I have talked with many investors who have sold all of their properties and moved their money into other asset classes such as stocks or bonds because they think rental properties are way too big of a headache. The scenario is always the same. They made the decision to invest their money, they heard rental properties were good money makers, they purchase a few properties, and then try to manage them on their own.
Pretty soon they are burned out from dealing with tenants. After a few bad experiences and a lot of phone calls from renters, they decide that rental property is way too big of a headache and they sell out. I have heard this at least a handful of times and every time I hear this I always ask “Why didn’t you let a property management company handle your properties?”.
Most of the time I get a response of “well they charge way too much”. In truth, most property management companies charge between 8-10% of gross rent collected for residential properties and 3-5% for commercial. This is a small fee to pay for what you get.
There is a difference between a property manager and a property management company. When you hire a property manager you are hiring an employee. You will have to pay them a salary and pay payroll taxes on them. When you hire a property management company you are simply outsourcing the management to a company. They are not an “employee” of yours.
In most cases I lean towards hiring a company instead of taking on an employee. If you only own a few properties you will definitely only hire a company because you won’t have enough income to support an employee’s salary. At some point, if you get big enough, it may be in your best interest to hire a person whether full-time or part-time.
Here’s the benefits of hiring a property management company when you first start purchasing rentals.
A professional property management company knows the law for landlords and will make sure you are doing everything legal
A professional property management company will know how to most effectively market your properties to achieve a low vacancy rate
They will also know how to get the most rent out of a property since they know the market
They will have a network of contractors to get the best rates for repairs and maintenance on your properties
You can learn from their wealth of knowledge and experience from dealing with rentals
You may decide to manage the properties yourself. Many people do. If that’s what you like and you have the time, there’s certainly nothing wrong with that. But don’t forget you can learn a lot from working with a professional company.
You will want to get references before picking which company to go with. Also, make sure they have their real estate license. You also want a company who specializes in your type of property. For example, you won’t pick the same company for a commercial property as you would a single family home.
The bottom line is if you want to be an investor or do you want to be a landlord. Personally, I don’t want to be a landlord so I use property managers.
By Martin Fisher