Investing in Real Estate - Property managers vs Self Management

This is the tenth post in my Investing in Real Estate series and will cover the crucial decision about whether to self manage your investment property or use a property manager.  Both sides have their pros and cons and it really comes down to what type of person you are.  I don't subscribe to the idea that one suggestion is always right (a lot of 'real estate gurus' like to promote one way of doing things because it works for them but don't think about what works for other people)

The decision to use a property manager is really a cost versus effort argument.  Using a property manager will reduce your return on the property but it means that you can essentially be hands off on the property.  Outlined below are both the pros and cons of using a property manager and self managing a property investment:

Property managers

• Overview
• For a fee, property managers will take care of most of the decisions and duties around your investment.  This fee usually ranges from 5% - 8% of gross rent (in Australia)
• They do everything including advertising, leasing, rent collection, statements, organise repairs
• Pros
• Saves you the time and effort associated with your property investment.  If you think that your time is more valuable than the amount you are paying out then it is a worthwhile investment
• Provides a buffer between you and the tenants.  This is especially important if you are a 'soft' type of a person who would find it hard to evict someone if they were running late on rent.  The buffer is also important if you live near the property and don't want the awkwardness of your tenants knowing who you are
• Their systems are often better and more automated.  They will send reminders relating to when you rent reviews are due or when contracts need to be renegotiated
• The cost of property managers is tax deductible.
• Cons
• Rental properties often operate on negative net yields (i.e. after interest) and paying out an extra 5 - 8% of gross yield can definitely affect the long term return on your property
• If you happen to get a bad property manager things can go wrong very quickly.  They may advise the wrong tenants or may fail to follow up on property inspections and rent reviews.
• Property managers do not have an incentive to use the lowest cost repairers for the property.  If something needs to be fixed they will normally use the person they 'usually use' and you get stuck with an inflated cost
• There is the temptation to leave everything to the property manager (even those things that you should be doing yourself)

Self managing your investment property

• Overview
• When you self manage your property you have to do everything yourself including advertising, leasing, repairs (or organise repairs), property checks etc
• There is no overhead cost and you essentially need to value your time doing these tasks
• Pros
• Much lower costs for everything including advertising (there are lots of sites you can now advertise your property), repairs (you can do repairs yourself if you are a handy type of person or can organise the cheapest cost) and there is no management fee
• Results in a better long term return (if you value your time at nil)
• You care about this property more than any property manager ever would and are more likely to keep on top of all the issues
• Cons
• There is no buffer between you and the tenant.  It is hard to think of your property as an investment and evict people when necessary if you feel for them / are soft with them
• It can be time intensive (especially if you have more than one property) and if you are time poor this can be a burden
• You have to sort out all the problems associated with the property and will often not have the experience in dealing with issues that a property manager would

Should I self manager my property or use a property manager?

I believe it all comes down to your individual circumstances.  If you are time poor, are a relatively soft hearted person and have no experience with property investment then using a property manager is probably well worth the cost.  This is totally dependant on getting a good property manager and I will post about that next week - a good property manager is essential and make your investment property a breeze)

However if you are a handy type of person (and perhaps are the stay at home partner of a couple so your opportunity cost of time is relatively low) then self managing your property may result in much higher long term results.  You do have to read up on all the relevant laws regarding tenancy and the rights and obligations of both the landlord and the tenant in your country and state.