You’ve taken the steps to build a real estate portfolio. You’ve built processes and are successfully running them yourself. Congratulations! But you can’t help but worry that you’ll be spread too thin on the next purchase and it’s holding you back. When should you pull the trigger on hiring a property manger?
What Does a Property Manger Do?
Property Managers run the day-to-day operations of your rentals. They interface with tenants for leasing, turnovers, and repairs. They interface with the owner for financials and big decisions. They take a lot of work off the plate of the owners for a fee.
What Does a Property Manager Cost?
PMs will charge from 4% to 10% of the gross receipts. This is the income coming in from rent before expenses. This amount often seems huge to people contemplating hiring their first PM. It is a lot of money, and you’ll have to think hard about it first.
The lowest price will be bare-bones or very large multifamily. Bare-bones often comes with a bunch of fees such as lease-up fees and turnover fees. The fees can eat into the profits and are difficult to calculate in advance. Large multifamily has a big economy of scale and requires less payment as a total percentage. Middle percentages such as 6-8% are typical and what I shoot for. The highest rates should be niche or turn-key, where they handle almost everything, possibly even bookkeeping (but that is often handled by another third party). If you are paying 10% expect a high level of service and responsiveness.
How to Find a Property Manager
Interviews. These are a pain. Try to get referrals from colleagues you network with. You’ll want to first talk with the PM over the phone and then meet with them. You need to tour some properties they are currently managing. You want to make sure they are personable and keep nice properties. Ask questions about how they handle certain difficult situations. Ask to see their policy manual (make sure they have one).
When to Hire a Property Manager
There are a few different philosophies of this so I’ll give you each of them. If any one applies to you, then you probably should hire a manager.
- Gut Feeling. If you are finding that you spend most of your work time managing tenants and policies, going to properties, and even doing repairs, you might want to get a PM. When this happens, you’ll stunt your acquisitions and your long term growth.
- Unit Number. Once you get over 50 doors (individual apartment or house units) you often will want a PM. This rule is flexible and some properties require more or less hands-on work. If your properties are more spread out, this number is less, and vise versa.
- Income. If your income supports the property manger fees, think about getting a PM. Every one of us worries that the loss of income slows us down, but believe me, it’s not the money, it’s the time lost when self-managing.
What’s the Lowest Amount to Get a PM?
Great question. You’re looking to move ahead quickly. This one will be dependent on the PM. It takes a lot of overhead to work with a new landlord, so most PMs will have a minimum of units and locations. They don’t want to travel 30 minutes to deal with one single-family home you have. If you have 8 doors within 10 minutes drive, then a PM will probably work with you. This is variable so ask early in your deliberations.
The Bottom Line
Hire a Property Manager sooner rather than later. When you have that first thought that you might need one, start interviewing. You’ll thank me later.
