Property management is a huge expense for the property. Paying someone to do it can be 6-12% of the total income for long-term rentals. It can be appealing to do that work yourself and pocket the difference. Just what do property mangers do? Is it really that difficult? Let’s deep dive into self-management.
What Do Property Mangers Do?
Property managers can do various functions, including: Bookkeeping, property listings, lease-ups, managing rehabs, general contracting, managing repairs, actually doing repairs, inspections, move-ins, move-outs, lawn-care and snow removal, bill paying, and many more. Many times, they will just be managing vendors, for which the owner ultimately pays.
How Much Can You Save?
Like most DIY projects, you are going to be trading time for money. You need to look at what hiring a manager would cost you and decide if your time is worth it. Generally, the lower cost managers will do less. 10% is going to be full-service and 12% is the Cadillac model. 6% probably will be missing important parts, so 8% is the sweet spot, but it is different depending on your needs.
Self-Managing is About Processes
If you are going to DIY this thing, you need to have processes in place to be efficient. And that means checklists. I’m not always a fan of checklists but when you need to do it the same way every time, they are amazing.
Consider a tenant who is moving out. What are the steps needed to be done? Very simply, they need to move out and have this verified, clean the unit, check for damages, pay back the security deposit, and list the property for a new tenant. Each of these steps has multiple sub steps. The first time you do these, write them down, then it’s easier next time. Better yet, when you decide to offload this work to someone else, you have an easy work procedure for them.
Create Policies
Create and write them down. A good first one is a tenant screening policy. This might have the lowest credit score you will allow, the minimum income allowed, how many derogatories on a credit check allowed, and others. It’s best to generate a big folder of policies and procedures to have handy so you do it the same way and treat people the same way every time.
Make a Preferred Vendor List
Create a list of the vendors you trust and who don’t gouge you. This list should show what you use them for, have contact information, and have a list of what they charge so you can follow how and when their rates increase. When the toilet is leaking, you can easily refer to this list.
Bookkeeping
This is a tough one. It is different from an accountant, though some accountants will do bookkeeping as well. You can outsource just this one if needed. I started by spreadsheeting it and having a different bank account for every property. That was a major pain. Now, my wife does it on Quickbooks. That’s kind of outsourcing, but not really. She’s great at it and doesn’t charge much. Bookkeeping is usually not a service that managers provide on their typical contracts. This will likely be extra.
Get a Solid Lease
Have an attorney write up your first lease. You can then reuse it many times as long as you don’t change any major clauses. Sure, when self-managing, you are usually allowed to write your own lease agreements, but these will be hard to defend in court if it goes there. Pay for an attorney for the first one. It’ll probably cost you a grand.
Keep Bank Accounts Separate
You don’t need a separate account for each property as I did, but you do need separate accounts for operating, reserve, and security deposits. Some states don’t require this, but you really should do it as a best practice.
Do the Work
Actually go to every property at least weekly. Ask the tenants if there are any issues so you can get ahead of problems. Do the repairs in a timely fashion. Change smoke alarms and air filters every 6 months. Do regular inspections. Pay the vendors out right away. That way you can hope to be on their preferred client list. Do not slack on this. Getting lazy is the best way to fail. If you find it is getting too tough, get yourself a property manger. If you did everything I said, it’ll be a smooth transition. Best of luck.
