Property Management Blog

WHY HIRE A PROPERTY MANAGER?

Many accidental landlords and investors want to manage their rental property. Why pay someone 10% of your income (or more) to collect rent? How hard can it be?

Managing real estate investments involves much more than collecting rent. Here are some of the most common tasks involved:

• Setting, collecting, and adjusting rents
• Advertising
• Enforcing the lease
• Coordinating and supervising maintenance
• Handling complaints
• Property inspections
• Coordinating turnover
• Enforcing Landlord-Tenant law

Many landlords lose more money than they would pay if they hired a professional, which doesn’t account for the time involved or the stress it causes.

I won’t share specifics to save our client's identity, but American West Realty and Management work with a landlord in Cody who self-managed for four years and lost nearly $60,000. After just two years of management, we increased their net income to $24,000, and the property was in much better condition. The difference between their losses and their gain was $84,000 in two years! On top of that, the landlord was earning enough that they could finally retire, and their health dramatically improved because they were no longer dealing with the stress.

WHAT DOES IT TAKE?

Whether you plan to manage yourself or hire a professional, it is essential to understand the skills a good manager needs so you can determine if you have what it takes.

The first step is to analyze your skills. Some of the most important categories include:

• Strong Communication Skills—Landlords must communicate clearly in various situations. Can you give clear, step-by-step instructions to 18 different applicants in two days? Can you troubleshoot maintenance issues with a tenant over the phone while water is pouring from the ceiling and their children scream in the background? How well can you communicate with a mentally ill tenant, someone suffering from dementia, or an angry tenant who is threatening violence on you or your loved ones? It is also essential to know when and how to stop communicating! Some of your tenants will want to talk your ear off. Maybe they're lonely. Perhaps they're trying to distract you from an uncomfortable conversation or talk you into something you do not want to do. You can't afford to speak to tenants for hours and can't let them manipulate you through distraction.
• Know the Law - Laws change from state to state. Some states are fair to landlords, while others treat the tenant with kid gloves and assume the landlord is guilty in every scenario. Do you know and understand federal, state, and local laws? Can you keep up with them? This is a difficult thing to do and something most landlords never even attempt. Nothing will protect you better than knowing and obeying the law. And if you do not, nothing will sink you faster! Does your lease comply with the law, or are you using a copy of a copy that you found in a kitchen drawer when you bought the property? Even if you have an up-to-date contract, do you know how to enforce it? I've seen landlords lose thousands, even tens of thousands because they didn't know the law and didn't follow it.
• General Maintenance - You do not need to know how to install flooring, fix a furnace, or even unclog a toilet, but you should understand how things work and what it takes to fix them. If you do not know the basics, you'll send a licensed contractor to reset a circuit breaker or change the oven setting from Celsius to Fahrenheit, wasting a lot of money. A salesperson may trick you into paying $6 per foot for new flooring when the market rate is $3.25. Knowing the basics will keep you from wasting money or being exploited.
• Organization—Organization runs from the day you market to the day the collateral is returned (or invoiced). How do you track applications and keep them in order of receipt? What steps do you take to move a tenant in, and how do you keep track to ensure no steps are missed? Where will you keep inspection photos? Bills and receipts need to be tracked accurately for reporting and taxes. 
• Problem Solving - As a landlord, you will encounter various problems, from tenant disputes to lease violations to property maintenance issues. You will not always find the answer in your lease, the law, or on a website. When COVID came out in 2020, many landlords were utterly overwhelmed, so they sold their properties and exited the business. Others learned to adapt and overcome, making their businesses even more vital.
• Assertiveness - We want to treat people honestly and fairly, but we must also be firm in our policies. If you do not like animals in your rentals, you'll have to stand up to the single mother who desperately wants to get her kids a puppy for Christmas. You will have tenants who call with minor complaints or requests to improve the property when they say it was "perfect" two weeks ago. 
• Marketing - Do you understand what's happening in your local market? Are you tracking the cost of living, rental rates, availability, and other factors to know how your rentals will perform? Most landlords fail at this so investors can buy rental properties 50% below the market.
• Money Management—Are you able to budget? Can you track income and expenses to ensure you do not overspend on installing that new deck your tenant requested? You must also manage cash flow and maintain financial records.
• Boundaries—Can you set and maintain boundaries with your tenants? If you can't, they will bombard you with phone calls, texts, or emails. They'll wear you down with constant complaints, questions, or demands. Some tenants annoy you, some try to be your best friend, and some bully or outright threaten you.
• Self-motivated - As with any business, you are responsible for your successes and failures. Can you find the answers to your questions? Can you follow policies and procedures under challenging situations? 
• Negotiation - You'll need to become an expert at negotiating with others, from applying to setting rent increases, especially when getting a problematic or non-paying tenant out of your lease. Communicating effectively to create a mutually beneficial outcome can help you in difficult situations.
• Time Management—As your investment business grows, you must manage multiple tasks simultaneously. Good time management skills allow you to prioritize tasks and meet deadlines without slacking off.

IS SELF MANAGEMENT RIGHT FOR ME?

After determining whether you have the right skills, you must evaluate whether management is your best option. There are other factors to consider before taking on this new responsibility.

