When it comes to real estate investing, most people immediately picture late night phone calls regarding overflowing toilets (I don’t know what it is but it’s always toilets people think of), busted water pipes, or power outages. While this does happen occasionally, it’s not the issue most people think it is. The reality is, almost every type of issue a rental property can produce that would affect your personal life can be handled by property managers. That occasional late night phone call may come in, but why have it come to you? For me and my rentals, I use property management. Here’s why:
If nothing else, professional property managers do this every day and will most likely do it better than you. The instinctive sixth sense for recognizing an honest potential tenant, the systems in place that allow them to quickly and efficiently screen tenant applicants, the network of vendors and handymen that years of being in business have produced-these things take years to figure out. Why spend the time trying to do it yourself when you can benefit from someone who already has? In my experience, the amount of time a property manager had reduced my rental from being vacant has more than made up for the fees they charge to manage the property. When it comes to profiting in real estate, effectiveness is crucial. A good property manager can do what you can’t.
When it comes to managing tenants, what you’re really doing is managing people. Managing people means managing emotions, both yours and theirs. Many people with great business minds that excel at finding and structuring deals fail miserably at managing emotions. And why wouldn’t they? This stuff is not for the average bear. Tenants need a firm and professionally delivered explanation of expectations and rules of the property. Having this delivered by a property manager is usually much easier than trying to do it yourself. Not only are you saving yourself the grief of trying to manage a tenant you do not know, you’re also saving yourself the grief of trying to manage your own emotions when it comes to the relationship. Invariably you are going to have tenants who are late with the rent, lie to you, break the rules of the lease, or destroy the property. The human side of the landlord will often want to overlook these potentially destructive habits of your business in favor of playing the “nice guy” and giving the tenant leeway. Bad idea. Let a neutral third party resolve these disputes and let the property manager be the bad guy when need be. Save yourself the headache and personal grief by removing yourself from the emotions of the situation.
While its true that it does cost extra money to hire a property manager and this will eat into your profit margin, doing the work yourself doesn’t come without a cost. When you manage a property yourself, you are trading your time for the money you save. This begs the question-How much is your time worth? For me and most investors I know, we are much better served saving the time that would be put towards gathering paperwork, doing background checks, checking referrals, signing contracts, and other various landlord tasks, and using that time to find new deals, make more money, or invest in our families. If you’re just starting out and looking to learn the business, managing a property yourself can have some value. However, if you’re trying to make money and build wealth, let someone else do it and put your time to use in ways that are better suited to reaching your goals!
PEACE OF MIND
I tried to manage my very first rental. Huge mistake. The disaster nearly caused me to give up on real estate altogether. If not for some well placed encouraging words from an influential mentor, I would have done just that. AND MADE THE BIGGEST MISTAKE OF MY LIFE! It’s scary for me to think about how close I came to quitting from one bad experience (with a lying, rotten tenant who took me for over $6,000) but it was also a great life lesson. What lesson is that you ask? Stick to what you’re good at and let others do the rest. Gary Keller, founder of Keller Williams Realty, refers to this concept as “The One Thing”. Specifically, find the one thing you’re good at and love doing and let others help with the rest. Had I not hired a property manager, I surely would have been discouraged enough to quit before I even got started. I hated tracking tenants down, sifting through the number of excuses they gave on why the rent was late, filing the paperwork necessary for the eviction process, etc. Why not let someone handle it who doesn’t hate it as much as I do? I’ve learned if you want to be successful any anything in life, you can’t make it harder on yourself to accomplish than it needs to be. Now, I let the property manager do the time-consuming, labor intensive, mentally frustrating work and I stay drama free looking for my next opportunity. It’s the best investment I’ve made in real estate, and I wouldn’t dare own property without it.
This, ladies and gentlemen, can not be stated enough. The experience of a good property manager alone is worth the price of admission. Property managers know which areas they want to manage tenants (read, which areas YOU want to own property). They know what tenants are looking for, what your competition is offering that you aren’t, what markets rents are going for, and which direction certain parts of town are headed. Not only can this be a huge asset in helping to prevent you from buying bad homes, it can also guarantee you get the maximum rent possible and don’t leave anything on the table. If that wasn’t enough, their experience comes in handy in other areas as well. Leaky roof? Plumbing issues? Appliances wear down? Leaning fence? An experienced property manager has seen all this before and knows just what to do, as well as who can do it. A smart man learns from his mistakes, a wise man learns from the mistakes of others. Be a wise man. Let the experience of your property manager serve you by allowing them to help you with lessons they’ve already paid the price to learn.
With all that being said, I’ve still only scratched the surface of the services a good property manager can offer. If you’re considering making the plunge into real estate, I’d strongly recommend you include property management in your team. Don’t be penny wise and pound foolish. Surround yourself with people smarter than you and let them carry you to the top!