DIY Property Management?

tenants-from-hell1Money Monk asks:

“A question about your commercial property: How do you collect rent? Do you use paypal or another source? Do you have a Post Office Box that they send checks to or do you have a property management team do it for you? I only plan to have one properly so a mgmt team may not be necessary.”

I currently have a smaller portfolio of investment property than previously [AJC: unfortunately, I also have a larger portfolio of for-my-own-use residential property than planned or ideal], having sold the ‘jewel in my investing crown’ due to market conditions (then, favorable) upon careful deliberation and finally deciding NOT to be my own developer (the existing property was not the ‘highest and best use of the land’ so somebody needed to develop the land) …

… however, I still use a variety of Property Management teams (paid by ~6% commission on rents collected) for all of my remaining properties; they pay directly into my account (monthly) and send me statements electronically (also monthly).

I recommend that you use property managers once your portfolio gets to a certain size … unfortunately, I have no rules of thumb on this other than that I took this route from the very beginning NEVER managing even my first apartment myself.

However, if – like Money Monk – you only plan to have one or two properties – and, they will be conveniently located (and, you don’t mind calls from the tenant/s) – then managing them yourself can:

(a) save 6% – 10% in Mgt Fees, which may make the difference between a cashflow positive property or one that loses you money, and

(b) provide needed experience to help you oversee the property managers better, if and when your portfolio grows.

Just remember, if you do decide to manage the properties yourself, to STILL build in the property manager’s fee (say 6% to 10%) when doing your acquisition budget, as you are really paying yourself to manage the property.

Also, be aware of burnout … it only takes a few late night phone calls to unclog a blocked toilet before you decide that this “property thing” really isn’t for you, and put your property/s up on the market at a loss  … when what you really mean is that this PROPERTY MANAGEMENT thing isn’t for you, so you should just outsource it …

… lucky you built that extra 6% to 10% into your budget ‘just in case’. huh? 😉

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14 thoughts on “DIY Property Management?

  1. Hi- I am thinking of getting into landlording the way you have done- which is I own, and pay someone else to manage fully.

    Can you do a post about your experience doing this? I’d be interested in your cash flow targets (if you have any, or targeted appreciation rates if you are not in it for cash flow) for your properties, and how you feel you have done managing your portfolio as an owner rather than a manager.

    Any tips/things I wish I’d known/etc? Finally, how many properties do you have, and what types? Is this how you made your $7 million?

  2. Adrian, good points about using a property manager. I’ve always said I’m interested in being a real estate investor, not a property manager. However, despite my mantra, I am managing my former home (now rental) on my own. That 6-10% PM fee can be a show stopper if your margin on the property is small.

    Money Monk, I have an arrangement with my tenants to do direct deposit. I have a special “rent payment” account set up at my bank that I use to receive the monthly rent. With the account number and the bank’s routing number, pretty much anyone who has has an electronic bill payment service can send money directly to your bank account. So far it’s working great and no paypal fees either.

    Good Luck,

  3. Fabulous answer! I still panic from the call while on vacation telling me of a sewer back-up. Thankfully, I have an unbelievably awesome father in law to jump in, in our absence.

    My problem is finding a quality property management company. Maybe it is my small community, but there is a lot of bad talk in this area.

  4. @ Dedicated – If you intend to expand your portfolio, maybe the solution is to: (a) contract the job out to your father-in-law (might be better / cheaper than a property manager, and he might actually enjoy it) and/or (b) to invest outside your area … somewhere where you CAN find “a quality property management company”?

  5. Adrian thanks for the advice. My F.I.L. works full time in our business already and I wouldn’t ask him for more at 75 years old (you would think he is in his 50’s the way he is always on the go). As far as investments in property go I try to keep everything in a 50 mile radius. I like to keep my eyes on my money and something far a way would keep me up at nights. For the most part, the properties have run fairly easy. The commercial being my favorite and smoothest runner. Residential has been riddled with sob stories and late rent, but I am learning and currently making money.

  6. I plan to buy commercial real estate so I doubt if I get calls in the night, however I plan to have a contactor for stuff like that.

    Love you input, Im still learning

  7. Getting an expert in property management is a great idea because it saves up money and it allows your properties to be managed well. We need professionals to be sure that things are done in the proper way.

  8. A good property manager should be able to increase your NOI and maintain your homes value by using insurance and maintenance. At some point when you have enough investments in your portfolio you get siuck of those leaky faucet calls and want to get a property management company. If you can find a good one it is well worth it…

  9. The more time you have and the more experience in property management the more the ROI for DIY makes sense. For others, having someone interview tenents, develop state accredited contracts, and teal with the daily issues makes outsourcing more realistic.

  10. I just had a new investor but two investment property cash. he was thinking not hiring a property manager. We when over short list responsibilities he would take on and the 10% fee did not sounds so bad. A good property management company will usually get a slightly higher rent and long term renters. In the long run a good property management company actually pays off.

  11. Duties of property management include accepting rent, responding to and addressing maintenance issues, and providing a buffer for those landlords desiring to distance themselves from their tenant constituency `*”

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