Use a Property Manager for Rentals?So you’ve decided that real estate might be one of the routes you are going to take  to move closer to financial freedom?  Maybe you’re very handy and maybe you’re not, but inevitably a question that is likely to come up is that of hiring a property manager.  Now the question becomes…

Is a property manager worth the money?

I currently have one rental house that I’ve owned since 2003 and started renting out in 2009.  I bought it with the intent of fixing it up and renting it out.  My wife and I lived there for a few years and I learned that I’m really not as good at fixing things as I need to be!  Luckily for me, I have a good friend who is extremely skilled in that area and helped me quite a bit.  Unlucky for us, the house is a century home and nothing proved to be standard.  Even the smallest projects turned out to be a huge ordeal.

Regardless, we got the house fixed up and we soon moved out and were ready to rent it out.  Now came the decision of whether to handle everything ourselves or hire a property manager.

Property Manager Costs

As far as money is concerned, property management companies generally charge between 5 and 10 percent of rent, plus additional fees for interviewing new tenants, going to court for evictions, etc.  So the more you charge for rent, the more that property management company will make.  If you’re charging $1,000 for rent like in our previous example on using Other People’s Money, you’re looking at losing about $100 every month.  That’s $1,200 a year right off the bottom line – and that doesn’t even include the other fees as well as any repairs that need to be made!

Benefits of Property Managers

Ok, so a property manager isn’t going to be cheap, but let’s talk about some of the things you get for your money…

  • Reduced headaches – A property manager takes all those phone calls at 2am when the hot water tank breaks or whatever the problem happens to be.  They also handle going after the tenants for rent, interviewing new applicants, and more.
  • Better tenants – This won’t always be the case, but with experience generally comes wisdom.  A property management company that has been around and knows what they’re doing.  They can go through tons of applications and know what to look for and the red flags to be leery of.
  • On time rent – It’s hard to always be the tough guy on collecting rent because it’s natural for people’s to try to help others when they need it.  However, a management company takes you out the picture and they handle making sure that the rent is always paid on time or they start the ticker on the eviction process if needed.
  • Lower costs for repairs – Property managers generally have a pool of contractors that offer them good pricing – it’s in their best interest of the contractors to keep them happy to go after the repeat business.  The property management company is also going to stick with the repair companies that do the best work.
  • Freedom to move or go out-of-town – A property manager doesn’t care if you live next door to your rental property or if you’re 2,000 miles away.
  • Anonymity – It’s nice to have a degree of separation from your tenants – business decisions can be made without an emotional weigh-in.  This isn’t to say that you shouldn’t be taking care of your tenants (because you absolutely need to do that!), but it’s easier to make decisions without feeling guilty when you don’t have a relationship with them.
  • Communication – All property management companies should have an emergency number that tenants are able to call 24/7.  This is important because you want tenants to feel at ease knowing that someone is always able to take care of them if problems arise at 3am… it’s also wonderful when that person is not you.

These are just some of the important functions that a good property manager can help you out with.

So, is a property manager worth the money?

The answer is that it absolutely depends on your situation.

If you have the time (maybe you’re already retired) and you’re a hands-on kind of guy or gal, then you might want to consider if the benefits of a property manager are worth the cost for you.  Another option is a hybrid approach…

If you enjoy fixing things, but don’t want to deal with the administrative stuff (interviewing potential tenants, collecting rent, etc.), you can hire a property manager for those tasks and have them call you to handle all the maintenance tasks.

On the flip side, if you’re not real handy, but want to keep a close eye on the finances and the administrative jobs, think about handling it yourself.  When you need something fixed, you can always start making phone calls to bring in a company that specializes in fixing the problem.  Or you can find a handyman that you start to lean on for most of the tasks that need taken care of.

If you do decide to hire a property management company, be sure to interview them to determine if they are the right company for you.  Here are a couple sites with examples of the questions you’ll want to ask:

I’ve had a property management company with me from the day I decided to rent out the house and there’s not one day that I’ve regretted it.  To me, the cost is well worth it.  I’m making very little right now on the property every month, but like I discussed in an earlier post, I’ve got my eye on the future more than the here and now.  The tenants are paying off the mortgage for me slowly but surely and eventually the rewards will be great.

Also, one of the worst things that you can have for your rental is no tenants.  When your property sits empty, you still have to make that mortgage payment yourself which definitely hurts.  So, to me, having a solid property manager vetting all potential applicants if worth the money in itself if they find tenants who stick around.

I’ve never met my tenants, but I drive by the house periodically and see that they keep up on the yard work,  keep everything in order, and treat the house as their home, which is all you can ask.  My tenants have been there since 2009 and have never had a late rent payment.  I might be extremely lucky or my property manager did an extremely good job of ensuring that I have great tenants in the house.

Either way I’m satisfied to sit back and collect the rent check… minus the property management fees.

Thanks for listening!

— Jim

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Is a Property Manager Worth the Money?

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