In most cases, people tend to purchase real estate on purpose. It's often something that someone spends years preparing to do.
But life likes to throw curve-balls every now and then, and - whether it's through inheritance or some other happenstance - sometimes you end up owning real estate completely unintentially.
And inevitably, life throws more curve-balls, and you often have to decide what to do with that real estate; live in it, sell it, or rent it out.
Whether you became a proud owner of real estate intentionally or not, at some point in your life you will likely ask yourself the question, "Should I manage my own rental property?".
This article is neither a case for, nor against, why you should or should not manage your own rental property.
It is, rather, a comprehensive breakdown of the challenges you will face when managing your own rentals, as well as a comprehensive overview of some things you may have overlooked in the process of trying to determine whether you should (or should not) manage your own rental property.
The benefits of managing your own rental property
As with anything you do in life, there are likely both advantages, and disadvantages depending on how you look at it.
Deciding on whether or not to manage your own rental properties is no different.
Here are a few benefits that you may want to take into consideration when deciding if you want to manage your own rentals:
1. No management fees if you self-manage your rental
The first benefit to managing your own rentals is that you do not have to pay any management fees, because you are the management.
The higher quality the management company is, the higher the management fees typically are. Management fees can easily exceed 10% of your rental revenue, and that adds up quickly.
There are additional fees on top of the standard management fee that may be passed on to you as well, such as advertising and tenant placement fees, among others.
By taking on the management side of things yourself, you could be saving a substantial amount of money each year.
2. Increased revenue opportunity (e.g. tenant fees)
One of the ways that management companies earn additional revenue is through direct tenant fees that the rental property owner typically never sees.
Tenant fees can account for a substantial amount of a property management companies overall revenue per year, and by managing the rental yourself, you can be the recipient of it instead.
Tenant fees are typically things like:
- Application fees
- Late fees
- Pet fees
- Service fees
Late fees alone can be upwards of thousands of dollars in additional revenue per year.
3. Full care and control of your rental property
Finding quality management companies is like finding high-quality employees; it's rough out there.
And frankly, regardless of how good the property management company is, nobody is going to give your rental property the care and attention that you will.
Management companies are like grandparents; you bring the grandkids over to their house while you go on a date with your significant other, and when you come back, the kids are all messy, they've been eating candy all day, and the grandparents have pretty much spoiled them all day.
The grandparents hand the grandkids back to you to clean up the mess while they get to go back to doing their thing, unconcerned with the fallout of the fact that your kids just drank a gallon of sugar and will be bouncing off the walls all night.
The grandparents enjoyed their time with the kids, and were beneficiaries of the joy that grandkids bring. Now you get to deal with the consequences.
Likewise, the management company earns the revenue from managing your rental property, and they get to charge you for all of the expenses associated with the property.
Then, they'll send you whatever is left over in the form of an owner distribution.
In the end, they'll give you back the property and you'll have to deal with whatever the circumstances are at that time.
If you manage your own rental, none of the above happens - unless you're just a terrible rental manager.
The drawbacks of managing your own rental property
Managing a rental can certainly be exciting and rewarding financially and otherwise.
But like anything else, it also has its drawbacks.
One of the common errors that new landlords make is to not understand the cost of DIY rental management. Unfortunately, the cost of DIY rental management rears its ugly head in more places than you may think.
Pro Tip: They are not all financial costs.
1. You'll need to learn the ins and outs of screening tenants properly
There will be all kinds of things that you'll need to learn about when it comes to properly screening and qualifying tenants for your rental property.
From spotting fraudulent applicants and fake income information (e.g. fake paystubs), or weeding our people with prior rental problems (e.g. evictions, broken leases), it's not easy making sure that the applicant you're welcoming into your rental is a good tenant.
Depending on what type of rental you own, and where your rental is located, you'll need to learn about Fair Housing Laws and any state, or local rental laws and ordinances, as well.
2. Mastering the art of rent collection
At a rental management company, it's usually the Assistant Manager, or the Property Manager who are responsible for overseeing the process of rent collection.
There are often laws that apply to this process that you must follow and one misstep can be very costly.
