all things to consider and the investor must be on the same page with their property manager before entering into a deal.
Conclusion: Nobody cares about your real estate like you do
If the investor is lucky enough to find a property management company that meets their expectations and handles the rental smoothly, this is ideal!
But that’s not always the case. It can be difficult to find a management company to look after the property the way you do. You buy your property for a reason, it was built a certain way for a reason, and you selected the best tenants for a reason. Nobody knows your property and its surroundings better than you. After all, you have done your due diligence when investing in this property.
The fact is that most of these real estate management companies have no self-interest because most of them do not own or own or ever own real estate in this neighborhood.
They are only doing their job of managing it. They’ll fix it, they’ll send the bill – but at the end of the day they may not be required to find quality tenants or make sure the property is treated well. They will not be on guard to increase profits or inform the owners of good market conditions such as appreciation in value. All they will likely worry about is continuing to get their stable paycheck.
Don’t feel like you have to start managing your investment property and stop trusting others. However, make sure that your chosen property manager has some interest and understands your goals. You should plan to meet with them regularly, review the property, speak to clients, and decide what is best for you.
Most importantly, you don’t have to put up with real estate managers who you are not happy with or who are costing the company too much money. Set and adhere to limits, keep in regular contact with the property manager and pull through if something doesn’t feel right.