Again, it's been a while since I've written anything. Rachel and I are in the throws of wedding planning, which is very time consuming (our date is just a little over 2 months away from writing this). And we're in the process of purchasing a new home, so that's been a whirl-wind. I'll be more disciplined about creating content once our lives go back to normal. I PROMISE!
Todays post will be about the pros and cons of hiring out management for your rentals properties. I know a lot of people that struggle with this (and I'm one of them). I largely wrote this post for myself so that I'll see it later and it will motivate me to outsource managing my rentals. As I prepare to purchase our new house, I converted our previous house to a rental. I now have 3 rentals. All of which I self-manage. I don't mind doing so for now and my reason for doing so is to save the 5-10% fee in order to pay them off quicker. At the moment, I can handle managing my properties. I'm very careful when screening my tenants and in doing so, I'm able to choose very trustworthy and dependable tenants. That certainly makes my life easier and it's what makes self-managing possible for me. The reason I even own rentals is because I HATE the stress of not knowing when my next paycheck will come from brokering real estate and the dependability of rent checks is relieving. It's usually feast or famine in sales and I often broker properties that require a ton of work for very little reward (REOs, mostly). I don't think I'll ever turn down a client or transaction due to the size of the check, but there are many times that I spend 10x as much time and energy on a 50k HUD foreclosure than I do on a 500k traditional sale. My primary focus with rentals is to get a few properties free and clear (mortgage free) in order to cover my base living costs. Then I won't be nearly as anxious about brokering or profit from flips. I'm sure my goals with rental income will change further down the road, but that's my primary focus with rentals at the moment. My two smaller rental should be paid off in about 6 years. My third and most recent is a 30 year fixed mortgage, but I will be accelerating that mortgage in order to get that property paid off after the first two are mortgage free. Between those three, I should be able to cover my basic costs of living and that's the power of rentals. I am most certainly going to be purchasing as many as I can as often as I can, but that will depend on my ability to save up funds for down payments. Because I'm so focused on paying the off ASAP, I self-manage in order to apply as much cash flow as possible towards paying those off. However, now that I have three, I'm getting closer and closer to outsourcing these properties out of necessity. If I don't do it soon, I'm sure I will find myself in a situation wishing I had already done so.
So, the crux of this post is going to be discussing 5 reasons that you should hire out the management. And a couple of cons- for balance. This article is inspired by a recent post on BiggerPockets by Dave Van Horn entitled "6 Advantages to Hiring a Property Manager (& Why I Wish I Did Sooner)". The article says 6 advantages, but there are only 5... There are, however, a couple of short disadvantages to add to the bottom of the list.
- Affordability - Most people think that a property manager is going to cost a fortune. That's not the case. Like most other jobs, technology has made managing properties much easier than it was in the past. Things like showings, marketing and rent payments can be done with much less effort than before. The industry standard is still 10% gross rents, but most managers are competitive and you can find folks out there that can do 8% and even 5% with limited responsibilities. However, the amount of time that these folks save you are actually priceless from an entrepreneurial point of view.
- Services - Property Managers' jobs are to systemize each home. They provide a pantheon of services that make each property function like it's own little business. They have systems for collecting rent, making repairs, bookkeeping, marketing, etc. Each and every one of these services make your life easier and provides you ease and convenience.
- Legal Matters - Most property managers assume most, if not all of the legal responsibilities associated with rental properties. As the owner, you have a contract with the PM that they will provide a variety of services. They, in turn, sign the rental agreement with the tenant. The tenants is technically bound to the PM as far as the agreement is concern. The PM is responsible for collections, evictions, most liability issues, etc. Of course, the property still must be acceptable and it is your responsibility as the homeowner to provide safe and comfortable housing. And further, each and every relationship with a PM can be different. The beauty of the contractual relationship between homeowner and PM is that the contract is an agreement and the responsibilities and duties of each party can be negotiated.
- Compliance - The PM and company that they work for are responsible for following the law. Each state has different licensing laws, but a PM must be licensed by the local real estate commission (whether they work for a PM-in-charge or they manage under a broker-in-charge), which means that they are licensed and legally obligated to comply with local, state and Federal legislation concerning tenancy and landlording. Because of this, they are careful to be certain that they do their jobs correctly, which benefits you as the homeowner.
- Showings - If you've ever been a landlord, you know that one of the most stressful parts of renting out a property is hunting for new tenants. I have personally experienced how frustrating it is to schedule showings with folks when marketing a rental. Because of the internet, you can get 1,000 eyes on your listing overnight. You will receive so many emails, texts and calls about available rentals (especially in a place like Charleston) that your head will spin. Of course, most of these folks will want to see the property. It is very difficult trying to personally schedule showings with 15 different people. On numerous occasions, I've waited and waited for someone who never showed. That's a waste of valuable time. What I often do now is schedule blocks of times and have everyone come at that same time. This works quite well. There are exceptions to this. My most recent rental is in a gated community, so I had to schedule a time with each lead and call in a pass for them to visit. There was no way I could do the time block method there. However, you don't have to worry about any of that if you hire a PM! They will do this for you. Not to mention that they market the property in the first place.
- Cost - Again, this is one of my hang-ups with immediately hiring out the management. I do not mind at all to pay someone a nominal cut of my rents in order to free up all that time and energy. However, I am hesitant to do so until I am able to get at least one of my properties paid off ASAP. But, I have a sneaking suspicion that I'll definitely do so in 2018. Honestly, the price is very minor in comparison to the amount of time, energy and hassle you will save. If you only have 1 or 2 rentals and they are located near you, then I can totally understand self-managing, but at some point, you will likely find that it is much easier to hire a pro.
- Control - I know a lot of landlords who are DIY warriors. I'm one myself. I like to repair things and know what's going on with my properties. Most people have to work very hard in order to start their rental portfolio and they are nervous to surrender all control to a PM. Many landlords are worried that their properties will suffer from deferred maintenance, shotty repairs or poor quality tenants if they let someone else handle the home. While this is all possible, you just have to be certain to find a capable and professional PM who will quell these concerns.
That's all for today. I'll have an update on my downtown rehab coming pretty soon. We're hoping to be just a couple of weeks out from there!
As always, remember me if you're interested in buying or selling residential, commercial or investment real estate in the Charleston area!