The common advice from many real estate investors is to hire a professional property manager to handle your investment properties from day one. I wholeheartedly disagree!
Louis L’Amour once wrote, “You are your own best teacher. My advice is to question all things. Seek for answers, and when you find what seems to be an answer, question that, too.”
Let me ask this: If you had $100,000 to invest in the stock market, would you rather:
- Invest it with an investment advisor who knows little to nothing about the stock market and outsources its investment recommendations?
- Invest it with someone who has experience and understands stock investing, having invested their own money in stocks?
Experience Is the Ultimate Teacher
For me, I want the experience. And there is no experience like experience gained from actually doing something.
In my day job as a law enforcement officer, I have items on my duty belt that are “less lethal” options for controlling a subject or subjects. Two of these are 0leoresin capsicum pepper spray (OC for short) and a taser.
OC is designed to incapacitate a subject when sprayed in the face and eyes by creating a burning sensation. Alternatively, a taser shoots two barbed projectiles into a subject’s skin that are then electrified with 50,000 volts. This is designed to incapacitate major muscle groups.
It is encouraged that you only carry these items if you have experienced the effects of their use. This purposefully happens during training, so that you can fully understand how each affects a person.
I have been sprayed with OC and tased with a taser, and I can tell you that neither one is a pleasurable experience! I did not take someone’s word about the effects of each, either; instead, I experienced those effects myself. By experiencing the effects each creates, in my opinion, it has allowed me to better understand how and when to utilize the options.
Arguments for Not Managing Your Investment Properties as a New Investor
Argument #1: Professional management is the best way to protect your investment.
Prior to purchasing a property, I researched rental agreements and located one that I could cannibalize much of and shape into something specific to my situation. This research alone caused me to look at dozens of rental agreements and glean information from many of them. I found numerous important items that I would never have thought about had I simply hired a property manager to manage my investment.
I obtained the lease from a local property management company. They had managed a property we purchased prior to our acquisition. I was disappointed with the quality of the lease this professional management company used. It had nothing in there about broken glass, excessive moisture, unlicensed vehicles, or doing mechanical work on vehicles. It didn’t indicate who pays for minor plumbing issues either, just to name a few things.
Why This Logic Is Flawed
The management company’s lease would not protect my investment property in the manner I wanted to protect it. Had I not looked into rental agreements on my own, I would not have known this.
This is why I believe that, in order to be successful at anything—I mean truly successful—one must understand at least the basics. I am not saying one needs to be an expert in every facet of every aspect. But at a minimum, it is prudent to be able to recognize what is right from wrong.
As a new investor, when you are contemplating hiring a management company, ask yourself a few of the following questions:
- Is the lease agreement they use going to adequately protect you as the property owner?
- How do they advertise or fill vacant units?
- Does your application (or theirs) properly screen out tenants who are not a good fit for your investment?
- Is the background check comprehensive, and is it legal?
- How often will they inspect units, and what are they going to look for when they do?
- What type of lease violations (if any) are they willing to work with the tenant to rectify, and what type will they move for eviction on?
- Finally, what type of maintenance or upgrades will they do and when? Which will provide the best bang for your buck? Which add little to no value but make your property more desirable to rent?
Argument #2: Your time is too valuable to spend on management tasks.
Another common justification for not managing your own property is that “your time is too valuable” (or some other similar statement).
I understand the concept that “time is money.” However, when viewed under the “totality of the circumstances” concept (as in a law enforcement investigation), your time may be cheaper than you think.
What price do you put on education? Education, in part, is exactly what you are getting when you manage your own property.
Why This Logic Is Flawed
I sometimes hear the argument that it is often cheaper to have a plumber respond to plunge a toilet than to do it yourself. My plumber would charge a service call plus a minimum rate to do that. My bill would likely be $60 for the service call, plus at least a half-hour or $40 labor, for a total of $100 to plunge or snake a toilet.
That is $100 that I could keep in my pocket for less than an hour’s worth of time. Is it fun to go fix a clogged toilet? Absolutely not—but it is part of the education.
Over time, I learned the real distinction between what to subcontract out to others and what to do myself. Don’t get me wrong… if you legitimately do not have the time or if a task is beyond your abilities, then yes, it is prudent to call a plumber, HVAC tech, or contractor. But let’s face it, if you are not busy, you can save actual dollars, as well as “educate” yourself.
Think of it this way the next time you hear the argument that your time is worth more. Imagine you go to your local convenience store, and they have a special: XYZ product for $1.25 each or two for $2.00. The concept is to get the customer to buy more because it is a perceived “good deal.”
If you were planning to buy two of that product, then congratulations! You saved 50 cents. If you planned to only buy one and bought two because of the amazing sale, then you just lost 75 cents!
In other words, if you were not doing anything actually productive, you lost money by subbing out a property management issue. If you were busy working for $150 an hour and had to stop and plunge the toilet, then you lost $50.
Common sense goes a long way in figuring out what your time is worth!
Argument #3: Property management companies are run by professionals, who know how to do everything better than you.
A third common misconception is that the property management company employs professionals who know far better than you, the investor, about how to manage your investment. The reality is that those same property managers were not born with experience. They learned it—just as you will!
Why This Logic Is Flawed
Guess what? The property management company you hire is likely not going to go fix a clogged toilet, either. They are going to call a plumber—the same thing you could have done.
As I stated earlier, I recently purchased property that was being managed by one of the “premier” property management companies in my area. Yet, the property was not properly maintained and the upgrades were done by a contractor who was obviously the cheapest—not one who was hired for the quality of work.
Face it, many management companies have dozens and dozens of properties per manager. How much time do you think they are going to devote to your property?
What’s more, often property managers know little to nothing about proper maintenance. They have no clue what is a good repair job or what isn’t. They either hire someone to fix the problem or have an on-staff maintenance person fix the issue.
Disclaimer: New Investors, Read This!
Ultimately (as I have stated several times in my articles), there is no hard and fast rule for any one thing in real estate. Find a way that works for you, and move forward with it. Just make sure you understand the “why” and “what” of it.
At some point in my investing career, I hope to have enough properties that it is feasible to hire a company to manage my investments. I imagine it happening eventually, as I have recently obtained my real estate license and am looking to build a portfolio of managed properties.
Remember, I am not advocating that you should always manage your properties. What I am advocating is that, as a new investor, you should start out managing your own properties. Then, move on and move up as your experience dictates.
Ben Franklin said it best, “An investment in knowledge pays the best interest.”
Have you self-managed? Have you hired a property management company? Which method do you prefer and why?
Share in a comment below!