When you have a small rental portfolio, it may not make as much sense initially to hire a property management company. And I say this for two reasons:
1. I believe that you should learn and appreciate the process of marketing and property management
2. Even if you hire property management, you still have to manage the property manager
Notice that I did not mention the 10% property management fee that is taken off the top of your rental income each month. While that could be a concern, it is not the greatest.
Let me first address #1.
Learn and Appreciate the Process
As a first-time rental investor, perhaps you dream of a larger portfolio and know that you would never plan to self-manage such a large portfolio of single family or multifamily properties. However, if you have never done so, how will you know what a great property manager does? How will you set expectations for how they are to interact with tenants and what repairs you will cover when there are damages? How will you ensure that your first rental has high quality tenants that are going to take high care of your property?
The point is, while it is not impossible, there is a greater appreciation when you have been there and done that…
In another post, I will talk about a few myths of being a real estate investor, and one of them is that you will be fixing toilets at 2pm. Rather than discuss this now, I will simply state that this is not the case.
If you have a fear of fixing toilets or responding to leaky faucet issues, this is not to be expected by self-managing. Even by self-managing, you are operating your rental as a business: you may be the property manager, but you are not the contractor, and in any case, you are not accepting 2am phone calls. Finally, no tenant has ever called me in the middle of the night. Myth busted.
Now to # 2.
Managing the Property Manager
Of course when you scale, having a property manager will likely be inevitable. We all recognize the tax on time, and after all, you are interested in real estate for the passive income, right?
However, what you may not have realized is that having a property management service still requires that you manage the property manager. It does not mean that you will never get a phone call. The difference is in whocalls. You will not get the calls from the tenants, but from the PM. Instead of speaking directly with your tenants, you will have to problem solve with the PM:
- What broke?
- Whose fault was it?
- What was the tenant’s explanation?
Certainly, once you get a PM, you can condition them to know how to resolve these issues, perhaps allowing for a threshold for repairs. However, I believe that the operations of your real estate portfolio are best optimized by you first having done the PM job and sharing those best practices and expectations with your hired property management company.
As a full-time worker with a day job, you eventually could benefit from leveraging property management of your rentals. Just remember that having a property manager does not solve all your landlording problems.
Here is my final recommendation:
If you are planning on purchasing your first rental, budget for property management but give a shot at self-managing for a year.
In other articles, I will share guides and practices that have worked for me in my personal portfolio.
If you are still not convinced that real estate is right for you, check out my article that explains why I believe every American should own real estate as an investment.
