Are you thinking about hiring professional property management to overlook your investment properties? This is something real estate investors have to consider when buying a rental property.
A big part of successful real estate investing comes from great property management, but professional property management isn’t the only way to achieve this: you can do it yourself. There are many reasons that you don’t really need to hire professional property management. Let’s take a look at them.
You Live Close to the Rental Property
When buying a rental property, you always look for the best location that will give you a great return on investment. A lot of the time, these investment properties are in your own backyard. If you do live a short drive away from the investment property, then you will have no trouble being on site to manage everything. You won’t have any need for professional property management. It will be easier to find tenants, cater to their complaints and needs, collect rent, and oversee any repairs. You’ll even be able to handle repairs yourself because you can make it out to the investment property quickly, even if it is an emergency.
You Don’t Own Too Many Investment Properties
Owning and managing rental properties becomes more challenging when you have multiple investment properties. If that is the case, you may turn to professional property management to assist you. However, if you only have one or two investment properties that don’t have too many housing units, you shouldn’t have any trouble managing the rental property yourself.
You Have the Time
Becoming a landlord will no doubt require time and effort. If you have the time for owning and managing your rental properties, then why turn to professional property management? While you may have to hone your time management skills if you have a full-time job, it will be a valuable skill to be able to “do it all.” Remember, once things get settled with your tenants and rental properties, you’ll only need to find about 2-10 hours a month for your investment properties.
You Want Maximum Profits
Professional property management is going to cost you. Most professional property management companies will charge anywhere from 4% to 12% of the monthly rental income. Aside from the monthly fees that professional property management requires, you’ll also end up paying for different expenses whenever you need new tenants: advertising of investment properties, showing the rental properties to tenants, finding and processing new tenants, and sometimes even a bonus fee of a few hundred dollars for finding a tenant. This can amount to 50% or even a full first month of rental income from new tenants.
Related: 6 Better Ways to Spend Rental Income
This means that when taking on professional property management, you’ll have a lower cash on cash return. Cash on cash return becomes lower the higher your rental expenses are, and professional property management has to be included in those rental expenses.
The capitalization rate (cap rate) of your investment properties will also be less when professional property management becomes one of your rental expenses. Your aim when looking for investment properties is to get the highest cap rate and cash on cash return that you can to see the best return on investment.
To make sure you’re getting the best return on investment, use Mashvisor. The investment property calculator can help you calculate cap rate and cash on cash return when you’re considering an investment property and whether or not you want to use professional property management.
You Have the Experience or Are Willing to Learn
If you already have experience in managing rental properties you own or the properties of others, then you absolutely don’t have to rely on the experience of professional property management companies. You will already know how everything works, have valuable contacts, and know how to deal with the issues that come with renal property management. You’ll have no problem combating vacancy, managing good cash flow, and dealing with tenants.
Maybe you don’t have the experience it takes to manage a rental property, but are you willing to learn? There are plenty of resources (books, podcasts, blogs, and forums) out there to get your hands on before you take on the task of rental property management. You can always find a mentor in a real estate investor who manages his/her own properties. You can even enlist the help of a local landlord in times of need without actually hiring professional property management.
Remember, learning from experience can be costly if you just jump in and expect to know everything right away. You’ll make expensive mistakes and regret not turning to professional property management. However, if you approach things in the correct way and take the time to learn how to manage an investment property, you’ll gain a skill that can set you apart from other real estate investors.
You Don’t Want to Be Liable
If you rely on professional property management, you’re opening yourself up to being liable for the mistakes of someone else. A lot of professional property management contracts include a clause called “hold harmless.” This means that if the professional property management company makes certain mistakes, it is not going to be held accountable. Instead, the owner of the investment property is liable even if he/she had nothing to do with the mistake.
While you may be able to dodge this by avoiding professional property management with this kind of contract, there are still mistakes professional property management companies can make that can affect you and your rental property. If the company is choosing bad tenants, you could end up losing money on unpaid rent or property damage. A poorly managed investment property could gain a bad reputation among potential tenants and cause you high vacancy rates. Why not avoid all of this and manage your own rental property?
You Can Try a “Lease Up Only” Contract
One of the first reasons stated for not needing professional property management is that you live close to your investment properties. So, what about when you are buying a rental property out-of-state? You have another option to consider beyond full-time professional property management.
A major issue you’ll find with long-distance property management is finding, screening, and processing good tenants. What you can do is find small property management firms to do this for you. The reason you want to avoid big property management companies or apartment managers is that you’re looking for someone who will agree to your terms: a “lease up only” contract that states that as soon as a tenant is found and signs the lease, their job is done. They get their cut, and you don’t have to sacrifice any more rental income.
You will have to do some research to find these smaller professional property management companies, but it will be worth it. After they’re done, you can introduce yourself to your tenants over the phone and make sure they know what you’re all about. Direct deposit of rent into your account further gets rid of the need for professional property management. You can even get referrals for local handymen from these companies to use in the future when repairs come up. You’ll only have to visit every now and then to ensure that things are running smoothly.
No One Will Care About Your Property as Much as You Do
At the end of the day, this is your investment property. You have the most to gain and the most to lose. Professional property management companies can end up doing the minimum just to get their monthly cut, and that’s it. It’s unlikely anyone will go the extra mile to make your rental property stand out and be successful like you will.
Professional property management has its benefits; no one can deny that. However, it’s not always a necessary expense that you need to be tacking on to the many expenses of real estate investing. Review your situation, and if any of the reasons above apply to you, it might be time to start thinking about becoming a landlord yourself.