Last Updated on February 11, 2020 by Mark Ferguson
Rental properties are a great investment, but managing them takes work, especially if you do not use a property manager. I own more than 20 rental properties (commercial and residential), and I managed my rentals until I had 7.
My rental properties at the time were single-family properties and relatively easy to manage, but they still took time. You have to pay attention to details and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants, and you can’t ignore problems because that is when rental properties can change from a great investment to a very poor investment.
When I hired a property manager to take control of my rentals, it was one of the smartest things I have ever done. I did not realize how much time they were taking to manage or how poorly I was doing at managing them. Property managers will cost money, but the cost is usually well worth it. I wish I would have handed over the management much earlier in my career.
What does a property manager do?
There are many tasks associated with managing a rental property. However, most tasks come when first renting a property; once a home is rented, there is much less work involved. Here is a breakdown of the basics of managing a rental property.
Determine what to repair before a property is rented. I want to control what is repaired whether I manage a rental property or do what a property manager does. A property manager may help you with repairs before you rent a property, but they also may only help with maintenance and repairs after a house is rented. Even before you buy a rental property, you should have a good idea of what is going to be repaired and how much it is going to cost. Out of state, rental-property owners may have to depend on someone else to manage the rental property repair process.
Determining what a house will rent for is one of the most important parts of investing in rentals. I like to have control of this whether I am managing a house or using a property manager. A property manager wants to get houses rented fast because they collect money based on the rent. They may not try to get top dollar, although some might. An agent on my team recently sold a house to an investor, and that investor used a property manager.
We had told the investor the house would rent for $1,500 before they bought it. The property manager they hired said they would rent it for $1,200! We urged the investor to rent it for more, and they ended up asking for $1,600 a month. They rented it at $1,600 in two days, and they were very happy they did not blindly take that property manager’s advice. Good property managers will know exactly what rental rates are and get top dollar for their clients.
Renting out a house is the hardest part of management, or at least it should be. If you take time to screen tenants and pick the best tenants, it will make you more money and save many future headaches. You have to advertise the property, show the house, check references, check credit, create a lease, and collect money. Don’t pick a tenant because they are the only ones that will pay what you are asking. Don’t pick the first tenant that wants the house because you are tired of showing it. Pick the best tenant, and don’t convince yourself a tenant you have doubts about will work out so you can start collecting rent. Property managers should have strict guidelines for who they rent houses to and plenty of experience finding great tenants.
When you rent out a house, you have to make sure your tenants pay on time and charge late fees if they don’t. If you let late rent slide, the tenants will think it is okay, and they will keep paying late. They will get later and later with rent if there aren’t any consequences and may stop paying completely.
You have to be strict no matter who is late and what their story is. If tenants get too far behind, don’t be afraid to start the eviction process. Starting the eviction process usually gets your tenants’ attention, and they start paying rent. A property manager will collect rent and should have no problem charging late fees. They will also know exactly how to handle an eviction if needed.
It is never fun to evict anyone, and I try to avoid it because an eviction is just asking for your tenant to trash a house. I try to work out mutually agreed upon move outs. If I can have a tenant move out on good terms, they are more likely to take care of the house and possibly pay me what is owed. I would rather lose a tenant who is not paying rent and rent the house to a tenant that will pay me than rent it out to a tenant who is constantly behind. A property manager will handle rent collections and evictions.
Just because you have a tenant who always pays on time and never causes a problem does not mean they are taking care of your property. I always write in the lease that I have the right to inspect the property with proper notice. I use this time to make sure the house is well maintained and that I can change furnace filters, check smoke detectors, and make sure no other repairs are needed.
Some of the biggest problems come from landlords who rent out a house and never check it. The same tenant is in the property for years, and they absolutely destroy a house and the landlord never knows. It is possible to destroy a house quickly, but usually, the worst damage occurs over years. Some renters who always pay on time are doing so because they don’t want the landlord to see the house. They may be trashing the property or doing something illegal like selling or making drugs. Property managers should check on your houses often to make sure they are in decent shape and nothing illegal is going on.
I have contractors repair all my properties before I rent them out, but I still have maintenance issues. Things break when you own a rental, and you have to repair them. I am not interested in being a slumlord who doesn’t make repairs. I always plan for vacancies, and I plan for maintenance when I calculate my cash flow. That way, when costs come up, it does not hurt my bottom line because I already calculated for them. If there are water issues, roof issues, electrical issues, or any problem, you fix it.
