DIY may save you in management fees but could cost you more in the long run.
The rental market continues to create an optimal environment for savvy investors to cash in on a long-term wealth-building strategy. However, when you own a rental property, there are many challenges. The first consideration is whether you hire a third party, or self-manage your rental property. While there are pros and cons to each method, it is ultimately up to the property owner to determine which is the best fit. Here are some questions to ask yourself when trying to determine your optimal property management strategy.
Where Do You Live?
It isn’t uncommon for investors to purchase real estate in a completely different city or state from where they live. Whether you are making your initial purchase, screening for tenants, or merely maintaining the property, it is best to keep a close eye. You wouldn’t invest tens of thousands of dollars into the stock market without checking market prices periodically, right? Why do the same with a rental property?
If traveling to your rental property’s location is time or cost-prohibitive, it may be worth the cost to hire a local property management company. They will have the ability to easily travel to the property to check-in, provide maintenance, and screen tenants during transitionary periods. If you are not investing locally, it is strongly encouraged that you hire a property management company.
How Much Available Time Do You Have?
Maintaining a rental property takes time, especially when vacancies occur. You will need to market your property, find reputable tenants, provide repairs when needed, and deal with potential legal issues. Many investors don’t have the spare time to meet all the needs of a rental property, particularly if they own multiple locations. Many management companies have the contacts and resources to easily deal with any maintenance, tenant, or legal concerns that may occur.
For many investors, management fees charged by third-party companies are worth the cost. Before making a decision, sit down and calculate what your per-hour cost would be for yourself. Assume that you will be spending a few hours each month (at least) to manage your property. Make sure to overestimate the amount of time you anticipate to spend. If the management fee doesn’t exceed your calculated hourly rate, it may be worth it to hire a third-party company. That way, you can enjoy your spare time with family and friends.
What Is Your Understanding of The Market?
Property management companies spend considerable amounts of time analyzing the local market. Managers have years of experience in dealing with real estate, particularly in a specific market. Their knowledge can easily save you thousands of dollars by understanding the ins and outs of rentals. They will know when and how to increase rental rates, providing you with more income per year.
Many self-managed properties are often left without rental increases. When you don’t raise the rent high enough, you with missing out on potential income. Raising the rent too much could trigger tenants to move. As an individual investor, you would have to do all the work of marketing, finding a new tenant, while potentially and pocketing the costs of extended vacancies.
Can You Stay Objective?
It is hard to not take things personally when there is an issue with your property. Even small tenant concerns or repairs can cause significant emotional distress. Stressful incidences like tenant conflicts or significant maintenance can wreak havoc on the emotional state of some investors.
Third-party managers can help minimize stress by taking the emotion out of it. They can handle difficult tenants, late-night maintenance requests, and deal with any damage to the property that occurs. While investors may be made aware of any issues that crop up, not having to be the sole problem-solver makes a property management company worth every penny.
When deciding whether to hire a property management company or manage the property by yourself, the most important thing is to do your research. If you have the time, expertise, and are located close to your property, self-management may be a great option. However, for the vast majority of real estate investors, outsourcing to a management firm makes the most financial sense.
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