Can You Effectively Self-Manage Your Property Without Hiring A Management Company?

HOW MUCH IS YOUR TIME WORTH AND WHAT ARE THE OPPORTUNITY COSTS?

Self-management of your rental property is a great way to start out if you have just one property. Whether it’s a duplex or a three-family, it likely makes sense to manage it yourself if you have the skillset and time because your profit margins just won’t be that high, especially in year one. At that point, it may be worth your shouldering the inevitable headaches that come with investment properties. But that arrangement is more than likely a temporary one. Over time, you’ll build equity in that home and it’ll make sense to purchase a second property to maximize returns.

We’re also seeing more and more single-family home owners renting their properties out. A professional property manager is a must if owners don’t live close to their properties, as is common in our Phoenix and Natick territories. But what if there are no geographic barriers? Does self-management make sense in these scenarios? There are two sides to this coin: yes, single-family homes are much less demanding so self-management makes more sense; however, those who end up with rentable single-families typically aren’t equipped for management and this tenant candidate pool is a bit different than we’ve seen in the past. Most commonly, these single-family properties are inherited or are owned by older folks who used to live in them. They are not normally purchased as part of an investment strategy so owners often turn to professional management to make the most of this opportunity.

LEARN MORE: WHY IT’S NOT SMART TO SELL YOUR SINGLE FAMILY HOME OR INVESTMENT PROPERTY JUST BECAUSE PRICES ARE UP

MORE ABOUT MARGINS

Calculating expected margins or a range thereof is an important first step in analyzing an investment strategy. Typically, the more units you own, the larger the margin for profit. If you buy a duplex and your expenses are $2500/mo., you’ve got two sources of revenue to contribute ($1250/unit). If you buy a four-family and your expenses are $4000/mo., you've got four sources and you’re relying less on each tenant ($1000/unit). In any rental situation, vacancies are inevitable, but with more units those vacancies hurt less, and there’s less impact on those margins. When thinking about any investment, always figure out and maximize your margins.

With one property, your income is going to fluctuate quite a bit from month to month, which may make it more difficult to employ a professional property manager. The catch is that hiring that property manager is probably the best step you can take, beyond buying additional properties, to decrease those fluctuations.

LEARN MORE: THE 3 PROS AND CONS OF HIRING A PROPERTY MANAGEMENT COMPANY

CAPPING OUT PORTFOLIO GROWTH

Beyond one property, self-managing property owners simply max out their abilities and time. Vacancies will be left open longer than they should be. Tenant service requests will take longer to respond to. Repair items may go unattended and deferred maintenance issues will build up. There’s just the reality that as demand and responsibilities increase, a person acting alone becomes less responsive and less effective. On top of that, all too often self-managing owners won’t recognize their shortcomings and rarely think about the opportunities that exist should they change their approach.

OPPORTUNITIES AND OPPORTUNITY COSTS

That extra time you’re spending managing your property should instead be spent looking for your next real estate opportunities. While you’re saving a couple bucks by tending to maintenance needs, you’re not out looking for the next property that would fit your portfolio perfectly. The couple hundred dollars you’re saving by doing the work yourself is blinding you to the opportunity to add thousands more in passive income when you find that next attractive option. But unfortunately, self-managers are too busy and have their head down or because of their self-imposed limits as one person, they don’t think about the fact they could double their income by buying another property.

As Warren Buffett and Charlie Munger pointed out along their unrivaled investment career, it’s essential to take advantage of compounding. For real estate, if you miss out on a deal this year, that deal could’ve turned into two deals next year. For example, Worcester’s Nexus Office is owned and operated by Jesse Mayo. Before joining the Nexus family, Jesse was an investor looking for his first property. By hiring an expert he was able to buy two more multi-family homes in just a couple years and he was off to the races. Had he bought one property and elected to save a couple dollars managing it himself, he’d very likely still have just one property…that he’d still be managing himself. Instead he has multiple properties and the financial security to open a property management office of his own!

LEARN MORE: PROFITABLE D-I-Y PROPERTY MANAGEMENT MAY BE A THING OF THE PAST

CONCLUSION:

Anyone interested in real estate investment should take the time to look into professional management to explore the very real possibility that the cost savings through efficiency and scalability will likely keep more money in your pocket and undoubtedly provide you with more free time. For 8-10% of rent collected and maintenance costs, you can delegate these responsibilities to a partner who is working hard so you don’t have to. Learn more about Nexus Property Management® by reaching out to any of our offices in Arizona, Connecticut, Massachusetts, and Rhode Island.

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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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