Property Management vs Self-Management
You’ve been patient, persistent and hardworking enough to acquire rental property. Well done. It was not an easy journey, but thankfully, it’s now time to enjoy your hard-earned investment returns.
Sadly, as much as it may have been a struggle, raising money to acquire property was arguably the simplest part of it all. In comes the most complicated part- managing your property well enough to maintain a good and constant cash flow.
For most beginners, investing in rental property is a rather simple equation of accumulating profit after subtracting mortgage and expenses from the corresponding rental income. While this equation is the principal investment mantra, there’s a lot more that goes into the whole process- management duties and energy. While some property owners entrust their investments to one of the more than 260,000 property management firms, others choose to handle it alone.
Each of the two approaches is unique in its own way, plus comes with its set of merits and demerits. It’s understandable to be torn between the two, especially if this is your first time in the business.
So we’ll help you figure it all out. Which is the best option between self-management and hiring a property management firm?
Advertising Your Property
Let’s start at the bottom line. You’ll need to get the word out about your property to secure tenants. With the bulk of millennials currently on social media, getting a tenant through Facebook, Twitter and Instagram should be easy, right?
Many property owners consider vacancy marketing as the easiest part of property management. Not much is seemingly required, except knowing the right platform to leverage. However, the truth is that there are indeed many prospective renters who can be reached out to through social media and the internet. But you don’t need just any tenant. You need a good tenant. And that’s precisely where property management professionals come in.
72% of property management firms record eviction rates of about 1% because above everything else, they know how to get it right from the beginning. Not only do they have ready access to pools of pre-screened renters searching for properties like yours, they are very strategic in their marketing plans. Through their comprehensive tenant screening processes, they are able to qualify only the most committed individuals. That consequently translates to fewer cases of troublesome tenants.
Getting Up Close and Personal
Blood, sweat, and tears. That’s what it took to build your real estate portfolio. Possibly your proudest achievement. So it’s only natural to feel a strong emotional connection towards your properties for all the hard work that has gone into them. You need everyone to show them the respect they deserve, and that’s why you’re even considering self-management in the first place.
Unfortunately, this feeling is a double-edged sword. While it may help you look out for your properties’ best interests and forge personal relationships with tenants, it will increasingly cloud your judgment in tricky situations. For instance, evicting a troublesome tenant may turn into a battle that could ultimately attract legal charges and damage your reputation.
Property managers, on the other hand, are usually more professional than sentimental. They engage their in-house lawyers in drafting tenancy agreements, then subsequently coordinate evictions and manage disputes according to federal and state laws. Additionally, considering 51% of property managers have been in the industry for more than 10 years, they have the requisite experience to know how to work their way through all possible situations arising from tenants.
Property management, at first, may feel like an undertaking that only requires responding to just a couple of tenant emails from the comfort of your bed, engaging maintenance contractors only during turnovers, and counting your fruits when rent is remitted. Pretty much a part-time job with a cumulative commitment time of about a day each month.
On the contrary, even with software like Property Matrix substantially simplifying the whole management process, property management is as demanding as a full-time job. The professionals spend 23% of their time handling maintenance requests; 11% on screening tenants; 11% on managing finances; and 17% on marketing vacancies.
Most of their time, (30%) is spent coordinating property maintenance round-the-clock. Some of them even wake up in the middle of the night to respond to maintenance requests, by escalating tickets to their respective contractors; and subsequently following up on the repair process.
All things considered, there’s simply no time off from property management. As a matter of fact, only 8% of professional managers report that they have a lot of spare time. The rest often work overtime, and rarely have leisure time.
And now for the one thing that’s widely considered the principal reason for self-management- minimizing property costs. Well, self-management is incredibly cheaper if you only factor in fees charged by property management companies. But sadly, things are not that simple when it comes to real estate.
You should instead look at the big picture. Seasoned investors consistently review then compare compound costs and corresponding returns of their options. So consider all the possible long-term costs of the two approaches before weighing them up against each other.
The 2016 NARPM Retreat established that while most owners of 1-4 family units self-manage their properties, they eventually start incorporating property management firms for a range of services. As you save on the fees today, tomorrows obligations may have you running for the hills. From managing maintenance requests, drafting legal agreements, screening prospective tenants, to advertising your property. Of course, property management firms also incur costs on these, but it’s usually infinitely more cost-effective when done on a commercial scale.
Property management evidently wins hands won. But, in addition to these considerations, your final choice ultimately boils down to your management ability and preferences, vis-à-vis the type of property management firms in your area. Whichever way you choose to go, please feel free to share your experience in our comment section.