You got into real estate investing because it was touted as “passive income.” You dreamed of running a low stress side hustle, saving up some cash, and maybe even retiring early one day. But after that first sale went through, you quickly discovered that being a landlord was a lot more hands on that you thought. Tenants are calling you about maintenance issues in the middle of the night, vendors can’t work you into their schedule until next week, and then every year there’s the dreaded renewal conversation, or worse, the tenant decides to move out. You’re at your wits end and you need help. Should you hire a property manager? Is it worth the fees and having someone else literally in your business? The answer to that question depends on several variables: your circumstances, goals, and personality. We’re going to go through all the ends and outs today helping you decide if a property management company is right for you or if you should do it yourself. And then we’ll cover the questions you should be asking a property management company to properly vet them.
On very rare occasions, we all have the experience of things going exactly as we wanted and exactly as we planned. Most of life, however, is rolling with the punches and making the best decision we can, knowing that tomorrow is going to bring new challenges. Maybe your circumstances have changed since you bought your investment properties. Maybe you got a job transfer that requires you to move to another state. Maybe you’ve had a baby, or a loved one received a diagnosis, and you just don’t have the free time you used to. Our circumstances largely dictate what we can manage daily. Ask yourself, can I manage this myself and maintain some semblance of sanity? If you have the capacity to self-manage, that might be the best option for you. Managing your own investment properties can be a wildly fun and challenging ride. Generally speaking, if you live more than 90 miles away and have less than 2-3 hours per week per property to spend, you should consider a professional property management company.
What if, instead of spending less time on your rental property investments, you want to grow your side hustle into a full-fledged career? You’ll need to weigh the opportunity costs of not hiring a property manager. The time you spend handling maintenance requests and screening tenants may be better spent searching for a new investment and making relationships with potential sellers. It depends on how big and how quickly you want to grow.
Finally, ask yourself what your risk tolerance level is, how comfortable you are with conflict, and how much control you want over every decision. If your risk tolerance is high and you don’t mind confrontation, managing your own properties can and will provide you the thrill and a tremendous amount of freedom. The disadvantage of self-management can be the mental and emotional strain that comes with it. Being a landlord can be a very emotional business. For yourself, the property represents a huge financial and mental investment. For a tenant, your property isn’t just a roof and walls, it’s their home. Where emotions run deep, conflict can escalate fast. Those of you who are good with people, are highly driven, and comfortable with direct confrontation will make excellent DIY landlords. If any part of that feels overwhelming, it might be time to start interviewing property management companies. Additionally, if you want to have a say in every decision, review every tenant application, and trouble shoot maintenance issues yourself, a property management company is not for you. A property management company will have it’s own systems and will be subject to more liability than your typical single landlord. Hiring a management company and then attempting to alter their systems and protocols will result in disaster for you both. Bring on a property manager when you are ready to get out of the trenches, and not a moment sooner.
OK, so let’s say you’ve gone through all the ruminating and number crunching and you’ve decided you’re interested in professional property management services. What sort of questions should you be asking them? In addition to all your basics about tenant screening, accounting, and fees, there are a few questions that will give you deeper insight into the company:
- How many doors do you manage? Your instincts might tell you that the more doors a company has, the better. Sometimes this is the case. If you’re a big-time investor with hundreds of doors, larger property management companies might have the systems you need to carry that kind of volume. For the average investor, your best bet is looking for a management company that lines up with your own size. Larger companies cater to larger clients. It’s not personal, it’s good business practice. So, if you are smaller investor, you’re going to be lower on the priority list. On the other end of the spectrum, smaller companies will be in their start-up phase. They are more likely to allow you more control because their systems aren’t as solidified. Obviously, unsolidified systems come with risks, so take that into account as well.
- What perks do you offer tenants? Again, it might seem counter intuitive, but a property management company that understands tenants are their customer base (because they are your customer base) will attract higher-quality tenants that stay longer. This amounts to higher and more stable profits for you.
- Tell them your goals and really pay attention to the answer. How detailed can they get? Can they tell you what comps are renting for in the area? Are they willing to tell you that your goals are unrealistic? In this business, you don’t want a yes man or a salesman. You want someone who knows their stuff and is willing to be honest with you, even if you don’t like hearing what they have to say.
- Ask about their unit turn systems. Unit vacancies are your biggest expense. A good property management company knows this and has developed good systems to make the vacancy process as streamlined and efficient as possible. (I feel compelled to say that, as the owner, you will have a large effect on the length of your own vacancies. The more control you seek to have here, the more back and forth conversations you have with your property manager and their vendors, the longer your vacancy will be. No matter how beautiful a property management company’s procedures are, if you are someone who wants a lot of control and oversight in the unit turn process, it will be more cost effective to manage your own properties.)
If you’re interested in purchasing an investment property, or you’d like to put your current portfolio in expert hands, Neighborhood Realty and Property Management has been one of the top-producing rental property management companies in the Austin area for more than 30 years. We’d love to help you reach new levels of success!