Typically the person collecting rent also has years of experience in dealing with tenants and handling rent collection in a highly efficient way. If you've never had experience collecting rent, dealing with delinquent accounts, and keeping financial books on a regular basis, then you'll want to start learning right away if you want to manage your own rental property.
3. Time-consuming activities
Let's be honest, the primary reason that most rental property owners don't manage their own rentals is because managing rentals can be an incredible time-suck.
In fact, a 2019 Gallup Poll found that 35% of American respondents say that they believe that real estate is the best long-term investment option as opposed to investing in the stock market.
And frankly, much like stocks, one of the biggest reasons a lot of people buy rental properties, is to have passive income and not spend their entire life working.
Property management companies are, by-and-large, paid to deal with rentals because owners simply don't want to have to deal with the headaches and the time-consuming factors involved in managing rental properties.
Things like:
- Sending out notices
- Responding to tenant emails
- Responding to prospective tenant inquiries
- Touring rentals
- Processing background/credit checks
- Communicating with tenants
- Communicating with service providers
- Dealing with tenant complaints
- Handling maintenance requests
- Dealing with emergency maintenance calls at 3 AM
Time is the one thing you cannot earn more of, and you can't get it back. So if you want to spend more of it on something other than your rental properties, then managing your own rentals is probably not a good idea.
You're better off paying for the convenience of it all.
4. Handling eviction proceedings
Speaking of evictions... They're not fun. Not at all. In fact, they can be downright emotionally and financially draining processes.
It's an ugly world when you're up close and involved in something so personal such as where a person lives... and tough - yet necessary - choices are made on a regular basis in property management.
While you hope for the best, you truly must prepare for the worst.
If you cannot imagine the emotional stress of having to evict a single mother and her child, or evicting an abuse victim because their significant other has stopped helping pay the rent, or any other incredibly messed up scenarios that you can possibly think of, then managing your own rentals isn't something you should do.
In addition, if you don't have experience with the court system, it can be difficult to navigate.
That's why many property management companies keep an eviction lawyer on retainer to handle their evictions, or, at the very least, they have someone on staff who has the experience needed to deal with the eviction court process.
5. The benefit of "leverage"
In property management, it helps to deal with the same companies all the time any time you need something taken care of at your rental property.
You are able to develop incredibly valuable business relationships with the various vendors that you use on a regular basis, and you become familiar with who is reliable and who is not. And when you're in a tough spot, or have an emergency, you know who will show up when you call.
A property management company is also often able to leverage their work volume in exchange for lower rates.
For example: If a property management company manages one-hundred rentals in a city, they might only use one or two plumbers who get all their business. That often results in significantly reduced labor rates, and those savings are often passed on as a benefit to the rental property owners.
But if you are a small, local landlord with only a few rentals - and you do not have personal connections with skilled tradesmen - you may find that managing the maintenance side of things is very expensive because you're stuck paying standard market rates for labor.
That can get very expensive, very quickly.
6. Handling payments and 1099's for vendors
When you do have maintenance issues (and you will...), then you'll also need to have a way to pay the various vendors. You'll also likely need to provide those vendors with tax-related documents at the end of each year as well.
Property management companies typically automate a lot of those things with software, of they have accountants who handle it for them.
But as a smaller landlord, you will have to figure out how to streamline those tasks.
7. Paying for property management software
Last but not least, when you're managing your own rental properties, you'll want to streamline all of the various parts involved in that process.
If you're just trying to do everything via email, Zelle, and a spreadsheet, you're going to just be making more work for yourself in the long-run.
You'll need to get set up with some quality landlord software that you can use to streamline the management of your rental properties, and that will typically come at a cost.
It doesn't have to be expensive, but it's still something you need to keep in mind.
Frequently Asked Questions
When you really consolidate everything into a simple answer, it comes down to two primary questions:
1) Will managing my own rentals save me any money?
Answer: It's possible, yes.
2) Will managing my own rentals save me time?
Answer: Probably not.
If you don't like the answer to either of those questions, then you may be better off hiring a property manager.