SMART INVESTORS DO THE MATH AND SEE THE VALUE, BUT NOT WITHOUT SOME TRADEOFFS
The general idea behind investing is to commit to an asset that will make money while you sleep. You’re looking for passive income and you want your money to work for you. Real estate investment puts a check in all of these boxes, if you can skillfully identify properties and scenarios with the greatest upside. Just because you buy an investment property, or rent out your single family, does not mean you’re going to automatically make money.
Hiring a reputable property manager will help create more upside for your investment scenario. Having an experienced expert in your corner has obvious advantages, but it might not be for everyone. What are the major advantages and disadvantages of hiring a professional to help maximize the profits of your investment? Let’s take a look at 3 pros and cons of investing in a property management company.
CON #1: THE EXPENSE
Ideally, if your goal is to make money, you’re not wanting to spend more of it. Property managers may charge upwards of 10-12% of your rental income, depending on the area you’re in. With Nexus Property Management®, our clients are paying 6-8% of their monthly rental income to our teams for property management. There will also be leasing fees when it’s time to advertise, screen, and place tenants. Our most typical client owns one three-family apartment and at a hypothetical $1200 per month per unit, that’s $288 a month in management fees. Add that up over the year and you’ve gotta decide if almost $3,500, plus any leasing fees, is something you can afford and whether or not the value you receive in return is worth it.
The other catch is that everything still costs money. Anytime something moves at your property it’s an expense. Whether you pay the extra to have someone else handle it or not, the eviction process is still expensive; you’ll still need to pay for maintenance; you’ll need to spend money to get recently vacant units clean and rent ready; you might need to pay someone to advertise and place new tenants; and you’ll still have to deal with the various costs that come with property ownership.
PRO #1: YOU GET YOUR TIME
As so many of us have learned through the various stages of our lives, there’s nothing more valuable than time. You can’t buy it back and it’s always moving forward. No one can stop it, but you do have some control over the way you spend it. By hiring a company like Nexus, you’re investing in your property and we’re providing you with free time. You can try to manage your property yourself but it’s going to be time consuming and it will never fit into your schedule like you might want it to. Frozen pipes don’t wait until the weekend to burst…tenants don’t plan their non-payment and need for eviction around your vacations. Judges and lawyers aren’t catering their eviction case schedules around your work schedule. Vendors aren’t lining up to provide services during those small windows you’re free. When you hire a property manager, you’re purchasing your freedom from stress and untimely responsibility. Is that alone worth the hypothetical $288/month?
LEARN MORE: WHAT DOES IT MEAN TO BE TIME AFFLUENT???
CON #2: LACK OF DIRECT INVOLVEMENT
Owners typically don’t want to be responsible for the time consuming issues that come with managing their own properties, but they still want to know exactly what’s going on, and might miss having their fingers on the button. By hiring a property manager, you’re relinquishing responsibility and for some people that leads to discomfort and discomfort can lead to skepticism and eventually distrust. You need to trust that the tenants are living up to the agreements of the lease. You need to trust that the maintenance technicians are responding promptly and effectively. You need to trust that your property is in good hands…and you don’t have the tangible evidence that you’d have if you were managing the property yourself.
Passing the trust along to the next person can be difficult when you’re standing on the sidelines, but picking up that baton is what property managers do. Superior property management companies help to lubricate an interconnected relationship between management staff, owners, and tenants through efficient means of communication and technology. While there’s no doubt you’ll have less direct involvement if you hire a property manager, you’ll be able to establish trust quickly if you’ve hired the right one. Lack of direct involvement, while potentially intimidating at first, is the ultimate goal for property owners.
PRO #2: YOU GAIN YOUR PROPERTY MANAGER’S EXPERIENCE
If you own one property and you decide to manage it on your own, you’ll likely be OK doing so. But over time the issues you need to address add up and despite your building some experience along the way, the first time an issue arises, it’s still brand new to you. The longer you manage a property, the more tenant conflicts you need to work with, the more maintenance needs crop up, the more evictions, the more legal and financial issues, the more lawsuits, the more insurance claims, the more city inspections and municipal issues…and each time you’ll be learning on the fly. Now multiply that because as a smart investor you’re likely trying to add a second, third, fourth… property to your portfolio in time.
