A topic of hot debate is whether a real estate investor should hire a property manager to handle the day-to-day property management of their properties. I have seen arguments for both sides, but I tend to believe that for most investors it’s better not to hire a property manager.
What a Property manager Does?
A property manager generally is in charge of the day-to-day activities of a property. This includes showing the property to prospective tenants, collecting rents, answering phone calls, coordinating repairs, paying bills, etc. Property managers will charge a fee of 5% to 10% of gross rents collected for their services. This fee pays for rent collection, phone calls, and paying bills. Most other services are in addition to the 10% fee. For example, if you have a leaky faucet, the property manager will field the complaint and then hire a plumber to go do the work. The owner is responsible for the plumber’s charges.
The reason I don’t believe most real estate investors should use property managers is because answering the phone and farming out the labor to subcontractors is the easy part of the job. I’m not sure it is worth 10% of my gross rents to have someone answer the phone, and pay my bills. The hard part is mowing grass, painting, cleaning, fixing toilets, repairing, and did I mention painting. None of these tasks are covered by the property manager’s fee. Property managers simply subcontract out these tasks and pass the bill along to the owner. If you are a young investor trying to get ahead, then it’s probably best to save the fees and do as much as you can to keep your expenses to a minimum. Besides, managing the property on a day-to-day basis is a great way for a new investor to really learn the business.
Bad Property Managers
No one else will take of your property as well as you do. If I am going to invest a couple hundred thousand dollars on an asset, I want to know that someone is keeping a close eye on it and will keep it in great shape. I have heard several horror stories about a property management group in my town that charges low rates, but has very poor service and does hardly any maintenance on their properties. They don’t paint the units in between tenants, clean, or remove trash. I just rented to a tenant the other day that commented on the stinch that was coming from a rental that this property manager was showing to him the day before. The property manager had not bothered to do any cleaning before showing the property. Not only did this scare the prospective tenant away, but it is not good for the long-term viability of the property.
When to Use a Property Manager
I do not think all property managers are bad. There are some situations I can think of where using a property manager is a good idea. One is if you inherit a property and you don’t really have any interest in managing properties. Another is if you are moving away for a few years and do not want to sell your house. However, I would be sure to screen property managers and make sure you get a good one that will take care of your property.
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In the last year, rental rates have plummeted in the Chattanooga, Tennessee area. I have 5 rental units and just about every one of them is renting for less than it did two years ago. A property that I used to rent for $625 a month just rented out for $550 a month. The economic downturn has really hit the landlord in the wallet.