A very important question to ask yourself when buying a rental property, whether you plan to rent it out traditionally or through Airbnb is, do I have the time?
If not, property management companies like Pillow and Handy can manage your rental business, saving you the time and hassle often associated with such investments. However, you should still consider the pros and cons of hiring a company to see if this is the right choice for your investment.
Pros
1. Keeps You in Check
When you are working with a reputable property management company, their experience will help you avoid unknowingly violating regulations and laws. The property managers should be aware of current laws, rules, and regulations and will know how to advise you. This will save you the time and effort needed to research what is permissible and reduces risk of having a violation.
2. They Take Care of Tasks that Suck
The best advantage of hiring a real property management company is dealing with some of the more irritating tasks, like finding appropriate tenants. Meeting new people is awesome but finding suitable tenants can be a pain. The company takes care of screening, interviewing, and other communications. A bad tenant can result in lost revenue from unpaid rent, unforeseen legal fees, and extra time and effort. Bad tenants are simply a nuisance.
A property manager will also handle service calls – that’s especially a relief when those calls are emergency calls at night or on the weekend. Receiving a phone call early in the morning or late at a night will be a “wish I had a management company” moment. They can take the call for you and will probably know how to better handle an emergency situation, with their experience and contacts. They basically make some of the disadvantages of becoming a landlord disappear.
Related: Guide to the Red Flags of Property Investment
3. They Have Connections
Finally, management companies have connections. Their referrals to service companies can get you discounts which you can definitely benefit from. You can trust the service companies recommended because they have built credibility with property management companies.
Cons
1. An Extra Expense
Property management companies usually take a percentage of your gross income, so you lose some of the revenue to them. The property management cost is typically 8-12% of the monthly income or may be a flat rate, plus other possible fees like new tenant placement. For some investors, this is not a big issue but for others, it hurts the cash flow. Can you afford it? With your first income property, try to manage the property on your own and then hire a company once you have other properties and have built equity. You won’t feel as much of a loss.
Related: 11 Costs First Time Real Estate Investors Should Consider
2. Potential for Theft
Unfortunately, not everyone can be trusted, even if they’re from a professional company. Someone with ill-intentions could easily steal if the rent is paid in cash. You could always collect the rent yourself or ask for a paper or electronic check.
3. Not Their Own
Sometimes companies won’t put as much effort as an owner would into a rental property. They may not be as diligent in maintaining the property or pay attention to the details you as the investor would. This can hurt the return on the investment because not addressing issues efficiently can be an expensive consequence.
When you’re on a property search, determine how much hiring a company will impact your cash flow using an Airbnb calculator or similar tool. If you feel you are able to take on the management tasks yourself, then you may not need to rely on the services of a company. On the other hand, hiring a company to handle your properties will free up your time and likely encourage you to expand your real estate portfolio. Try your first investment property on your own, write down the obstacles you had, and then decide if you need a property management company.
Do you use a property management company? Who would you recommend? What are some of the downsides? Email us and we’ll chat!