Investing in real estate provides investors with more control over their money than most investing vehicles. Rather than putting your money into a fund and having someone else decide where it goes while you watch the numbers go up or down, real estate allows you to determine exactly what you want to buy, when you want to buy it and what to do with it once you have it. For many of those who decide to use properties for residual income, choosing to use a property manager is looked at as giving up some of that control.
Today, I’d like to give you several reasons why being your own property manager will help you increase your profit and keep firm control of your investments.
Increase Your Net Profits
The whole point of investing is to make a profit. Yet, when you hire a property manager, you are giving away 8 percent to 10 percent of your gross income every year. That can be a large amount of the net profit.
Let’s look at two houses as examples. We’re going to assume that you have a $100,000 loan for both houses at 4 percent interest with payments of $700, which includes taxes and insurance. Both houses rent for $1500 a month. However, one house is managed by you, and the other is managed by a management company.
At the end of every month, your managed house will lose $150 to a third party, costing you nearly $2,000 a year. If you have five houses, that’s $10,000 a year you could be using to buy more properties.
Keep Control of Your Repair Costs
Most property managers have a set price for repairs that usually has a premium on it. For example, a typical hot water tank should cost you around $550 to replace with parts and labor. However, a property manager is likely to pay $800. Why would that company be willing to spend an extra $250? The money is not its own.
If you are managing your own property, you can negotiate for the best price for repairs. You will be able to pick the materials that work best for your home and your budget, and find a contractor willing to do the work at the right price. Nobody will negotiate better for your home than you will.
Know Your Tenants
Having good tenants is a key to making money with rental properties. You’ll want to be sure that they:
- Are stable as shown by the number of years at their current employment
- Are reliable as shown by references of a previous landlord and lack of previous evictions
- Have a monthly income that is at least three times the rent amount
- Haven’t had a bankruptcy in the past seven years
- Haven’t been sued due to rental damage or nonpayment.
- Haven’t broken a lease
- Haven’t committed a felony
- Have good credit
Of course, a management company can be sure to follow a specific protocol relating to these items. But what they can’t know is what your gut is saying when you are able to interview the potential tenants face-to-face.
When you interview your own tenants, you have the numbers in front of you, but you can also listen to your gut. You’ll get the chance to see what they are like, hear their responses to questions and get a feel for their “fit” with your property. Property managers will look at the numbers, but only you can determine what your gut has to say.
Know What is Happening with Your Property
When you use a management company, it is very easy to assume the company is doing what is needed and that the tenants are paying. Your property becomes an “out of sight, out of mind” investment. As such, you might be totally unaware your property has had three tenants in the last year, a tenant is causing issues in the neighborhood, minor repairs are not being made or a host of other issues. Although the management company will let you know about the big things, the small day-to-day things are not always reported.
Although this may sound great, you need to remember that small problems eventually become big problems. Would you rather learn about a small water leak or major water damage? Managing your own properties means you know what is happening with your property at all times.
You Can be Proactive Collecting Late Rent and Fees
Although management companies collect the rent and any late fees, they are not proactive about the process. On the other hand, if you know your tenants, you’ll know when someone is having a tough time. You can talk to them a week before the rent is due to remind them what you expect. You can also find out how much they can pay now and when they can pay the rest. Finally, tenants are less likely to make late payments to you than to a management company because you are a real person and the management company is just a company. The personal touch always helps when collecting rent and fees.
It Will Make You a Better Investor
If you manage your own properties, you will learn more about the rental process, which will then make you a better investor. This, in turn, will allow you to make more money, which is where we started this post.
If control of your investments and the best profit are goals for your investments, then you should definitely manage your own properties. Although it may be tough to learn at first, as with anything, the more you do it, the better you will get at it.
About the Author
John Trautman is an author, entrepreneur, longtime real estate investor and founder and CEO of the Real Estate Knowledge Institute. Through REKI he teaches and inspires aspiring real estate investors who have an interest in everything from home flipping to buying and selling rental properties to earning passive income through various real estate investments. Contact him at firstname.lastname@example.org or 206-255-2858.