This is a post for people just starting out. They might be an accidental landlord, like me. Or, they might be buying their first rental. Either way, they often have a decision to make: hire a property manager and pay 8% of the rent or do it themselves and answer the clogged toilet calls in the middle of the night.
Unfortunately, I don’t have an answer for you, but I have done it both ways, and do have some insights. Read on and decide for yourself.
Self-Managing
Pros
- Save money. It costs less to do it yourself.
- Learn. You will get some great experience in building policies and procedures, bookkeeping, tenant relations, leasing, dealing with contractors, etc. Having done this helps you in the future, when you are hiring these parts and can know if they are giving you a good deal or not.
Cons
- It takes time. You are trading your time for money. Self managing is a lot of work. It does scale, though. The 10th property is a lot easier to manage when you are doing 9 others, versus the huge amount of work starting that first one.
- Tenants and Toilets. You will have to deal with both. Make sure you have policies and procedures in place. Read Landlording on Autopilot by Mike Butler to help you.
- Easy to lose the forest for the trees. You can spend all your time managing and working in the business instead of working on the business and growing it.
Third Party Management
Pros
- Professionals. These guys do it as a business and it is all they do. A good manager knows what they are doing and can make the place run smoothly with minimum owner intervention.
- Free time. They free you up to do what you are supposed to: manage your assets. Buy new properties and sell old properties. That’s where the real money is – not the rent income.
Cons
- Less Control. The manager makes a lot of the decisions for you. True, you can set this up how you want it, but you won’t be picking the color of the curtains or negotiating for the best deals on flooring.
- Less Personal Deals. When you DIY the management you can get volume discounts at certain dealers, which benefits you. You won’t have this with a property manager.
- Expensive. Property management is expensive. Depending on your agreement, it can be 6-12% of the gross rents received (that’s before expenses).
It’s true that the cost is a lot. For me, with over 350 doors, I can’t take the time to self-manage. Property management is just another line item expense, and I never have to deal with a tenant in the middle of the night. I’ve plungered my last toilet, thank you very much. I hope you get there some day yourself.
