Ask Lucas

Ask Lucas 009: Should I Hire a Property Manager?

Summary:

Dave from Arizona is moving out-of-state and wants to rent out his current residence. He’s never been a landlord before and wondering if he should hire a local property manager, or is he able to manage the property remotely? Further, he’s heard that property managers can be expensive, but how much should he expect to pay?

Related: Should I Hire a Property Manager?

Full Transcript:

Lucas: Hey, there. This is Lucas Hall from Landlordology and Cozy. Thanks so much for joining us today. It’s the ninth episode of Ask Lucas, a bite-size Q & A show where I answer your questions about landlording and property management. This concept is really simple. If you want to get a question answered, you can go to Landlordology.com/ask-lucas and record a voicemail that I will answer in the podcast.

Let’s get started. Today’s question is from Dave in Arizona.

Dave: Hi, Lucas. This is Dave from Phoenix, Arizona. I’m calling because I have a question about property managers. I am changing careers and it’s requiring me to move out-of-state. My wife and I have a two-bedroom house here and we don’t want to sell it, so we were wondering about the advantages and disadvantages of hiring a property manager. I’ve heard from a lot of folks that property managers can be expensive. Ideally, I’d like to manage this place remotely myself, but I’m wondering how hard that would actually be.

My question is just is it worth it to hire a property manager and would you recommend it? Thanks.

Lucas: Hey, Dave. Thanks for your question, and congratulations on the career change and the move that you’re about to embark on. That’s really exciting. I wish you the best of luck in your career.

In terms of your rental property, you’re asking all the right questions on whether or not you should hire a property manager. I should just say before I answer that, my advice is going to be totally skewed because I think that – I’m a firm believer that a landlord, an independent landlord can do it himself. That’s what I’ve done for the last ten years, and it is the main reason why I have the profit margins that I do. I think property managers, though they add value, some more than others, but though they add value they do eat into a good amount of your profit, if not all of it. I even know some landlords who are paying on the property when they don’t have to be just to pay for the property manager.

My advice is going to be you can do it yourself, but that’s a personal decision that you have to make. My advice is like going to a bankruptcy attorney and asking if you should file bankruptcy. I’m an independent landlord and I do it myself. I think when it comes down to it and when anyone is asking themselves this question, they really need to look at the data and look at the numbers and the bottom line and whether or not it’s going to be feasible to afford and whether or not you’re getting value out of it. It’s a business decision just like anything else.

If you or your spouse don’t want to touch this property at all and you guys want the money just to show up magically, then your only option is to hire a property manager. Like you said, it sounds like you’re willing to give it a go and try it. I would suggest trying to be an independent landlord or managing yourself for maybe a year or two and see how it goes then, and then if it’s not working out, then hire a property manager.

Let’s look at the things that either party is going to have to do, things that need to get done regardless of who does them. One, you’re going to have to list the property and do that from a distance. You’re going to have to show the property from a distance. You’re going to have to accept applications, screen those tenants, pass out keys, then collect rent and handle any kind of repairs as well as tenant turnover when they finally leave and you get a new set. There’s a lot to do, and a good property manager will do that, but for a fee.

A traditional property manager will charge one month’s rent or sometimes ten percent of the entire annual income as their fee. Then other property managers will do that and then also charge you administration fees to find tenants or run the credit reports or every time there’s a call. Sometimes when they have to step in, there’s a small fee that gets added on. It could just be one month’s rent, but it could also be more than that. I suggest really doing your homework on the property manager and look at their reviews on Yelp, look at any other review site that you can find as well as the Better Business Bureau and really ask about their pricing structure because that will vary a lot, depending on who you talk to.

The things that I listed are all things that need to happen as a landlord, but there are a variety of tools out there that will let you do it yourself. For example, Cozy, which I’m a big supporter of and I think that they are just a tremendous benefit for independent landlords, they let you not only have your online rental applications that come instantly delivered to your inbox, but also you can screen your tenants and compare applications, but then order credit reports and then set up online payments so that your rent gets delivered auto-magically to your bank account every single month all year long.

Though these are the main components of being a landlord, there are some things that you need to do that require you to be on the ground or at least have a representative at the property to handle various aspects of it. For example, after you list the property, which you can do yourself on Craigslist and Postlets and other sites, then you actually have to show the property to prospective tenants. When they show up, someone has to be there to open the door for them and then pass out keys if you end up renting to that group.

The way I’ve done it in the past when I have a remote property, I usually hire a friend and say, “Hey, I’ll give you a hundred bucks if you’ll do this for me.” Sometimes I’ll do a by-the-showing, so I’ll say, “I’ll give you twenty-five bucks if you go over there and do this. It doesn’t take more than maybe fifteen or twenty minutes, and if they have any questions, just tell them to call me.” If you don’t have a friend in the area, you can always contact a property manager and see if you can negotiate some sort of deal. There are plenty of property managers that you can negotiate with and say, “Hey, listen, I don’t want to hire you for all the services, but I do need you to just go over there and show the properties when I tell you there’s a showing coming up.” They will do that oftentimes for a fee, a small one-time fee every time they have to go over to your property, and they’ll handle the keys for you.

Other than that, you can do most of it yourself. You can just say, “Hey, if there’s a repair issue, just call me or send me an email and I’ll schedule somebody.” When that contractor then shows up at the property to actually make the repair, I actually force my tenants to be there to let them in and to oversee that. Then at the end, those tenants get to be the quality control and they tell me whether or not it was done to their satisfaction. That’s an added perk. Oftentimes, a property manager will just let the contractor come through the door and then just stick around on their iPhone while they play Angry Birds and then let the contractor leave without actually double-checking their work.

With that said, I actually think that a good property manager is worth his or her weight in gold. The problem is I’ve just seen too many that are overburdened and can’t keep up with the demand that they actually just stop trying. That’s what you want to be weary of.

Again, my advice is I think you can do it yourself. I think there are tools out there that are so much cheaper than hiring a property manager, but if you find a good one, they really do add value. I’d say give it a go for yourself for a couple of years, and if it’s still a headache, then weigh that cost benefit for hiring a property manager.

Thanks for your question. If you have any further questions, hit me up again. Good luck with your career and your new long-distance rental.

Ask Lucas is brought to you by Cozy, which provides end-to-end property management software for landlords. I use Cozy personally in my own life to accept rental applications, screen the tenants, and then automatically collect the rent online. I automate my rental properties with Cozy and I love it. It’s really changed the way I do my business. Check it out at Cozy.co.

About Lucas Hall

Lucas is the Chief Landlordologist at Cozy. He has been a successful landlord for over 10 years, with dozens of happy tenants and a profitable income property portfolio.
Read more about Lucas's story.