When you’re thinking about advantages and disadvantages of owning a rental property, it’s easy to narrow the thinking down to the equation of rental income minus expenses equals your profit. This is a basic formula to start with, but there are so many different factors and variables that go into making it more complex than it seems. Many rental property owners don’t realize how much of their own time and effort is required for upkeep, taking tenant calls, collecting rent, enforcing leases and more. This brings us to the point of whether it’s worth the investment of your own time to handle these duties, or if paying a property management company to handle them for you is the way to go. Everyone views these perspectives differently but getting an overall understanding of both sides will help you make the decision that fits your lifestyle best. Finally, most people I meet don’t realize there are actually four (4) different ways to make money in rental properties – spending your time managing the property might not always be in your best interests.
Time and Money Requirements for Managing A Rental Property
Owning a rental property requires a lot of your time and can be costly as well. The choice you must make is whether you want to tackle them all on your own or hand off the responsibilities to a property management company. Some of the requirements you will always have include:
- Emergency or Routine Maintenance. You will have to perform routine maintenance more often on a rental property than you would on your own home. The main reason is because tenants typically are much harder on a property, they rent rather than own. For example, this could involve a quarterly tune-up of all appliances to ensure they are in working order.
- Death of a Tenant. What will you do if a tenant dies in one of your units? We have had this unfortunate situation happen to us – which not everyone is equipped to deal with.
- Police Activity. What will you do if your neighbor calls you and tells you there are 12 police cars at your rental property?
- Building Relationships with Tenants. Tenants will sometimes take matters into their own hands to fix routine things around the house, but others will call their property manager for every little thing. As a property manager, you should at least check in with your tenants once every few months.
- Collecting Rent. It’s worth noting that collecting rent isn’t as simple as checking the mailbox at the first of the month and taking the check to the bank. You’ll have to deal with late payments, missed payments and having to hear excuses from your tenant as to why they happened.
- Finding New Tenants. You don’t want a vacant rental property for very long. It takes time to find a new tenant, screen them, verify income and go through the entire approval process, so you want to address a vacant property right away.
- Enforcing Lease Terms. Unfortunately, you may have to deal with a situation where a tenant violates the terms of a lease. Then you’ll be spending a significant amount of time looking up laws and regulations to ensure its handled appropriately.
When Self-Management Makes Sense
Now that you know some of the things that go into owning a rental property, you can get an idea of whether you would want to tackle them all on your own or delegate the responsibilities to someone else. If you have the time to devote to handling each tenant call and dealing with the potential problems, then you can save some money through self-management.
Of course, it may be wise to be hands-on with the tenant screening process to ensure you’re lowering your risk as much as possible. Other services can do this for you, but many property owners have a little peace of mind when they handle this upfront work on their own.
Benefits of Property Management
Hiring a property management company can save a property owner a lot of time and headaches. If owning rental properties isn’t your sole source of income, then paying another company to handle the “dirty work” may be well worth the investment. Most property management companies between 6% to 10% of the monthly rent check you receive from the property to handle any and all of the daily, weekly, monthly and yearly duties.
In some situations, it may seem like a lot of money to pay a property management company if you are working with a low maintenance tenant who pays regularly and handles maintenance on their own. But it can be well worth the money if you have a tenant who rarely pays on time and is constantly calling with problems.
Balancing your personal life with owning and managing a rental property isn’t as easy as it seems sometimes. Saving money through self-management sounds good on the surface but can quickly become a burden that may be best to pass on to property management companies. Be sure to contact Silicon Valley Property Management Group for any questions or concerns about how to make the best decision for your specific situation. Go to our website and read our blogs of over 110 articles on property management and real estate. Additionally, download our books or contact us to receive hard copies.
The Cost of Professional Property Management is Not What You Think It Is
Finally, the cost associated with property management is 100% deductible against your income (see article on property management costs right here). Most of our clients are in a 50% tax bracket when combining federal, state, local, and self-employment taxes, thus, a 6% property management fee is only 3% after taxes. The cost is significantly less than you think it is once to peel back the layers and look at the real numbers. In fact, for 3% the cost makes perfect sense because you don’t have to deal with the issues, headaches, and stress. Make sure to hire a company that abides by ethical standards of the industry, for example a company like SVPMG that belongs to the National Association of Residential Property Managers (NARPM).
David currently is the broker/owner of Silicon Valley Property Management Group (SVPMG) which manages 150+ client properties on the San Francisco Peninsula.Trust, transparency, and performance guarantees are the foundation of SVPMG. David challenges anyone to find a PM company that offers services similar to the extensive education, customer service, and performance guarantees provided by SVPMG.
David also provides consulting for his clients on property development feasibility, construction, and complex real estate transactions.
David has authored a published law review article, two real estate books, and over 120 real estate blog articles.