• Time - Many new landlords fail to take this into account. Managing rentals involves more than just collecting rent each month, especially at the beginning or end of a lease. What if your tenant's heat goes out at 9 p.m. on a Saturday or 6 a.m. on a Sunday? What if a tenant abandons the property, and you're trying to handle cleaning, renovations, marketing, showings, and other tasks three days before Christmas? True story: I had just sat down to Thanksgiving dinner when I got a 911 call about a broken pipe. I spent most of the afternoon soaking in freezing water and missing my favorite holiday. You may think you are saving money by going it alone, but when you factor in your time, you may be spending more than you are saving. If you are a cardiologist making $600 an hour, does it make sense to "save" $100 an hour by fixing a toilet instead of hiring a plumber? Many investors will hire a property manager to protect their time so they can spend it with family, enjoy hobbies, or focus on scaling their business.
• Distance - It is much easier to manage a house two blocks away than an hour or 300 miles away. It is possible to manage a property from a distance, but it requires some creative skills and is rarely done as well as someone local. I've seen landlords pay real estate agents an entire month's rent to help with showings! You still must pay someone to handle regular inspections, move-out inspections, coordinating and overseeing maintenance, and other tasks. When you factor in these costs and their time, you've probably spent far more than it would cost to hire a full-time manager.
• Contractors - Finding quality contractors is challenging, whether you live locally or not. As you buy more properties, you'll need to develop relationships with responsive vendors that communicate well, understand your needs, do a good job, and charge fair prices. Being local to your rental will also allow you to oversee their work.
• Market Knowledge—Our markets are constantly changing. Can you study the market regularly to understand vacancy rates, rental rates, job growth, and economic factors that affect your investment?
• Legal—As someone who networks and helps people all over the country, I understand the differences in laws and how easy it can be to get tripped up by them. Some states give you up to sixty days to process a deposit refund, while others only give you fifteen days. States are increasingly adding their list of protected classes under Fair Housing.
• Inspections—Are you able to monitor your investment? A good manager will inspect their property 1-2 times yearly, with many drive-by inspections. If you do not monitor the property, problems can get out of hand and catch you by surprise when the tenant moves out five years later.

HOW WILL PM BENEFIT ME?

Many investors hire a professional because they understand that a professional can do it better, faster, and more efficiently. It can free up your time to spend with your family, go on vacation, and work your W-2, where you make more money per hour. It also frees you to find more investments and focus on growth instead of tenants.

To break it down into the simplest terms, a PM will protect your property, income, time, and sanity (PITS).

PROPERTY

A good PM does not develop a deep, sentimental relationship with your property, but they do understand that a well-maintained property attracts and retains good tenants. Maintaining the property will allow it to be rented faster and at a higher price. Tenants stay longer, complain less, and pay on time. This reduces the PM's workload and increases his income, so protecting the property is in his best interest.

INCOME

Your income affects the manager's income. The PM can't collect his monthly management fee if your tenant does not pay rent. In addition, the PM must increase their workload to track down the tenant and attempt to collect. The more time the PM spends chasing down late rent, the less efficient they are and the less money they make. It is in their best interest to protect your revenue stream.

When a tenant pays rent on time, managing a single rental takes less than an hour per month. On the other hand, I'm dealing with a deadbeat tenant right now, and he's quickly eaten up 12 hours of my time in 45 days. Non-paying tenants hurt the manager as much as they hurt the landlord.

The manager also wants your property to be rented for top dollar. If the manager charges a 10% monthly management fee, he'll make $10 for every $100 rent increase. Renting $200 below market is only $20 a month for the PM, which does not seem like much. But if that PM manages 400 rentals, losing $20 per property, $8,000 a month, or $96,000 a year!  To put it another way, the rentals I currently manage bring in $400,000 a month. 10% of that is $40,000 a month or $480,000 a year for my office. If I raise the rent by 3%, my income increases by $14,400 that year.

By aligning their interests with yours, the PM keeps the property rented at top dollar with tenants who pay on time, every time.

TIME

Too many landlords fail to consider the time it takes to manage rentals. Managing rentals may seem easy initially, especially if they are close to your home. You can drive by occasionally, the rent gets deposited into your bank account, and it takes little time. But what if you have 30 rental properties? What if the tenant stops paying rent and abandons the property? Do you have to clean and renovate it and then try to find a new tenant in the middle of winter? Suddenly, this one property is eating up all your time.

Allowing the PM to care for everything frees up your time to pursue other interests. That could be time with your family, studying the market, or looking for more investments. Or maybe you're a professional who can make $100 an hour at your day job, so it does not make financial sense to "save" $150 a month to deal with tenants and toilets.

I think it is essential for landlords to sit down and calculate the cost of self-management, considering the value of time and how it affects their family, investment strategy, and income.

SANITY

A good manager handles difficult situations, so you do not have to. I can't count the number of times I've helped BiggerPockets members who found themselves in a difficult situation they didn't know how to handle. A tenant stopped paying rent. They trashed the property. Threatened to sue or even physically harm the landlord. A tenant moved six family members into a two-bedroom apartment or added a couple of pit bulls. These unique situations can be very stressful for an inexperienced landlord, but for us it is just another day at the office.

CONTACT US today if you want to see how American West Realty and Management can help you with your real estate investments in Cody or Powell. We are happy to answer your questions, explain our work, and show you what we charge. It doesn’t cost anything and will help you make an informed decision.