"Read My Lips; You Can’t Afford to Hire a Property Manager"
If you think you can hire a real property management company for your
properties, think again. A real estate property manager is an example of an expense that you simply can't afford. Sorry.
DOWNSIDES OF HIRING A REAL ESTATE PROPERTY MANAGER
Yes, conceptually this sounds appealing. I mean, who really wants to deal with tenants anyway? Unfortunately, the concept is not appropriate for us "small time" investors because:
- Property managers are expensive, often charging up to 10% of your gross
Especially in the beginning, you may not even have the 10% to spare.
- Good property managers are hard to find.
- Property managers may not be as focused on keeping repair bills / rental
down as you would be.
- Property managers may not focus on
tasks as much as you would like.
- You will miss out on a valuable learning opportunity.
WHEN TO HIRE A PROPERTY MANAGER
Having a property manager is appropriate for a larger commercial apartment building (say, 20 or more units), but not 2-4-unit multifamily rental properties. At 10% of gross rents on average, you must first have the scale necessary to afford the added expense of hiring out your real property management function.
Again, the largest drawback of hiring a property manager is the added cost. In addition to the flat management fee, you will also incur higher repair expenses because the management company will not be overly concerned with price shopping to help keep your costs down.
Aside from the obvious cost-related problems, I think it's important for new investors to manage their first property for at least 2 years. Your odds of success will diminish if you essentially "outsource" your real property management function from the get-go.
I strongly believe that you must learn the ropes in terms of finding and
– they are your customers. By giving this duty up to a rental manager, you are foregoing this learning experience, which may come back to haunt you at some point down the road.
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