Property investors and small business owners are alike in the sense that they believe they can manage everything on their own. Sure, it’s possible, but is it the best use of time? What are the pros and cons of self-managing? What other projects or priorities can you be focusing on instead? If you’re wondering whether you should manage your own rental properties or seek professional help, here are some key questions to consider.
What goes into managing properties?
Property management is a lot more work than one might think, especially for a first-time investor. And for investors who are looking to grow their portfolios – is the amount of work required to self-manage sustainable at scale? Before you can answer, let’s assess what actually goes into managing rental properties:
- Vacancies – It can take days or even weeks to fill units between resident turnover or when acquiring new properties. You have to advertise the listing, respond to interested prospects, coordinate showings, and follow up on next steps.
- Leasing – The leasing process can get rather extensive as well. First, you’ve got to make sure you have all the right paperwork, and that your rental agreements contain the right legal language to stay compliant and protect your assets. Then, you have to organize the key exchange and provide welcome notices. And of course, you must inform residents of available resources and how to reach you in the case of any building issues.
- R&M – When the need for repair and maintenance arises, you not only have to source the right technicians, you also have to coordinate a date and time with residents to schedule the repair and follow up to ensure the job was done well.
- Evictions – These can get ugly and may require some legal intervention. If it does end up getting to that point, it can get quite pricey too.
- Compliance – Staying up-to-date with compliance laws can be a tough job in and of itself. There’s a lot to brush up on with local and state legislation, and not just on the property owner side either. It’s critical to understand regulations that pertain to residents as well, so you safeguard your investments and avoid any fees or penalties.
Do you have the time?
When you think about the finite amount of time you have in your day, how do you assign value to each hour? When you start thinking about what your time is worth, it’s amazing how much clarity you gain on how to best utilize your day.
The sheer number of hours that go into every aspect of property management essentially amounts to a full-time job. It really depends on whether you are regarding property management as your profession, or if it’s meant to be a means of building wealth in a more passive way.
Does it make sense?
When you think about your top skills or where your expertise lies, is property management a part of that picture? The art of property management requires professional undertaking. Amateurs can be successful, but it takes a specialist to understand how to scale services and maximize return on investment. On top of that, it’s necessary to be well-versed in local and state legislation and have relationships with attorneys to avoid fees and unnecessary legal battles should they ever materialize.
Additionally, do you have connections to trusted vendors to ensure quality completion of R&M jobs and resolve resident requests quickly? Although it’s not absolutely critical to have these relationships, it certainly makes the business of managing properties far more efficient, and friendlier on your wallet to boot.
What’s the better alternative?
Think about this: How would your life change if you never had to worry about managing your own properties again? Property management professionals do this for a living for a reason.Working with a team of professionals who know how to operate skillfully in your particular geolocation can increase your return in ways you never thought possible.
You’ve heard the familiar proverb “time is money,” but what does that actually mean? Have you ever stopped to think about what the actual price of your time is? When you start assigning a dollar value to each hour of your day, you gain a ton of clarity on exactly how much your time is worth, and you may start thinking more about how your time is spent. As a rental property owner, what is the cost of your time?
Clocking in for Cash
Property management is a full-time job – and a tough one at that. Without good management, even the best properties can end up dropping in value. When you consider everything that goes into managing your own properties, assess how much time needs to be allocated to finding and screening tenants, maintaining and repairing units regularly, getting familiar with East Bay compliance laws, and resolving tenant issues. And once you start thinking about scale, be careful about spreading yourself too thin. If you compromise the level of attention you pay to acquiring the right kinds of properties and getting them in top shape for renters, what you’re really compromising is the potential to maximize profits.
Additionally, if you’re finding it fruitful to maintain just a couple of properties, and are not necessarily keen on building your portfolio, it’s still imperative to know exactly how your hours are spent. It’ll give you a better understanding of your overall capacity, which may allow you to explore other opportunities to build high net worth.
