Property Management

Deciding To Lease

Although the majority of people looking for a Property Management Company are accidental landlords they are often heartened to find out that they are in esteemed company. Dozens of the men and women that compose the Forbes 400 list of the richest people in America made their fortunes in real estate. Real estate offers several unique advantages over other investments:

  • Control:  No other investment provides so much control for so little capital. Try buying $200,000 worth of Microsoft stock and telling the board what to do…
  • Leverage:  Due to its inherent value its very easy to purchase real estate with other people’s money.
  • Appreciation:  Your property value can go up due to market conditions or improvements you make.
  • Equity Build-Up:  As you rent out your property your tenants pay down the principal on your mortgage.
  • Tax Benefits:  Not only does the IRS allow interest deductions, they also allow depreciation. These two items can add up to thousands off of your tax bill every year.
  • Diversification:  Most people only invest a single asset class:  stocks. While diversification will never make you rich, there is something to be said for not having all of your eggs in one basket.

When do I need a Property Manager?

When you first decide to lease your property you may not need a Management Company immediately. If you’re able to manage your own property for awhile we highly recommend it. Managing your property through 2-3 tenants is an enlightening experience. There’s no better way to educate yourself on the in’s and out’s of property management than actually doing it.

Managing your own property will give you the perspective needed to become a smart real estate investor. You’ll begin to gain a feel for marketing, maintenance costs and timelines, dealing with tenant issues, and legal compliance. All of these skills will not only help you identify a good manager later but will contribute to the growth of your bottom line.

Eventually there may come a point where it becomes smart to hire a Property Management Company:

  • You live more than 50 miles away from your property. It can difficult to conduct property inspections, maintenance assessments, and check on work completed when you have to drive over an hour one way just to get to the property. While you may be able to rely on contractors to take care of smaller maintenance issues sight unseen, its important to be able to check on larger projects to verify work quality and completion.
  • You own more than 3 properties. As your portfolio grows span of control can really start to become an issue. In order to manage more than a few properties you need to invest your resources into developing and implementing systems to ensure routine tasks are completed as they should be. Economies of scale can begin to kick in between 50-150 units depending upon a variety of factors. So unless you’re retired or can afford to not work it really doesn’t make financial sense to manage your own portfolio full time until you hit those benchmarks.
  • Your time is limited. Life is busy. Unless you are a full time real estate professional, you probably have another job to worry about. You may also grapple with family and social commitments. What is your time worth to you? It can take anywhere from 2-10 hours a month to manage your property and this time can easily double during periods of tenant turnover.
  • You don’t want to deal with tenants or contractors. Unfortunately, not all tenants are easy or pleasant to deal with. Tenant calls or texts during dinner or at 10 p.m. (it happens) are never pleasant. Ensuring contractors do what they say they’ll do when they say they’ll do it is also a constant challenge. If you don’t have the patience to deal with these issues and develop systems to address them owning your property can be a stressful ordeal.