Why Real Estate Investors Don’t Hire Property Managers
They should, obviously, but many don’t. Let’s talk about why.
In the end, there’s a huge pile of reasons why hiring a property manager (PM) is a good idea for anyone who is trying to turn real estate investment into their next income stream — no one really questions that. The question that PMs ask themselves is “why don’t all real estate investors hire property managers?” The answers aren’t as profound as you might think.
Reason 1: They Don’t Understand What a Property Manager Does
Many people seem to have a misapprehension of property managers. They believe that all a PM does is collect rent when it’s due and evict tenants when it doesn’t arrive on time. The truth is that a good PM plays a huge number of roles in almost every stage of real estate investment, including:
- Getting a property properly renovated in preparation to be rented, and doing so in a timely and cost-efficient manner.
- Working with the city to get a rental property inspected and certified as rent-ready.
- Marketing the property (filling the vacancy).
- Performing ongoing maintenance and necessary repairs as the property is occupied.
- Cleaning up a property after a tenant has vacated, including dealing with all of the convolutions necessary to utilize the security deposit to handle any relevant issues.
- And dealing with collecting rent, negotiating with tenants, and handling the eviction process on top of all that.
If more real estate investors understood just how much work they were skipping out on by hiring a property manager, almost every serious investor would make finding a good PM second on his priority list (after finding a good property).
Reason 2: They Think They’ll Save Money as a DIY Landlord
Property managers aren’t cheap — the industry standard hovers somewhere around “one month’s rent every year,” with wide variances by market and by kind of home managed. Why would you give up 1/12th of your gross profit? Simple: because not having a property manager opens you up to a huge array of costs that can easily eat not just your profits, but your capital as well. Property managers act as liability shields, they negotiate better deals with contractors, and they leverage economies of scale to get often-used materials like Formica and vinyl flooring on the cheap.
Sure, you have to pay your PM, but ultimately you were going to pay that much money and more — it’s just a question of when, not if, the upcoming disaster will hit.
Reason 3: They Think They Can Manage in Their Spare Time
Finally, there’s a certain class of real estate investor that seems to firmly believe that they can manage a property ‘on the side’ while they do other stuff with the rest of their lives. For months at a time, this can seem to be true! But when that one month hits where the fan and the dooky collide with a vengeance, suddenly that property will leap from ‘casual time-waster’ to ‘fulltime job plus toddler levels of busy.’
The thing is, once that month hits, it’s a rare property that easily turns back into a casual affair: most of them turn bad and then stay that way until a PM is called in to right the ship.