Step one of any decision that comes with either short-term or long-term impact is to know your goals and your values.
When thinking about whether to manage the property on your own or bring in a property management company, you have to ask yourself what the goal of these investments is. What do you value most? Do you have a goal of truly passive income with minimal effort? Or, are you willing to put the time in to have full control and visibility over the entire process?
Property Investing
Most people get into property investing with the long-term goal of getting out of debt, or financially planning an abundant future. Though, when you’re just getting started, the focus should be on your short-term goals. How are you going to best achieve your long-term goals in the here and now?
Know Your Skills
What skills have you picked up over your life? Do these skills lend themselves well to property management? More importantly: do you enjoy practicing this skills? There is little point in choosing to do an activity that adds unsurmountable stress to your life. Many people get started and realize there is a lot more involved than initially expected, so we’ve laid out some simple pros and cons of each option.
The DIY Landlord Pros and Cons
Provided you have the necessary skills and knowledge (you’re a licensed general contractor, or you’re well connected to trusted sources in the industry), the DIY option is by far the cheapest solution. That is, as long as you ignore opportunity cost and comparative advantage.
Pros:
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Spend less money
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100% Control
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100% Visibility
Cons:
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You’re on call 24/7
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Mistakes may cost more money in the long run (maintenance and legal risks)
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Many jobs require more than one pair of hands
Whenever you make a choice to spend your money or time doing one thing you are subconsciously choosing NOT to spend that time or money on anything else. That is the nature of opportunity cost.
By choosing a certain activity, what are you giving up? How much time are you spending managing your own properties and what is your time worth?
Full Service Property Management
The opposite end of the spectrum is full service property management. I use the term “full service” to mean it covers all aspects of rental property management. There is no point in hiring a full service firm if you expect them to get approval from you any time there is a repair exceeding $100.
Full service property management is ideal for the person who wants to own rental properties, enjoy the income, but have none of the headache (aside from income taxes). Anyone buying an investment property should consider the cost of property management in their ROI calculations regardless of whether or not they plan to self-manage. Time is a cost. You either pay someone else or you enjoy less discretionary time.
Pros:
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They are in touch with local market conditions
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They’re able to maximize rent
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Someone else answers the calls 24/7
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Someone else deals with your tenants problems
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You don’t have to personally evict anyone
Cons:
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It may be hard to evaluate quality
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Hidden fees may misalign incentives
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Management fees eat into potential profits
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You may lose visibility into problems that occur at your properties.
Do Your Research
For those who align best with the DIY landlord option, there are many tools and technologies out there to simplify the process, saving time and keeping the control.
Though, for those who are ready to relinquish control and spend their time elsewhere while still receiving a majority of the profits, it’s time to start looking for a property management company.
Research is key. Check online reviews. Ask about all the fees associated in out-of-the-norm instances like tenant evictions, vacant properties, maintenance operations, etc. Always talk with at least a few different companies to get to know how each one does each process differently, and go with your what your values align with most.
At Latchel, we work with some of the nation’s top property management companies to provide 24/7 maintenance coordination. If you need recommendations, reach out to us and we’ll be happy to refer a company in your market.
