Property Management Companies: Do You Need One on Your REI Team?

Property Management Companies: Do You Need One on Your REI Team?

If you’re serious about building a profitable portfolio of rental properties, you will inevitably be faced with a critical decision about your future. Are you going to manage these properties yourself, or will you hire a property manager to handle them for you?

Make no mistake about it, this is a huge decision about how you’re going to spend your most valuable asset (a.k.a. your time).

As with any big decision, there isn’t necessarily “one right answer” that applies to everyone. We all have different reasons for pursuing rental properties, so it’s important for you to understanding why you’re in this business in the first place.What is it you want out of your rental properties anyway? Whatever your verdict is, the path you choose for your property management will have a major effect on what your future looks like – so to the extent that you can, it’s important to get this right from the start.

I’d like you to stop and think about which of these statements best describes you:

Statement 1:
“I want to create a job for myself as the manager of my rental properties.”

Statement 2:
“I want to retire early with a solid portfolio of passive income from my rental properties.”

Before you choose your fate, I should warn you: you cannot do both.

Why? Because these paths work in direct opposition to each other — they lead to two entirely different places. If you want to be a property manager, you’ll never be free from a job. If you want to retire early and be truly free from the daily grind, you can’t be your own property manager.

Just speaking for myself, I started buying rental properties because I wanted the freedom that comes with passive income. I knew this would only be possible if I put someone else in the driver’s seat (someone with WAY more competence and experience at the job than I have). If I didn’t have access to a good, competent property manager, it would’ve been irresponsible for me to own rental properties because I knew I could pull it off on my own. That’s the honest truth.

In my mind, paying 10% of my gross rental income to a skilled property manager was a bargain (and since I factored this into the cost of each rental property, their services were automatically paid for right out of the gate).

Not All Property Managers Are Created Equal
Unfortunately, finding a great property manager isn’t always an easy, carefree process.

Similar to attorneys, accountants, title companies and general contractors, some property managers are worth their weight in gold, and others are worth their weight in garbage. As I explained in this blog post, there are a number of vetting criteria you can use to make sure you’re working with a competent professional BEFORE you sign on the dotted line of their Management Agreement.

I was fortunate enough to find an awesome property manager when I bought my first rental property, and I’ve continued to do business with them ever since.

What makes them so good? There are a few qualifying criteria that come to mind:

They know how to find great tenants.
They know how to get rid of bad tenants (quickly, legally and before things get out of control).
They have connections with all the right people (contractors, inspectors, service providers and more), which saves me thousands every year on property maintenance, renovations, utilities and more.
They are responsive and helpful when I have questions.
They are timely, helpful and informative with monthly accounting statements and cash distributions on each property I own.
They handle all of the tedious, mundane, miserable and skilled labor that I either don’t want to do, or I have no idea how to do myself. In short, they are FAR more competent at property management than I’ll ever ever be.

When Does it Make Sense to Hire a Property Manager?
Perhaps you’re reading this, and you just aren’t sure whether it makes sense for you to outsource your property management to a professional. What factors should you be looking at in order to make this decision?
For me, there were several reasons why I chose to work with a Property Management Company, so as a way of helping you process your own thoughts, I wanted to lay out my reasoning below.

1. Hate Dealing With Problems and Complaints from Tenants -I’ve always loved the idea of passive income from rental properties, but that doesn’t mean I want to deal with a constant stream of headaches and annoyances from the people who are renting from me. The beauty of allowing a property manager to handle this aspect of my business is that most of the time, I don’t even need to know who my tenants are!

2. Want to Focus on Growing Business -If I want my business to grow, I need to spend my time looking for the right opportunities, not spinning my wheels managing them. If growing the business is part of my long-term strategy, it makes a lot more more sense for me to leave the most time-consuming tasks for someone who knows how to do the job a lot better, faster, cheaper and more effectively than I ever could on my own.

3. Can’t Afford to be an Expert at Everything -My property management company has access to every kind of expert in the business. For the truckload of things that I’d be terrible at on my own, they know how to do these things quickly and inexpensively because they do these jobs every single day.

4. Want the Ability to Invest Anywhere -A lot of real estate investors give themselves a self-imposed barrier to investing in other markets. It’s not always a bad mentality, but at the same time, your geography (relative to your properties) doesn’t necessarily need to hold you back from growing your business.
If you’re able to find good property management companies to handle your property, there’s no reason (logistically speaking) you can’t live in Boston and own a rental property in Phoenix. Your inability to drive by and physically see your property doesn’t need to be a significant limitation on which properties you’re willing to invest in.

5. Their Services Are Already Paid – For Whenever I’m analyzing a new property as a potential investment opportunity, the deal MUST be designed to support the cost of a property manager (because let’s be honest, someone will have to do the job, even if it’s me). I will never buy any property unless I know I can deduct 10% of its gross revenue to pay my property manager and still show solid cash flow.

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