Hiring a Property Manager vs. Self-Managing

Self-Managing

Many small-scale investors choose to manage their own rental portfolio. The biggest advantages are the monthly savings (5-10% of gross revenue) and the chance to learn a valuable new skill set (property management). Self-managment makes it easier to keep an eye on the condition of the property and habits of the tenants. This is because the owner ends up visiting the property on a much more frequent basis to handle small maintenance tasks and to interact with tenants.

The biggest drawbacks to self-managing your real estate investments is that it can demand a lot of your time and effort. It’s also difficult to predict exactly when those time-sinks are going to pop up. Afterall it is tough to know exactly when a toilet is going to start leaking or when a tenant is going to phone with a noise complaint about their neighbours. You can certainly reduce this with smart planning and proactive management but it’s impossible to completely eliminate this issue while self-managing.

I self-managed all of my rentals for my first few years as an investor. It was the right approach for me at the time. It enabled me to quickly develop as a property manager and better understand my new properties. I still self-manage some units and I almost always self-manage new properties for at least the first 6 months. I like to ensure that I am only passing on to my property manager, stable, well performing properties, that already have high quality tenants in place. That way they just have to continue the systems I have already put in place. This avoids a lot of headaches and growing pains.

I am also a firm believer in the old adage that no one cares about your money or business as much as you do…I will always put the extra effort into my own properties in order to 100% optimize them. At the end of the day, a property manager is much more likely to put that extra effort into optimizing their management business itself, not your individual property. They likely have a portfolio of 100-200 rental units they are responsible for and unless you own a large portion of said portfolio you are not always going to be on the top of their priority list.

Hiring a Property Manager

Some investors insist on having every one of their properties managed by a dedicated professional property manager. There are a lot of advantages to this approach. The biggest advantage is the amount of time and energy it frees up to focus on whatever other projects you have on the go. For folks who want/need to keep working a normal day job while aggressively growing their portfolio, this can be an essential part of their overall business plan.

Another big advantage to hiring a property manager is that you get to leverage their expertise and professional grade business systems. These folks are the literal pros after all. They already know how to deal with every tricky situation and awkward tenant communication. They also already have existing relationships with all the best local contractors. I have learned the hard way that not all contractors are created equal…take it from me, having a list of proven, high quality contractors to draw upon is a hugely valuable asset. I wish I had put more emphasis on this when I was first starting to invest in real estate. The bottom line is that a property manager can compensate for a lot of  gaps in a real estate investors skillset.

One of the most overlooked advantages to hiring property management pros is their experience vetting prospective tenants and putting together airtight lease agreements. Most of them have professional property management software and systems that make these processes much more streamlined than anything the average mom and pop investor can achieve. Many property management companies also offer access to discounts on property insurance.

The price you pay for this is relatively straightforward, the manager takes a cut of each property’s gross rent (i.e. revenue) every month. Typically, property managers charge 8-10%. However, you can find some that charge as little as 5% and as much as 12%. For investors that operate in relatively high cap rate (i.e. 10%+) markets this cost may not seem that scary. For many investors that operate in markets like Vancouver or the GTA where cap rates are very low (5% or less) this extra cost may represent their entire profit margin.  This is actually one of the factors that first made me consider expanding to a lower cost market like Winnipeg.

Overall, I believe that hiring a property manager is a smart move for anyone that is already busy with other jobs/side hustles or simply knows that they don’t have the right personality or skill set to effectively manage the tenants and day to day operations of their portfolio. I also believe that self-managing is the one of the best ways to educate yourself on real estate and one of the easiest ways to cut costs and boost your rental profits. However, it’s really best left to folks that have the spare time and interest to take it seriously though.

Poor property management by yourself or a professional can ruin a great investment in a shockingly short period of time. What’s most important is that you recognize what approach is best suited to your situation and either commit to putting the work into being a quality manager of your own properties or find an experienced pro to handle things for you.