Purchasing a property and converting it into a rental unit is the first step to financial freedom. The next would be deciding on the management aspect. Are you up for the duties of a self-managing landlord? Would you rather hire a more experienced property management company?
This isn’t a question that can easily be answered without reservations. Property management entails a bundle of services and high expectations from tenants. It’s best to discuss both the advantages and disadvantages of self-management and hiring a third-party property manager.
1. Financial savings
As a property owner, your money goes towards paying for maintenance, insurance, utilities and property taxes. When managing your unit on your own, you will avoid paying for third-party management fees. If you have additional mortgage loans, then it might be a financial burden for you to pay for another fixed overhead expense.
2. Creates accountability
Since you paid a significant price when you purchased your real estate, your drive to make it profitable is stronger. You’ll naturally develop more skills and acquire more knowledge to run your rental property better. Owners are naturally more hands-on and concerned about the future growth and profitability of the property.
3. Degree of control
Since you handle all the property management stages, you have more decisions regarding tenant acceptance. As your own property manager, you have more power in selecting the prospects you prefer to inhabit your rental home.
You have a more direct say when running your rental operation. You don’t have to schedule meetings or consult others.
4. Level of priority
Owning a rental property means prioritizing the success of your rental investment. Property managers are handling a ton of properties at once and yours might not be highest on their list of prioritized, managed properties. This is a reality, especially when the ratio of property managers is fewer than the properties they’re responsible for.
Property Management: Pros
1. Minimal degree of stress
If your property is located in another state, you don’t have to travel back and forth to check on it. When emergencies occur, the level of stress will be manageable compared to self-management. It’s always comforting to have an additional support system when managing a rental business.
During turnovers, property managers are also able to assist in preparing the vacant unit to be rent-ready. Scheduling property showings won’t be a challenge either.
2. Increased market knowledge and expertise
Being a member of professional real estate organizations gives property managers an edge. They’re likely to be aware of additional local laws, economic trends and best management practices. Having been in the property management industry for a while means they’ve been exposed to a lot of situations, and are better able to manage rental properties and tenants.
3. Sense of professionalism
When you’re a self-managing landlord, you can be guilty of being too personally involved. Property managers can distance themselves as professionals and objectively solve problems.
They have little incentive to display emotional outbursts as they’re representing a client.
4. Wide network and abundant resources
One of the best advantages of property managers is working with different contractors, realtors and properties. They’re exposed to more contacts and have exclusive arrangements with service providers. This translates to discounted rates when it comes to obtaining repair and maintenance services.
1. Full commitment
When you decide to be a self-managing landlord, you’re signing up for an abundance of sacrifices. Self-managing can reduce your time for other activities since you’ll be juggling marketing, tenant screening and the demanding task of maintaining the property. Full commitment is required and it’s certainly a harder job for those who dislike routine or have full-time careers.
2. Less updated on economic trends and new laws
Self-management means you have to continually work on being more aware of the latest news affecting the rental industry. However, since you tend to be busy with a multitude of tasks, it can be hard to keep up. This means being delayed with new information you could have used to improve your business. It could also result in disaster when you unintentionally commit a legal infraction out of ignorance.
3. Lack of resources
Property managers can operate using economies of scale, so investing in advanced software costs less for them. On the other hand, as a self-managing landlord, spending money on technology, especially if you’re just starting, has little cost-benefit ratio for you.
It would certainly make your operation more efficient and save your time from doing everything manually. However, it can require considerable upfront expense.
Property Management: Cons
1. Less prioritization
A property manager handling several properties won’t pay special attention to your rental investment. If the team is small, they may especially focus on properties that signed up for higher tier management plans. However, if not, they’ll naturally concentrate on those that require more attention. If yours is an average property, service may be mediocre.
2. Non-transparency and incompetence
You can’t choose who will be handling your rental unit, so this can be a hit or miss. If your property happened to be assigned to an experienced staff, then that’s great news. Still, we can’t discount the possibility of your property landing on an incompetent or unethical property manager. This could mean more problems and stress since you’ll constantly feel uneasy and find the service lacking.
Depending on the property management company you choose, the monthly cost may be substantial. On top of maintenance expenses, you might be paying for other additional charges.
Hopefully, you won’t be subjected to hidden fees. This depends on the price structure of the company though. Some won’t take money without results and some will ask for a reasonable flat fee.
Now, you’ve seen both sides of the equation. Depending on your personal circumstances, you’ll choose one that will be more convenient for you. All in all, hiring a property management company means that there will be less room for errors. Overall, if you want to experience less risk, then it’s better to turn to experienced professionals when it comes to managing your real estate investment.