Investment Property Management: Self Managing vs Hiring Out
When you’re starting out as an investor, choosing whether to manage your own investments or seek investment property management is typically a tough decision. How will you know it’s the right time to hire professional help? Are there advantages to doing it yourself? At what point do the benefits merit the extra cost of paying management fees? This article will address these concerns and highlight some of the other considerations in selecting a property management firm.
More Control: Self Investment Property Management
One of the greatest benefits of managing your own properties is the ability to keep a closer eye and maintain more control over all aspects of its operation. When you self-manage, it gives you the opportunity to get know your tenants and build rapport. A good relationship with your tenants reduces payment problems and builds trust. Tenants that trust their landlords are typically more willing to make property repair requests, act with honesty, and obey your restrictions. This applies to commercial, as well as residential tenants. Commercial tenants can be just as mischievous when they’re at odds with property owners and managers.
It’s not uncommon for tenants to avoid reporting repair issues, or resort to self-repairs that can cause further damage and loss of value. Staying on top of repair needs is essential to maintain the value of your property and avoid excessive capital expenses for deferred maintenance issues. In addition, visiting your property on a regular basis will allow you to monitor trends in the surrounding community that could positively or negatively affect its value. Likewise, regular visits will help you monitor tenant behavior and ensure that they are compliant with the rules of your lease agreement. Bicycles hanging from balconies, as much as cluttered parking lots, can reduce the appeal of your investment and adversely affect lease demand and rates.
When to Seek Investment Property Management
When is the right time to seek professional investment property management?
As you grow as an investor, and the number of doors that you own and manage increase, there will come a point at which it will not be feasible to personally manage all your units. Unless you plan to go full-time as a manager, you will have little time left for anything else. Even if you do manage your own portfolio, you’ll only be able to handle a certain number of doors. When the management tasks exceed your personal capabilities, you have several viable options. Two strategies include putting together a management team or hiring an independent firm.
Another consideration is cost. When you first start out in investment property management, you might prefer to save the expenses by doing it yourself. On a related point, it’s important to acquire properties at a low enough price to allow sufficient cash flow. Otherwise, you won’t have room in the operational budget to allow for management expenses. This can also restrict your potential for growth. If you’re unable to increase rents or lower expenses, you’ll be stuck with an under-performing property that will provide little cash flow and will limit your exit strategies.
Once your cash flow has begun to improve, this will be less of an issue. You may also find that you’ll prefer to exchange some of that cash flow for less management hassles. Alternatively, you might love the experience and decide to quit your day job. Another thing to consider is distance. How far are you from your property? When you expand your portfolio, you’ll likely have to expand your geographic reach to find sufficient cash-flowing opportunities. Your experience self-managing is valuable and will help you understand what to look for in hiring an investment property management firm.
Professional Property Management for Growth
If your ultimate investment strategy is to grow the largest and most diversified portfolio possible, there’s really no alternative to professional property management. Whether you put together your own in-house team or hire-out, you’ll need help to properly manage and expand your holdings. Once you’ve accumulated more than 15 doors, the management tasks will dramatically increase. Collecting rents, handling repairs, screening tenants, and managing the accounting will be too much for a one-person team. This is a good point to hire in-house staff to handle some of these tasks for you. If you bought the property right, have a sufficient cash-flow margin, and all your properties are local, this is an excellent choice. However, when you grow beyond your home market, even an in-house team may be impractical.
What do you look for when seeking professional property management?
The most important thing is a good reputation. Ask for referrals from associates in the investment business. Ask for, and call, references for past clients of the management firm, as well as visiting the properties they manage. Another strategy is to invest your capital in peer-to-peer lending. This will help diversify your portfolio, reduce your risk, and offset the burden of property management responsibilities and geographic limitations. Crowdfunding platforms handle all the professional property management tasks for you. They will also ensure that your capital is only invested in the best performing projects.
Crossroads
Choosing an investment strategy and the best way to manage your properties is an important and portfolio-shaping decision. Any of the strategies discussed can be a viable solution depending on your needs and investment objectives. Go forward by reading everything you can and gaining experience in investment property management. Also consider partnering with a funding platform that can offer you numerous strategic benefits, limit your risk, and help you achieve larger goals.
