While it’s possible for a real estate owner / investor to self-manage their own property, it’s important to realize that managing includes a lot more than collecting rent and performing maintenance. It’s equally important to have a strong understanding some of the regulatory, marketing, and process considerations discussed below. Taking the time to learn, and implement such measures can be time consuming, and many owner / investors ultimately decide to mitigate risk and spend their time in other ways by hiring professional management. This isn’t meant to provide an all encompassing view of the challenges a self-managing owner / investor may face, but it’s a snapshot of some of the most common areas.
Cost of Hiring a Management Company
It can actually improve your bottom line to hire a management company. It seems counterintuitive right? Hiring a property manager costs whatever you’re making now in rent, less 5-10% in management fees. This is almost never the case, for two reasons. First, hiring a professional management company can improve your top line by filling your vacant units quickly, and commanding maximum market rent. Just one or two more weeks vacant can cost $100’s or even $1,000’s. Good management companies get your unit rented quickly. These companies take professional photographs and video (not what you see on Craigslist), and market aggressively on dozens of websites such as Zillow, Trulia, Hotpads, etc. They have systems and processes in place to ensure no qualified candidate slips through the cracks and offer sufficient and professional showings to cast your property in the best light. Some management companies also get “paid to perform,” in other words they may offer discounts or free management if they don’t meet their obligations.
All too often we see Landlords that are unfamiliar with the tried and true screening methods used by professional property management firms. Hint: you’re gut feeling is probably wrong. Tenant screening should be completely objective and based on data. Factors and sources that should be included in screening include credit score, verified income, criminal history, sex offender registry, and history in landlord / tenant court. Great management companies have a clearly defined process, are consistent each time, and are completely objective. They also have incorporated AI Intelligence into their screening process because there is simply no room for error. Always ask what your prospective management companies eviction rate is. If it’s >3%, move on to the next property management company on your list.
Badly Written Leases
Generic leases that you download online are meant to be very broad in coverage, this means they are likely leaving out specific details relevant to your property. There are several variables that can significantly impact the language in your lease. Single vs. multi-unit should usually have very different leases – in single family homes for example, for which many of the generically available leases apply to, a landlord can require a tenant be responsible for things like snow removal, or pest control – as long as it’s specifically outlined in the lease. In multi-family housing the landlord is usually responsible. Many generic leases also leave out items such as pet policy, early termination policy, late fees implications, etc. The lease is incredibly important and should be reviewed or provided by a professional.
In general, people pay bills in order of perceived importance. Often renters are forced to decide between cable bill, phone bill, car payment, school loan, credit card bill, or rent. When times are good, they are able to pay all of their bills. When times are lean, they must carefully weigh which bills to pay first. Being consistent (and fair) about how to deal with late rent payments can help make sure that “rent” is at the top of the list. Good management companies have a simple, easy to understand policy when tenants are late on rent. An example is:
- 27th – 1st of month – email, and text reminders
- 2nd – 5th: notification rent is late
- 6th – (1st offense): issue written warning
- 6th – (2nd offense): 14-day notice to pay-or-quit mailed, and hand delivered by constable
- If not rectified within issue 30-day notice and begin eviction proceedings
- If paid in full notify the tenant they will need to subscribe to auto-pay, and if late again will be subject to an eviction.
This policy isn’t meant to be overly burdensome, or tough. It’s meant to ensure that people pay for their housing first, and pay for things like cable, and credit card bills later.
In short, it’s entirely possible to self-manage. But one shouldn’t assume self-managing is limited to performing maintenance and collecting rent. If an owner / investor is going to self-manage, they need to invest significant time to do it right. It really can’t be a part time job. The successful self-managing landlords we see are those that are doing this on a full time basis to ensure they’re doing it right, and not getting into trouble.