Acquired Your First Rental Property. Now What?
So you’ve bought your first rental property, or maybe you just moved out of your old primary residence and opted to not sell it but rather convert it to a rental…what’s next? We hear a lot about how
to acquire rental properties: we go to classes and listen to speakers, we watch videos online, we read books. But what we don’t learn much about is what to do once we have acquired our rental property. How do I find tenants? How do I vet them? Where do I get a lease? How do I handle maintenance requests? How do I receive rent payments? These are some examples of the myriad of questions that arise in a new landlord’s mind. The real question the landlord should be asking is the all-encompassing “Do I want to self-manage, or should I hire a property manager?”
That’s the real question.
At face value, this sounds like a relatively straight-forward question to ask yourself, but it goes much deeper than one might initially think. Let’s dive into some of the pros and cons of both strategies:
- The most obvious pro of self-management is, of course, that you don’t have to pay a management fee. Typical management fees range from roughly 7%-12% of the gross monthly rent for a property, and that certainly adds up month after month, year after year.
- Another pro is the fact that since you’re both the owner and the manager of the property, you’re more motivated to net yourself the highest bottom line possible. You’ll take the extra care in the management of the property—be it cost-consciousness for vendors, extra care and time in finding quality tenants, or seeking the highest rental rate you can—that you may not necessarily find in a manager who is less motivated than the property owner.
- You’re always aware of what’s happening with your rental property. If any issue arises, it comes directly to you from the tenant. Nothing is lost in translation as it comes from the tenant to the manager and then onto you as the owner; not to mention, you know it immediately.
- You have more control over how the property is managed, and you can make decisions quickly being more involved in the process.
- When something breaks at the house, which it inevitably will—and often at the worst possible times (think during holiday get-together, vacations, anniversary dinners, etc.)—you are the one who gets the phone call, not your property manager.
- You must know (or learn) how to manage a property! It’s basically a whole other job on its own. Let’s look a bit more at this specific con:
- Do you have a lease? Is it current and legal with all the new legislation surrounding landlord/tenant law?
- Do you have vendors when something at the property breaks? Typical vendor lists for landlords and managers include electricians, plumbers, HVAC technicians, pest control, drywall repair, window repair and replacement, sprinkler repair and yard maintenance, snow removal…the list is almost limitless. Are you, as a self-managing landlord, prepared to call one of these people at the drop of a hat when something breaks?
- Do you know how to find, vet, and underwrite potential tenants? How do you check their background and creditworthiness? Who do you call for references, and how do you know they’re legitimate?
- Managing rental properties, even if there’s no current 911 issues happening, takes time away from you. It either eats into your free time, or it takes away from time that you could be productive working on your day job.
Conversely, the pros and cons of a property manager are very much the same.
Property Manager Pros
- You don’t get the phone call from your tenant that the hot water heater is out while on your first vacation in over a year.
- You don’t have to take on that second job of property management; you don’t have to answer all the aforementioned questions regarding leases, and vendors, and tenant screening.
- Overall, you just take a hands-off approach, sit back, and watch rental payments get deposited into your account each month.
- Having a property manager provides a level of liability protection between you and the tenant.
- You have to pay a management fee each month out of the gross rental income.
- Your property is not the only one managed by your property manager, as it would be for you; therefore, your property manager must split his or her time between your property and all the others that they manage. This means less time spent on your property and a slower response time when there is some issue that needs to be addressed.
- Your property manager intrinsically is not as motivated to do a good job and net you your highest bottom line possible as you would be yourself.
- You’re not always aware of what’s happening with your property—maybe that could actually be a pro? Maybe. But maybe there’s a serious problem with your property that you really should be aware of. Maybe your property manager is horrible about communicating with you, and you never hear about that issue until you see large expenses or two months of no rental payments on your statements and don’t know why.
Rental Property Management Style Is A Personal Decision
There are many pros and cons to weigh in deciding which way to go on this subject, and quite frankly, you may not know what suits you best until you get in and try one or the other, or both. Personally, I self-managed my rental properties for years until I got to a point in my career where I wanted to take some of the responsibility off my shoulders and free up more time for me to focus on other aspects of my business, so I hired a property manager. I ended up having a horrible experience with them–it felt like instead of managing tenants and my properties, I was instead managing the managers. On top of that, the job wasn’t being done nearly up to my standards, so now I’m back to self-management, at least for the time being.
This is a personal decision to be made by each landlord for themselves. What suits their personality, time availability, motivations, and abilities all are determining factors for which way to go. Regardless, every landlord will eventually learn one way or the other what method suits them and their investment goals best.