Great rental property management is one factor for successful real estate investing. However, do property investors necessarily need a professional management company for their investment properties?
Professional rental property management offers a number of services to property investors including filling vacancies, tending to tenants, collecting rent, maintaining and advertising an investment property, among others. In short, they handle the tasks that property investors dread. However, while these companies make your life as a real estate investor easier, you don’t always need them to achieve great rental property management. Let’s have a look at when you should overlook the services of professional rental property management.
#1 Professional Rental Property Management Fees
The first thing to keep in mind before working with a professional management company is that they are going to cost you. A typical professional management company takes the first month’s rent as a flat fee and then charges property investors anywhere from 4% to 12% of the monthly rental income. Not every real estate investor can afford this.
Besides the monthly fees that professional rental property management requires, property investors also pay for different expenses whenever they need new tenants. A real estate investor has to pay for services like advertising the investment property, showing it to potential tenants, finding and screening new tenants, and sometimes even a bonus fee of a few hundred dollars for finding a tenant. In some cases, this can amount to 50% or even a full first month’s rental income from new tenants.
This means that a real estate investor who’s relying on professional rental property management will have a lower cash on cash return. Cash on cash return becomes lower when your rental expenses become higher, and professional management fees are included in those rental expenses.
The capitalization rate (cap rate) of investment properties will also be less when professional rental property management becomes one of your rental expenses. As a real estate investor, your aim is to get the highest cap rate and cash on cash return from an investment property in order to see the best return on investment.
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#2 You Own a Single Investment Property
If you’re a beginner real estate investor, chances are you only own a single investment property consisting of one or two units. If that’s the case, then you are totally capable of managing your investment property on your own! In addition, if you have some experience in the real estate investing business, then rental property management by yourself is not too much of a hassle.
Real estate is learning by doing, so with time, rental property management becomes second nature to property investors. However, owning and managing multiple investment properties is another story. In this case, management becomes a much more challenging task and requires much more time and energy from a real estate investor. As a result, the best thing to do is to hire a professional rental property management company.
#3 Your Investment Property Is Near You
When buying an investment property, property investors always look for the best location that will give them a great return on investment. A lot of the time, these investment properties are near you. If you live a short drive away from your investment property, then you will have no trouble being on site to manage everything. Thus, you won’t have any need for professional rental property management. It won’t be hard to find tenants, cater to their complaints and needs, collect rent, and oversee any repairs.
Sometimes, property investors don’t find any good investment properties near them and turn to out-of-state real estate investing. If this is the case with you, then rental property management on your own becomes almost impossible due to the long distances. Therefore, it’s definitely worth the money for property investors owning investment properties out-of-state to hire professional rental property management and have peace of mind when it comes to their investment.
#4 You Have the Experience
If you’re already a real estate investor and you’ve been handling your rental property management on your own for some time, then you absolutely don’t need to rely on the experience and services of a professional management company. You already know how everything works, how to deal with your tenants, and have no problem managing your finances and cash flow. Is professional rental property management really necessary for successful real estate investing? We think not.
#5 You Are Willing to Learn
Just because experienced property investors should overlook the services of a professional management company, that doesn’t mean beginner property investors must consider them. A lot of beginners in the real estate investing business are willing to learn about the market and what it takes to become a successful real estate investor, including how to handle rental property management.
As we said, real estate is learning by doing. Nonetheless, there are sources (books, blogs, forums) for an aspiring real estate investor to learn all about rental property management before buying an investment property. Moreover, you can approach a real estate investor who manages his/her own investment property to be your mentor. If you approach things in the correct way and take the time to learn about rental property management, you’ll gain a skill that can set you apart from other property investors.
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Final Thoughts on Professional Rental Property Management
No one can deny that a professional management company has its benefits. However, hiring one is not cheap and sometimes not even worth it. If the above reasons apply to you as a real estate investor, then we have faith that you can handle your rental property management on your own.
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