Investment rental properties can earn you some serious cash, granted you are willing to work for it.
Sure, you can hire a property management company to do it for you. However, that means you’ll be sharing some of the profit, as well.
There are undoubtedly several tasks involved in renting and maintaining properties. Even so, if you have the desire to maximize your return on investment, DIYing property management can be a smart way to achieve your goals. Read on for six reasons why.
6 Reasons Why You Should DIY Property Management
1. You Will Retain More of the Profits
How much it costs to hire a property management company will vary depending on the location. For instance, if you have a single-family home or multi-family property on the smaller side, the fee can be anywhere from 4% to 12% of the rent. Some companies charge a flat rate each month instead. You may be charged a fee each time the property is rented, as well.
On top of the monthly management fees, other expenses come with property ownership. If you’re looking for a new tenant, advertising and showing the property will cost money and time. Processing new tenants will also add to your expenses. Admittedly, all of these costs will eat away at your profits. One way to curb those expenses is to manage your properties yourself. In doing so, you’ll get to keep up to 12% or more of the rent.
2. You’ll Always Care More Than the Property Management Firm
Property management companies are in the business of handling as many units as possible. As a result, you won’t always get optimal service.
While many property management companies do a good job, there are also many that don’t. If you get stuck with the latter, it can waste time and money. And if you’re the controlling type or have an emotional tie to the property or properties, a property management company will likely never reach your standards.
No one cares about your properties as you do. Nor do they have the insight about the homes and their inner workings. Paying to give up control may seem like a good idea, but if you are unhappy with the property management company, you’ll pay a hefty price both financially and emotionally.
3. You Can Hone Your Skills & Expand Your Investment Opportunities
Managing a property may seem daunting at first. You have to find the tenant, screen him or her and draft up the rental agreement. You then have to collect the rent each month and maintain the property. A lot of work indeed, but it’s not an impossible task. The more you manage the property, the more experience you’ll gain. You’ll quickly become an expert — avoiding costly mistakes the second, third, and fourth time around. And that knowledge can help you expand your business. Plus, knowing you can handle the management responsibilities on your own will help you gain more confidence to invest in other properties.
Learning how to be a property manager is easy. And that’s why there are so many new property managers popping up all of the time. Instead of using a third party who may be new to the industry, you can play it safe and trust in your ability to manage your properties.
4. It Can Expand the Longevity of Tenants
High turnover is the nightmare of any property owner. Each time the rental sits vacant means lost money to you. Not only are you missing out on rent as it goes unoccupied, but you also have to pay for advertising to find new renters. A property management company can assist you in this process. However, on the flipside, they can also be the reason you’re on the lookout for a new tenant in the first place.
Not all property management companies are good. Some are clueless and can’t or won’t communicate with you. Some are slow to make repairs and aren’t aware of how the tenants are treating the property. These situations may create a tense relationship between the tenant and property management company — resulting in high turnover. However, you can avoid these headaches by going the DIY-route. And since you are in this business to make money, you will be committed to doing whatever it takes to keep everyone happy.
However, it’s not going to be smooth sailing all of the time. Being a landlord isn’t easy. You may have to make difficult decisions when the rent goes unpaid, or your tenant breaks the lease. But if you prepare yourself for everything and keep your emotions in check, you’ll be ok.
5. Avoid Chances of Fraud
Property management companies are supposed to free up time by tending to your properties for you. But not all property management companies have your best interest in mind. It goes beyond neglect to downright fraud.
In one common scheme, a scammer pretending to be a property manager shows the rental to more than one person and collects the first month and security from all of them. Before the victims realize, the scammer disappears with the money in tow.
Unscrupulous property managers may also accept kickbacks for working with specific contractors. Both are in cahoots to inflate the cost of the service. All of these scams can hurt your reputation and your bank account. It’s also a good reason to handle renting and maintaining the property yourself.
6. You’re In Control
Even if you are paying a third-party to work for you, getting changes made won’t be as easy as if you were doing it yourself. Whether it is a decision about a potential renter or a new paint color, you have more control when you don’t outsource management.
While the whole idea of hiring a property management company is to give up control, sometimes that is easier said than done. If you like to run the show, then you are better off managing the property on your own. It will prevent a lot of undue stress and frustration. There are a lot of other ways to invest passively in real estate — mutual funds or exchange-traded funds are two examples.
Real estate investors may shudder at the thought of managing the investment property themselves. Who has the time or temperament to deal with angry tenants? No one wants to be the one to demand rent or threaten eviction. But the reality is there is a lot of rewards in DIYing property management.
Aside from keeping money that would otherwise go to a property management company, you’ll be able to maintain the property as you see fit. The longevity of your tenant is more in your control as is the condition of your rental. And this knowledge is music to the ears of any real estate investor.
Are you considering taking the DIY route to property management? What’s holding you back?
Mary Boller is a freelance writer and reporter. She has over 12 years of experience in the industry and enjoys reporting on topics related to work, money, and investing. She lives and works in Boston, Massachusetts.