You want your house to be safe and well maintained. If you can’t afford to maintain your rental property, you shouldn’t have rentals. Problems will happen at all hours of the day and night, and if you are managing your rentals, you will have to take those calls. A property manager will handle maintenance issues, and you should check with the owner of the property on any non-emergency issues before work is done.
When you manage your own properties, you have to keep track of expenses, rents, profit, loss, etc. A good property manager will give you a year-end report that has all your tax information, profit, losses, and accounting information. I always send all my information to an accountant to make sure the expenses and taxes are calculated correctly. It is not easy to calculate taxes on rental properties because you can depreciate the structure, which is an awesome tax advantage.
Below is a video of how to find a property manager
How much does a property manager cost?
Property managers will cut into your profits, but they will save you time as well. Property management fees usually range from 8 to 12 percent of the monthly rents. Some property managers also charge a leasing fee, which could be one half or one month’s rent. In my area, I can find property managers who charge 8 percent of the monthly rents with no leasing fees. I have thought about starting a property management company, but with fees that low, it is hard to make much money.
I have a real estate team that consists of real estate agents, assistants, and myself. When I gave up managing my rental properties, I handed the duties over to my team. Not only does my team help me with selling houses and my fix and flips—they also manage my rental properties. When you are buying rentals, you should include the cost of property management as one of the expenses. Even if you are managing the properties yourself, it takes time, and you should not be working for free.
How much time can you save?
Many people manage properties themselves because they want to save money, but they forget about the time it costs them. Time is our most valuable asset, and I know I have better things to do than manage my properties. That may not be true for everyone, but I think many people can make more money by hiring a property manager and spending their time on more valuable activities. It may not seem like there is that much to do when managing a rental, but as you can see from the list above, there is.
When you have multiple rentals, it can be extremely time-consuming. Many people fail to do all the tasks they know they should be doing because of the time they take. The most time-consuming part of managing properties is getting them rented out. It can take 5 to 10 hours to rent out a property if you are doing your due diligence. If you only have one rental property, you should be able to spend a few hours a month managing it (besides the leasing). Many of those hours will come from renting out the house, and much fewer hours will be from collecting rent, dealing with maintenance, and other issues.
How was my experience managing rentals?
I found out that not every rental will require a lot of management. I have had rental houses that never have a problem, are well maintained, and the tenants always pay on time. However, bad rentals or bad tenants will take a lot of time. I have had other rentals where the tenants are always having problems, pay late, or stop paying completely. I had one tenant who had a heart attack and could not work anymore.
We came up with a mutually agreed upon plan where he would move out and try to pay me back for back rent owed. He never paid me, but I rented out the house right away for more money than he was supposed to be paying, and it worked out okay. However, if I had used a property manager, they probably would have never rented to him and gotten him out of the house much sooner. I had another rental that was completely trashed by tenants. They had been great tenants for years but fell apart suddenly. You can see the video of the house below:
Are certain properties easier to manage?
I think single-family homes are easier to manage than multifamily properties. The reason single-family homes are easier to manage is people are more likely to treat single family homes as their own house. Most people do not want to live in an apartment their entire life. They eventually want a house with a yard and a place they can call home.
Many people want to eventually buy a house, but some would rather rent. Because people are more likely to call a single-family rental their home, they will stay longer. My parents have had the same renter for 14 years in one of their single-family homes. Many renters will also take care of a single family home better and even do some repairs themselves. On most single-family rentals, the tenants also pay all the utilities and take care of the yards. On multifamily properties, the landlord has to pay some of the utilities, take care of the common areas, mow the grass, and remove the snow.
I also own commercial properties, which can be very easy to manage or very difficult. Some of my commercial tenants take care of everything and I never see them. If you get good commercial tenants on NNN leases, they can be very easy to manage. NNN means the tenants pay pretty much everything. The tricky part with commercial rentals is finding the tenants, as it can be much more difficult to lease a commercial property than a residential property.
A property manager handles a lot of issues that come up on rental properties. I believe they are well worth the cost based on what they charge and the money they can save you. If you want to manage your own rentals, make systems to help you.
Create a system to check your houses, to make sure rent is on time, and to make sure accounting information is logged every month. It takes time to manage properties, and if you do not have the time, you will make mistakes. Mistakes on rental properties can be very expensive, and a property manager could have saved you tens of thousands of dollars despite their cost.