Professional property managers help prevent bad decisions that can derail your profit stream. With over a decade in the business and experience with thousands of units, Nexus has seen it all and has crafted best practices around solutions to each and every one of these obstacles.
LEARN MORE: IT’S ALMOST IMPOSSIBLE TO FIND A VENDOR IF YOU DON’T OWN (OR MANAGE) MORE THAN ONE PROPERTY
CON #3: LIABILITY
Thematically, the cons on this list all come down to levels of comfort. Are you comfortable enough paying for this service? Are you comfortable not having your boots on the ground? For this third item, the question is: are you comfortable extending liability to a third party?
In the vast majority of property management operating agreements, there will be language around clients agreeing to hold the property manager harmless and indemnify them in the event of any occurrences. For example, if your property manager goes out to fix a pipe that’s falling and it leaks and floods the basement, you agree to have your insurance company defend the property manager and not hold them responsible for the damages. At first glance, it makes sense to think of that as a major risk for the property owner.
That’s where doing your homework and finding a reputable, established property manager is so important. During times of slowed real estate sales (like the current situation where home prices and interest rates are both sky high) more and more real estate professionals dip their toes into the property management arena because they figure people are going to rent more and that’s where the money is. You need to find a property manager whose interests are aligned with yours and who specializes in managing property. If they are in real estate sales or some other adjacent field as well, beware!
Find and partner with that property manager that hires quality workers; that makes quality repairs; that gets jobs done in a timely manner; that shows they value you and your tenants; that communicates effectively; that shows and tells you how they’re minimizing your risk…and then allow yourself the peace of mind to let your comfort level expand.
PRO #3: YOU GAIN ACCESS TO MAINTENANCE
The main reason property owners extend that liability is because maintaining rental properties is really difficult. Houses, like most physical assets, depreciate over time and much of the American housing stock is very, very old. For many owners, maintenance is the bane of their existence. Some smaller things they can handle themselves, or might have a handy man they’re friendly with on call, but inevitably big issues like plumbing, pests, HVAC, and electrical needs arise…and it’s never been more difficult to track down vendors. It’s hard to get a maintenance specialist to come to your home if it’s just for a single job. It’s nearly impossible to get someone to simply come look at your toilet if it’s not spilling out all over the floor. It’s hard to get any vendor to your property for smaller jobs and because supply is so tight, prices escalate with demand. Navigating these waters is a headache in itself…and that’s just in trying to find someone to handle the true source of the problem.
LEARN MORE: HOW DOES REAL ESTATE DEPRECIATION WORK?
With a property manager in your corner, especially one with modern software and a commitment to using technology to make clients’ lives easier, tenants can place a service request in real time and a maintenance technician will respond and act within 24 hours. As a property owning client of Nexus Property Management - Rhode Island, I’ve received emails detailing an emergency maintenance need at my property and before I could go into the system to read the full explanation, a maintenance tech has already responded to the tenant and is on their way. Nexus’ maintenance team is available 24/7/365…That service simply cannot be duplicated without employing a professional property management company.
The other incredible benefit of working with a property manager that has a maintenance team is the expediency of rental turnovers. When a tenant leaves a unit, it naturally needs to be cleaned and updated and the longer it takes, the longer that rental income is zero. It’s at this time when landlords can add the most value to their properties. Companies like Nexus will have teams dedicated to this work to improve efficiency, decrease cost, and decrease the time it takes to get a new paying tenant in. Without them, you need to either do it yourself or piecemeal these tasks (if you can find the vendors), which can be more expensive and is always more time consuming.
Hiring a property manager will help you handle maintenance needs, will partner you with an experienced professional, and will provide you added comfort and more free time. Like everything else in this arena, it is an investment in your property. If you’re still not sure whether or not property management is for you, go ahead and reach out to your local Nexus office or any other reputable property manager in your area with your questions. Any company worth their management fees should be able to sit down with you to look over your rent roll and expenses to better help you analyze your situation and potential. Contact any of our five franchise teams and our franchise management staff anytime!
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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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