The all-important learning curve…
When you’re just starting out acquiring investment property, it’s a good idea to attempt to manage your own units. There’s no better learning curve than to make mistakes on your own properties. It’s not to say “will mistakes occur,” it’s “when will they occcur.” And if you have a single family or duplex, or even a three or four unit building, you should find self-management to be pretty straightforward. Now, you may not have the right temperament for such an endeavor, but you should let your experiences in the real world of landlording help guide you to any future decisions as to how best to answer the question, “when should I hire a property manager?” You may find that dealing with tenants is just not your forte…and so your decision-making as to when to hire a property manager will become easier and easier.
Property management takes a certain skill set
Rental property management is an acquired set of skills. And I would dissuade any novice investor from hiring a property management firm right after the purchase of their first investment property. It really is best for you to better understand the rigors that come with managing your own properties. And in the process, you will develop a finer appreciation for the sheer amount of work and expertise required of the job. Even with property management software readily available online, it’s still going to be a learning experience for you. And this experience will only help serve you in good stead as you move forward, and purchase your next investment property. You’ll know from limited experience how demanding property management can be – and time consuming as well. You may find that it will be much smarter for you to hire a property manager as you grow your investment property empire. By doing so, the extra cost for their services should be outweighed by your time costs, as a property management company will aid in providing you more time to search for new property acquisitions.
Why hire a property manager?
I’ve written here on several occasions about the time commitment property managing represents. In prior articles, I’ve noted that you should not underestimate the time commitment required to do a proper job. You’ll have to place ads for potential tenants, show the units, screen prospective tenants, and choose them. And repeat the process each time a tenant leaves. Or worse, if you chose a tenant poorly, and they end up not paying their rent in a timely manner, or at all, you’ll have to go through the time and major expense of evicting them. In addition, you’ll have to make regular visits to the property to make sure the grounds look in proper order, ensure operating systems are in good order, no new dangers have arisen on the property (for example, loose steps or broken walkways ( a major source of lawsuits by tenants against landlords), all common area lighting is working, etc.
Rent collections and tenant selection
I’ve also mentioned in past articles about property managing that you will also be responsible for collecting rents. If you’ve chosen tenants well, no problem. If you haven’t – big problem. After all, this is a business you’re running, and it needs to be humming along, or else you’ll have cash flow problems paying your expenses. As part of your job as your own property manager, you’ll also want to stay in regular (at least once a month) contact with your tenants. Many times, tenants will not tell you about “small” problems they’ve been having with your property – until it’s a big problem. By being pro-active, you can scope out these problems when they are indeed small. So, for example, you can ask each tenant each month if there are any issues you should be aware of – for example, any small leaks going on in the unit, any bug problems they’re seeing, any safety-related issues (say, a constant flickering light that would indicate a potential electrical wiring fire hazard). By asking you’ll stay way ahead of the curve – and be able to jump on any potentially big problems when they’re still small – and easily (and cheaply) corrected!
Property manager fees
If you decide to use a managing agent, know that their fee (usually between 10 and 15% of rents) is yet another expense to be crunched to see if it makes sense for your situation. Clearly, it will reduce your positive cash flow on each of your buildings. However, as mentioned earlier, using one will free you up to continue building your real estate empire…And your time will be better utilized to create more wealth. In this way utilizing the services of a property management company makes much more sense in helping your business show long term growth.
Photos courtesy of realestate-byowner.net, lifeenrichmentrealty.com, propertymanagementva.com, screenmediadaily.com