The Pros And Cons Of Hiring A Property Management Company
There are certainly arguments for and against hiring a property management company to manage your real estate investment properties.
Some would argue that you should never hire a percentage of the gross property management company. Others will argue that the quickest way to becoming an ex-real estate investor is to manage your own rental properties. So who is right?
Aside: "Percentage of the gross" simply means that the professional management company (not to be confused with the resident manager who would live in the building) gets paid a percentage of the gross income that the commercial property generates. Typically these fees are around 5%. For example. If you own an apartment building that generates $35,000 per month in revenue (rent, laundry income, storage etc.) the professional management company would be entitled to 5% of that figure as their monthly fee. In this case, 5% of $35,000 would be $1,750.
First let me say this. If your apartment property has enough units (typically 15 units is the minimum), you definitely want to have what is called an on-site or resident manager. These individuals (sometimes they are couples that share the duties) live in one of the units in your building, and are the "front lines" of your management structure. The resident manager is not the person(s) people are referring to when they use the term property manager. The resident manager would report directly to the property manager or management company who would also hire and/or fire them as necessary. If you choose to act as your own property management company then you would be the one that your resident manager would report to instead.
Some Of The Pros Of Hiring A Property Management Company
- Likely the property manager has much more experience in managing rental properties than you do.
- You do not have to deal directly with tenants.
- Easier to invest "out of town".
- Someone else handles the maintenance etc.
- A certified property manager should be abreast of all the landlord tenant laws in your area.
- Gives lenders more confidence in your deal when they see a professional management company is in charge, especially if you have zero experience managing a multi unit property.
Some Of The Cons Of Hiring A Property Management Company
- Because they are paid based on gross income, they will not manage the bottom line properly. ie. net income.
- Potential for theft, especially if rents are paid by cash.
- They will never dedicate the energy to your property that you would.
- They will not be as diligent in keeping the building in good shape as you would.
Want to learn more on the subject of property management (which is vital to your success in residential real estate), here are two good resource...
1. The Basic Property Management eBook and...
2. Find And Keep Great Tenants
Remember, tenants (good ones that is) are the lifeblood of your business. They are the first to show up at your place of business in the morning and the last ones to shut off the lights!
Now personally, I have always used a professional property management company to manage my apartment buildings and commercial properties. The main reason for this would likely be that most of my rental and commercial properties are located quite far from where I reside (some are over 700 miles away!) Knowing that I have a competent person available 24/7 to deal with emergencies and simply handle the day-to-day operations let's me sleep at night.
Now, could I have manage those properties better myself? Perhaps yes. Perhaps no. In fact I am sure that I would give them more attention than they are receiving now. But that would be the case with any business. The owner will always be the most diligent and detail oriented.
What I do know for certain is that had I not chosen to hire professional management companies to operate my commercial properties, I would have likely passed upon several investments that ultimately made me a great deal of money.
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