Perhaps the biggest concern to have after purchasing a rental property is how it will be managed. This makes sense since real estate property management covers many aspects vital to the success of an investment property. So, what exactly are these functions?
What Exactly Is Real Estate Property Management?
Real estate property management includes everything and anything related to running a rental property. Of course, this incorporates a wide range of functions. They can be grouped into four general categories.
Having a system of finding tenants, filling out paperwork, and showing the rental property will ensure consistent occupancy. Finding tenants is such an important task, as landing a bad tenant can seriously impact your cash flow and property. Good tenants are what you want, so spend your time finding them. The best way to do this is to have a well-executed and meticulous screening and application process.
Once a tenant has taken residence, the landlord/property manager must ensure rent is received. Typically, rent is paid online, although checks are also commonly used to pay rent. While the method of payment is important, it is much more significant to ensure that rent is paid on time.
Following the law is an absolute necessity for real estate property management. As the landlord, you must be aware of laws, such as zoning laws, that may restrict your ability to rent out. You also need to acquire the proper documents, which can include standard business permits or other special requirements. Landlords must also know eviction laws, in the rare chance they must evict a tenant. And finally, landlords need to be aware of their tax rules and the responsibilities for their income properties.
Another key aspect of real estate property management is upkeeping the rental property. This includes repairs, renovations, and any additions to the property. Have contacts, like handymen, whenever the property needs a change.
Now that you know what real estate property management is all about, it’s time to ask: Should you self-manage your investment properties or should you hire a professional management company? To help you find an answer, we will compare these two property management methods.
Managing Properties by Yourself
The most obvious advantage self-management has over professional management is the ability to save money. Management costs for an average rental property are usually around 3-5% of the rental income. Using professional property management, on the other hand, can gobble up 10% of your rental income. Some companies even ask for the entire first month’s rent for new tenants!
Not all the benefits of self-managing a rental are financial. One is a meaningful intangible: experience. Whether or not you plan to self-manage your investment properties, it is vital to understand the basics of property management. And there’s no better way to do that than by taking part in this management. Not only that, but having experienced the ins and outs of real estate property management will help you evaluate a management company if you decide to hire one.
Another intangible you gain by self-managing is full control over your properties. You don’t need to rely on anyone or double check one’s work. This also adds on to the previous point of gaining experience. Having more responsibility towards your rental will help you in the future if you invest in more income properties.
Hiring Professional Property Management
Self-managing your investment properties can save you money, but hiring professional property management will save time. The extra costs of professional real estate property management can be worth it if you have enough money available. The extra time you get can allow you to invest in multiple properties, expanding your real estate investment portfolio, and increasing your rental yield.
Not only will professional property management save you time, it will also save headaches. Much of the stress in the real estate investing business arises from management duties. To have these obligations taken care of by a company will reduce your overall workload and stress.
A lot of management duties take some experience and skill to perfect. With professional property management, you get help from, well, professionals! This professional help will facilitate all management facets. For instance, real estate investors fill vacancies faster with the help of company management. That’s not all, management companies tend to find the best tenants available, with the help of their detailed screenings and applications. Professional real estate property management is also very beneficial when it comes to the legal aspects of property management. Overall, professional property management will help with anything related to management, at high and accurate levels.
To Manage on Your Own or to Hire Property Management…
So, you know both types of real estate property management, but which one should you commit to? The answer is not that crystal-clear, unfortunately. However, you can decide how you want your management depending on your goals and your type of investment.
Using professional property management can work whether you plan on investing full-time or part-time. However, if you were to hire property management, it would be wiser to do so while investing full-time. The perfect example is of a real estate investor with multi family properties, like an apartment building. In this case, the property manager is responsible for all the units. And since multi family properties generate high cash flow, the costs of professional property management become tolerable.
Single-family properties are also suitable for professional property management. The difference is, however, that an individual SFR may not generate as much as a multi family property, and thus the costs of professional management take a harder hit. In this case, self-managing would be the better investment decision. If you have multiple SFRs, however, professional management could work out.
If your investment is an Airbnb property, you could also opt for self-managing. Airbnb investments can be very flexible, from the perfect passive investment to a full-time commitment. A passive Airbnb investment could warrant self-management. An active one could use either type of management.
Having a single property does not mean you cannot use professional property management. All it means it that the cost may be more impactful than you expect. To prevent this, save up some extra cash before you invest in a property. This reserve could be used to pay off professional management costs, at least for the beginning of the investment.
So, to answer the title of this blog: Should investors do their own real estate property management? The answer will depend on the investor, but it is certainly possible to self-manage rental properties. However, self-management is more applicable when a real estate investor has a single income property, especially if it is a passive investment.
For more on management and other important features of rental properties, head over to Mashvisor.