My experience has been in managing residential real estate, and my comments in this blog post focus on that.
When you acquire a property you plan to hold, you then have to decide how you will manage it. Your initial choices are simple: you can do it yourself or you can pay a management company to do it for you. Each approach has advantages and disadvantages.
Hire a Management Company
If you hire a management company, you gain the services of someone experienced in the business who knows how to operate a property. You also gain free time and you hope you’ll have less aggravation. On the negative side, your expenses will probably increase with a management company. In my experience, the management companies charged me anywhere from 4% to 10% of gross revenue for the privilege of managing my building.
I also was charged an hourly maintenance rate that exceeded what their paid staff made for any maintenance requests. If I wanted a major capital project done, such as rehabbing an apartment unit, they'd hire out the contractors and supervise the work, and I would pay them a general contractor's fee.
In addition, you are obviously giving up the control of the property when you hire a management company. While the company may confer with you on important decisions, the appointed manager will be responsible for day-to-day management issues, such as renting units, collecting rents, evicting delinquent tenants, paying bills, and so forth.
Depending on your relationship with the management company, you may have very little knowledge of what is going on day-to-day in your asset.
However, management is not for everyone. If you are a professional in a busy position, direct management may not be for you. If you don’t like showing rental properties or dealing with irate tenants (this happens no matter how hard you try), hire a management company. If you really want peaceful evenings and weekends, don’t manage – hire out. If the thought of fixing clogged toilets or cleaning dirty stoves and refrigerators is abhorrent to you, avoid direct management. (Note: you can hire contractors to do these services.) Realistically, though, management is survivable and is not that difficult.
Manage Your Own Property
If you're on the “I'll manage myself” side of the ledger, I'd strongly recommend that you read some of the many useful books available in your library or bookstore. I’ll give you the key lessons I’ve learned from managing hundreds of units and thousands of tenants.
Even if you own several properties, I believe it's a good idea to read books on how to manage – they might contain ideas worth money to you. To be honest, though, most of my landlord friends have never read a “how to manage” book. They simply bought their first property and started managing from there. If you do it yourself, you have two choices:
- You can literally do everything yourself
- You can hire staff and build an organization to do it for you.
You then become a manager of managers.
If you own a few buildings with, let's say, twenty apartment units, you don't have enough to have a staff person. You might, however, offer a tenant a rental discount to help with janitorial needs or minor maintenance requests. The tenant may even be able to show apartments for you.
I have used both approaches. Over the years, I have employed the use of seven management companies to run buildings. I have also either managed the properties directly or hired my own staff to operate buildings.
My preference is to manage my properties myself or hire my own staff to operate the properties.