The Pros and Cons of Self-Managing Your Rental Property
November 20, 2017 / by Brent Silberbauer
As a professional property manager, I speak to investment real estate owners every day. Most are calling because they are tired of managing their own property. Sometimes I get calls for advice about how to handle a situation. The benefit of being in my position is that I get a broad perspective of what it takes to self-manage your own property. I also see the other side of having a property management company manage your property. Today, I am compiling a list of the pros and cons of managing your own property.
Let’s face it, some people are control freaks and have a strong desire to make sure things are going exactly the way they want them to. When we get a rental property owner that really wants to be in control it makes a professional property manager’s life very difficult. The owner will call every day asking about the property, asking about what’s going on, asking to be a part of every little decision that’s made about the property. At this point, it really doesn’t make any sense for the owner to have a property manager. They are spending their time micro managing the manager when they could just be managing themselves.
Having total control over your property can be a great benefit, but it can also be a negative. If you’re a good investor your portfolio will naturally grow. There’s a saying within large organizations: “You can have control, or you can have growth, but you can’t have both.” As the number of your rental units grow, you’re not going to be able to have the control you did at the beginning. Either that or you’ll run yourself ragged trying to keep up with the demand of managing your properties. Thus, control is a double-edged sword – it can be a pro or a con, depending on your situation.
Con: Legal Risk
We live in a sue-happy world where more and more people feel entitled to preferential treatment. The way our culture has changed over the past few decades has caused more and more lawsuits, and the results sometimes are shocking. Every year more and more laws hit the books making obeying the law more and more difficult. In California alone, last year there were over 800 new laws passed! With this many new laws every year, how do you even know if you’re obeying them or not?
A professional management company is going to be up-to-date on all the laws that affect renting out your property. In Chico, CA, I have so many owners tell me, “I don’t want you to rent to college students, I want a nice little family to rent the home.” I have to constantly educate them that screening in this way is text book discrimination and would easily open them up to a lawsuit. You cannot discriminate based on age or family status. This is just one common example of how easy and common it is to break the law.
Not to mention how to handle bed bugs, indoor marijuana use, reasonable accommodations for disabled persons, assistance animals and the like. There are so many issues that can spring up and just saying the wrong thing in the moment, even when it sounds like a common-sense response, can get you into some very hot water. A good property management company is going to be able to field these issues the right way every time, mitigating your legal risk.
As a side note, the law is constantly changing, and the rights are being moved away from owners and into the hands of the residents. This will be a trend that will continue to happen in the future. Primarily because there are much more renters than owners, and owners, in a political sense, are an easy target when it comes to new tax and regulation laws.
This one is huge. Typically, a full-service management company will own its own website with a massive listing service. It will probably invest in Google AdWords and other techniques to get rentals in front of more people. The days of just posting something on Craigslist and capturing the market are over.
Marketing a vacant property is more and more complex causing companies to take high-quality professional photos, post on multiple sites (Apartments.com, Zillow, rent.com, etc.) and have systems in place for managing all the listings. This is going to be something that a management company will be able to handle much better than an owner with a smartphone camera and Craigslist post.
Pro: Saving Money
Obviously, for all the marketing, screening, emergency maintenance service, accounting, etc. it’s going to cost money. However, you just have to think of how much time, energy, and knowledge it will take for you to self-manage. Is it worth it? That’s something you’ll have to weigh for yourself and make that determination.
Con: You’re the Emergency Contact and Project Manager
I have a friend who took his family camping on vacation. They had just arrived at the lake, unpacked their stuff and settled in. Early the next morning he got a voice message that one of his duplexes had a main water pipe break. The apartment was flooding and causing all kinds of damage. The event was so stressful, and he didn’t have great cell coverage that he ended up packing everything up and leaving that day to handle the issue.
A nice long vacation turned into a stressful overnight trip for him and his family. That’s a true story. No matter what, maintenance emergencies will cost you money and are a headache, but if someone can be the buffer between you and the vendors and angry residents, that takes so much stress off.
When your rental property is professionally managed, it’s so much easier to just get a phone call saying, “here’s what happened, here are three options, what do you want to do?” You don’t even have to see the issues or be in town. The residents are communicated to, the vendors know what they need to do, and your manager is the one making all the site visits and phone calls. You just make the decision.
A professional property management company is less susceptible to people who may have nefarious motives when renting your house. There are many times we’re called in to manage a home after the owner unwittingly rented to a person who had no desire in fulfilling the obligations of their lease. They would pay one month and then never pay again. Unfortunately, to perform a Sheriff’s Eviction it takes about four months and a lot of brain damage jumping through the court’s legal system.
Typically, these residents will have a story as to why they have bad or no credit and will typically sign in someone else’s name. A professional management company will never fall for this because it typically never makes exceptions. I know for our management company we have too many properties to hear every story as to why someone can’t pay rent, or doesn’t qualify. Everything is black and white for us because we simply cannot hear all the stories. It would be overwhelming. That’s the only way we can operate, and that’s typical of most management companies. We have strict screening requirements that either the tenant meets, or they don’t qualify. That’s it. Black and white.
Additionally, a property management company has had a lot of opportunity to think about its standards to qualify. Does a credit score of 575 qualify? What about 600 or 625? It will have the right “secret sauce” when it comes to standards to qualify for a property. This can be very valuable.
There are a lot of pros and cons to hiring a property manager. At the end of the day you’re going to have to weigh these out for yourself and see if it makes sense for you.