One of the biggest questions that you have to ask yourself when you get into real estate investment properties is, at what point should I hire a property manager?
After both personal experience and extensive research on the answer to this question, it really comes down to a few factors. If you only have one or two single-family home rentals, then hiring a property manager probably is not in your best interest, as the cost can outweigh the benefit.
However, you may want to consider hiring a property manager once you reach five or more rental properties, and each one is generating rental revenue.
This tends to be especially true if you are still working a full-time job, live out of the area, or have other commitments that otherwise take your time away from the rental management side of things.
Should I Hire A Property Manager?
There are a few other factors to discuss regarding whether or not you should hire a property manager. These are topics that are largely based on my own personal experience in the property management industry over the past decade.
These are very real challenges and difficulties that one must weigh when considering hiring a property manager, or self-managing your own rental properties.
Let’s review them below.
THE VALUE OF YOUR TIME
There are several simple ways to calculate whether or not managing your own rentals is worth your time, or if you should consider hiring a property manager instead.
One of the ways to determine this is to simply calculate how much your time is worth on a per hour basis doing other work outside of managing your rentals.
For example, if you are earning $50/hour, are you going to earn that same amount of money, or more, managing your own rentals?
If not, you may want to wait until you have enough rental properties in your portfolio before taking that project on. Your time is monetarily more valuable elsewhere.
But not everything is about money.
If managing your own rental gives you more freedom and control of your time, then it may be worth it after all.
However, managing your own rentals can quickly get to be overwhelming. You may find that rather than freeing your time up, instead, it is consuming it.
While there are tools that can help you streamline your rental management business;
Learning how to use rent collection apps takes time.
Responding to leads, finding prospective tenants and touring with potential renters takes time.
Managing the accounting for your rentals takes time.
Preparing reports takes time.
Handling incoming maintenance requests and making sure they get resolved in a timely fashion takes time.
Handling tenant questions and complaints takes time.
If you value your time, you might consider hiring a property management company for your rental properties. You may find that the time for money value exchange is in your favor when you pay a property manager to spend their time managing your rentals.
THE VALUE OF YOUR SANITY
Coming from years of experience working in the property management industry, believe me when I say that it is not for the faint of heart, nor is it for the weak of mind.
Whether it is having to tell a young child who is interpreting for their parents that they are being evicted, finding deceased tenants in your rentals, or dealing with shysters who know how to work the system, managing rentals can take a physical, mental and emotional toll on you.
It is not uncommon for people in the property management industry to be sent home for a day, or to seek out professional counseling.
Believe it or not, in property management, PTSD is a thing and high employee turnover is just part of the territory.
And while I realize that I just painted a very bleak picture — It’s not all bad, and those are some more extreme scenarios.
It is still better to go into it with a firm grasp of reality than to be misled into thinking that managing rental properties is all about lavish vacations, champagne, and caviar.
If you cannot envision yourself being able to handle any of the scenarios above (yes, they all really happened), and you value your sanity, then perhaps you should consider the option whether or not you should hire a property manager.
THE VALUE OF YOUR SLEEP
You laugh, but this is real life.
As a property manager, you are required to abide by certain residential rental laws whether they are local, regional or federal.
That means that if your rental only has one toilet, and it becomes unusable, you may get a phone call at 3:00 AM in the morning that it needs to be fixed.
Same thing with the AC, running water, or heat in the middle of winter.
If the law demands it, there is a good chance that you lose sleep over it.
If you value your sleep, then you may want to hire a property management company instead of managing your own rentals.
THE VALUE OF YOUR PRIVACY
As a property manager, your information is available to your tenants. That is true whether you have five tenants or five hundred tenants.
In my years of managing other people’s rentals, it was rare that the tenants ever knew who the owner was.
It was generally someone relatively difficult to find since properties managed by third-party management companies are often under the ownership of an LLC, or Corp.
If you value your privacy and wish to remain anonymous, then you may want to hire a property manager.
THE VALUE OF LIMITED LIABILITY
The landscape of laws and regulations (for rental property managers and landlords) are constantly changing at an increasingly fast-pace. It can be difficult to keep up with federal, state, and even local ordinances, laws, and other regulatory practices that are involved in managing rental properties.
Property managers and property management companies are often more well-equipped to deal with these changes, and keeping up to date on the necessary education and certifications to stay ahead of the curve.
Fair Housing, Affordable Housing, Livable Dwelling laws, and many more are just the tip of the surface. Missteps in the rental housing industry can be costly. Fines, fees, and even citations are all possible.
Criminal charges are also possible in some cities. For example, in some cities permits are required for just about any improvement you do to the property. If you fail to get the proper permits it could go south pretty quickly. And you would be surprised by what requires a permit - anything beyond "general finishes" requires a permit in some cities.
Then there are laws regarding property reserves, rental applications, security deposit returns, denial letters and a whole lot more.
If you do not want to have to learn an entire industry-worth of laws and regulations, and want to try to remain as limited in your liabilities as possible, then you may want to hire a property management company to manage your renovations, leasing, tenants, deposits, etc.
Hiring a Property Manager Recap
In conclusion, here is a recap of when you might want to hire a property manager, along with a few extra points that were not covered above:
The monetary value of your time is greater than the current revenue of your rental properties.
You do not live near your rental properties or other commitments take your time away from being able to efficiently manage your rentals.
You simply do not have the time to keep up to date on the rental laws, notices, eviction filings, collections, screenings, listings, accounting and everything else that goes into the monthly routine of managing rental properties.
You have more than five rental properties and you are not trying to start a property management company.
You value your sanity, as well as your emotional and physical well-being.
You value your sleep and personal time without worrying about getting time-sensitive emergency maintenance calls.
You value your privacy and would rather operate as an anonymous landlord, not front-facing management.
PROPERTY MANAGER FAQ
How much does it cost to hire a property manager?
The average cost to hire a property manager is approximately 4% - 7%. However, smaller properties and single family home rentals in small portfolios can be as high as 10%. Keep in mind that the rental income is not the only way that Property Managers earn fees. Many PM companies also charge tenants fees directly that are not shared revenue with the owner. The fees add up over time, and the amount of lost revenue from these direct tenant fees could also be considered a "cost".
Is hiring a property manager worth it?
Hiring a property manager is worth it if the time for money exchange is in your favor, and allows you to accomplish both your personal and financial goals.
What does a property manager do?
The role of a property manager changes from property to property, and owner to owner. Generally speaking, a property manager can handle every aspect of your rental management business from leasing, to applications, rent collections, evictions, accounting reporting, and much more.
What is a company that manages rental properties called?
A company whose primary role is to manage rental properties on behalf of rental owners is called a Property Management Company.