If you are looking to invest your money, investing in a real estate is the best investment around in my humble opinion. However, with great power comes great responsibility… or something like that. You will have to face several obstacles, most notably regarding property management, dealing with tenants, keeping the accounting, etc.
Unfortunately, there is no one answer to this question. A great deal of it rests on what your goals and priorities are. But there are definitely some clear advantages to each.
In-House vs. Third-Party Management
If you choose to handle and management yourself, you will obviously be saving money you would otherwise have to pay the property manager. Most property management companies charge 10 percent of the rent collected and the first month’s rent from any new tenant in addition to all late fees collected.
While you might feel that it is a lot of money you will have to pay, it’s important to also remember that time is money. If you hire a property management firm, it will save you a lot of time that you can use to find motivated sellers and value-add prospects to purchase or more time for your job or to simply do whatever you want to do.
But it’s more than just a question of time or money. Handling the property yourself reduces the risk of being defrauded. Yes, there’s always a risk of being defrauded by employees you hire or by contractors. Yet the closer to the action you are, the easier it is to identify what’s going on and whether all of it is above board.
Managing the Manager
Even if you hire a property manager, you will still have an active role, namely in managing the manager.
You will need to demand reports for monthly revenue, vacancies, and income. If the property (or properties) stays vacant or there is a high degree of delinquency, be sure to ask them about it. You will have to be a bit firm about it because if you are not, you might fall to the back burner. If the manager is not performing up to the mark and they are not improving, then don’t hesitate to change managers.
Which Should You Choose?
Again, the answer highly depends on your goals and priorities. However, there are a few tips I can offer.
Are you looking to expand your business to be a full-time investor? Under this situation, handling it yourself will generally make more sense.
If you’re working a job, time constraints come into play and (usually) hiring a manager would make sense.
Would you like to get your hands dirty and do all the work related to tenants and the property maintenance yourself? If the answer those questions is” yes,” I would recommend managing yourself.
The right answer very much depends on your situation and goals.
If you have a decent number of rentals, for example, five to twenty or so, then it would usually make more sense to hire a property management company. Such a portfolio will take a decent bit of time but will seldom provide enough cash flow for you to quit your job (unless you own them debt-free or are flipping or wholesaling as well). But that many properties will require too much time to handle it properly on your own.
If you purchase property out of state, you definitely need to employ a third-party maintenance firm, but you need to do so extra wisely as there are several risks and difficulties that come with buying out-of-state.
Finally, f you are going big and plan to develop a large real estate firm with 50+ units, then I would strongly consider building your own real estate management company. It will give you a lot more control over your properties’ performance and your company’s brand. It will also enable you to benefit from some economies of scale.