How to Choose Between Using a Property Management Firm or Becoming a Landlord

With the prices of real estate plummeting, the next several years may witness another upsurge in the number of young professionals entering the real estate market as an investment and/or earnings vehicle. If you are considering acquiring a property (or two, or ten) for this purpose, it is essential that you learn how to choose between using a property management firm or becoming a landlord. There are advantages to both, but a clear understanding of what is involved is key to this decision.

The decision may have various aspects to it, but perhaps the most important is considering how much time has to be spent managing the properties. On the one hand, doing it all yourself might sound great, and you may convince yourself that the difference between the mortgage payment and the monthly rental amount is all profit. This is the first thing you need to banish from your mind. There are a number of costs you will have to bear as a landlord, starting with your valuable time. If you are working a 60-hour week as a CPA or climbing the corporate ladder in any number of professions, adding landlord duties is probably not the best idea.

Get some professional help

Using a property management firm is about the best thing that absentee property owners can do for themselves if they wish to rent/lease their property and not be bothered with the details - which are many! A management company takes care of virtually everything for the homeowner, freeing up that valuable time for the owner to do what is more important, and probably more remunerative, as well.

Larger, more established property management firms normally have an in-house staff of maintenance people and will charge the homeowner a reasonable fee for repairs, certainly less that the homeowners would pay after factoring in their time and effort. Further, a property management firm can also pay the mortgage and deposit your monthly RTO (return to owner) profits. Management firms are also ideal if you do not relish dealing with problem tenants. If you have a tenant that you find undesirable, and wish to evict them, the management company can do this on your behalf. In addition, they can often pass the burden of this cost to the wayward tenant, and have the experience and expertise to undertake these efforts much more quickly and decisively than you could, especially as a "beginner."

Details, details

It is not any single thing, but the multitude of big and little things, that a good property management firm will handle for you. If it were a matter of collecting a rent check and paying the property taxes, then you could certainly manage the process yourself. However, there are myriad details, and details within details, that today's property managers must attend to. The toilet backs up, the grass dies in the back yard, the door comes off its hinges, rats take over the basement, the front window starts cracking - these and a hundred other details can invade whatever spare time you thought you had. It can be brutal.

And yet, so as not to sound one-sided, some of you like this kind of challenge. If you want to be a property manager and deal with all these matters, and do so with a house (or, again, two or ten houses) that belong to you, then by all means go for it. Many reputable property management firms started out this same way, with one motivated, interested and energetic homeowner. If you like the sound of the business, give it a shot. Of course, you can get yourself a good education in property management by using a management firm for the first year or two that you are building your new real estate "empire." If you still like the idea after watching how it's done for a year or two, you could probably make a go of it in the business.

Final choice?

If you don't want to be a property manager and deal with all the details, but are concerned that you should do it just to make more money, then you have some calculations to make. You need to determine the value of your time. This is not necessarily your job's pay rate, as it could be more or less than that, but that would be a good place to start. You need to figure out what your return will be under either model, the "do it yourself" approach or the "property manager" method. Then, too, you need to figure the value of time off. At 35 you may feel that you can do it all with no problem, but is that how you will feel in 10 or 20 years?

Once you do opt for the property management approach, you should check the bona fides of any firms you are considering. Ask for referrals from people you know who own rentals, if any, or go online and start doing some research in your area. In addition to checking the Better Business Bureau and your local Chamber of Commerce, take a gander at the real estate forums and log on to Complaints.com and other online consumer sites.

There are number of professional associations that will vouch for the professionalism and honesty of property management companies. The National Association of Residential Property Managers, the National Property Management Association and the Building Owners and Managers Association are three of the larger national groups. If your candidate firm belongs to some other association, make sure you check it out, too. And if you think that the process of checking out property management companies is time-consuming and tedious, then it's a good bet that you will need one, because managing your rentals will be a whole lot more demanding than that!

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