By the Numbers: An Analysis
So, how does this all play out? Let’s use a nice, round number and say your “billable” rate is $50/hour. We’ll say it took you an hour to take pictures, record a video walk-through, and list the unit on East Bay property rental sites. On top of that, a total of 14 hours across three days to respond to multiple prospects, coordinate with them to show the unit, get the lease signed, and go over leasing terms and paperwork with the new resident. Mind you,15 total hours – or $750 – to complete all of this is nothing short of a miracle.
You can assume a typical property management company in East Bay would do this for about $900. It would also cost a few hundred bucks to take pictures and market the property, which means there’s a potential to perform all of these tasks at cost. That is, if we’re assuming this is how you want to spend your time and that you work like a machine. But, if you would rather focus on your primary job, spend time with family, or travel, why do the things a property manager can probably do better?I
t’s also important to consider the potential risks. Do you have a process for selecting your resident? Do you abide by Fair Housing? Do you even know what Fair Housing is? There are lots of major risks associated with selecting your residents – physical property damage, consistent late payments, messy evictions, etc. Is the risk worth the reward?
The Challenges of Self-Managing Rental Property
Most property investors will, at some point, take a stab at self-managing. It’s true that there are some perks to managing your own properties. You can get some hands-on experience, you don’t have to pay anyone to perform the everyday tasks associated with this business, and you have more “control” over how your properties are managed. But, how is “control” defined?
For some, it might mean being across every single detail and dealing with every step of the process yourself. For others, it simply means having full transparency of the interactions that are being had with residents as well as R&M services, knowing how your properties are performing at any given time, and being well-informed. The “control” is perceived through easy access to information and the ability to remain seated in the decision-maker’s chair.
Regardless, the advantages that come with self-managing a feasible number of properties can leave owners feeling like this “job” is completely sustainable – and “free.” Others may feel the daily frustrations of managing multiple rental properties and decide to hire some additional help.
Handling Resident Relations and Concerns While Self-Managing Property
However, the pain points that are commonly felt by investors who are self-managing an ever-growing portfolio of properties easily outweigh the perks. As a self-manager, you’d have to deal with every single resident’s grievances – everything from addressing disputes between tenants to more serious issues like being told there are rodent droppings in your unit’s kitchen cabinets. You don’t have time to mitigate tenant discrepancies.
Nor do you want to deal with finding and hiring expensive exterminators to rid your unit of pests, and wonder afterwards if they even did a good job. Not to mention handling messy evictions, staying on top of East Bay compliance laws for every city and county you own property, managing requests for rent payment extensions. Shall I go on?
Ultimately, what makes sense to one property owner may not apply to another. Whether you decide to delegate managing your properties to experts or take it on yourself as a full-time job, evaluate what options would benefit you most when it comes to property management. You’ll have to calculate the hours spent and then ask yourself again – is it worth it? Remember, it is very common for those that self-manage to view property management as a “free” responsibility. Hopefully you are gaining a better understanding that property management is not free of cost, because your time is valuable and can be used in many different ways.
Down to the Bottom Line
What’s your real bottom line after calculating all the labor you’ve put in? As a thoughtful investor, you know the importance of tracking your time on all property management and real estate-related activities. You’ll soon realize that as you gain more experience as a property owner and your approach to property management gets more sophisticated, delegating responsibilities will create more efficiencies at scale. This is especially important if you’re planning to further develop your investment portfolio, or if you’re already doing so. The reality is that savvy investors tend to build “teams” of people and companies that do portions of the work, which allows the owner/investor to maximize their time and value.
Whether you own a property in Oakland, San Diego, Phoenix, Seattle, Charlotte, Orlando, or anywhere in between, working with a local property management company can actually improve your bottom line. Property management companies typically have existing relationships with R&M service providers, which means they’re able to access those services for a better price and with a higher degree of responsiveness. You can also avoid fees associated with non-compliance issues, and save hours upon hours appointing a trusted team to manage and fill vacant units. Time really is a precious commodity, especially when you’re serious about building wealth in the most efficient ways possible.