Expenses are a recurring necessity (and annoyance) in real estate investing. Some expenses, like property taxes and mortgage interest, are fixed and must be paid for a rental property to function. Others, like property management fees, are not so clear-cut. Should a real estate investor bother with professional property management? Property management fees can eat up a chunk of rental income, so if your budget is limited, it’s best to use professional property management only when it is absolutely necessary. This begs the question: “When are property management fees worth it for real estate investors?”
Related: Real Estate Investing 101: Rental Property Management
1.) Multi Family Real Estate Investing
One of the most lucrative and sought-after forms of residential real estate is multi family homes. Multi family properties are properties with several housing units. They can house multiple families of tenants in separate units under the same roof. The most common form of a multi family property is an apartment complex. When it comes to price per unit, you can’t find a better deal than with multi family properties!
As great as a multi family home can be as an investment property, there are a number of challenges it can present. Perhaps it’s biggest issue, which ties us to the main question of this blog, is property management. With the large number of units, it will take vast amounts of time and money to self-manage a multi family property. The solution? Professional property management.
For no other property type are property management fees more worth it than for multi family homes. One reason this is the case is that you would actually save more – not lose – when using professional property management on these types of properties. Allow us to explain.
If you were to self-manage multifamily properties, i.e., find and select tenants, show them the property, upkeep the property, etc., etc., you are more liable to make mistakes and use more time and money. Remember, multi family properties contain multiple units. So, instead of conducting management duties for just one unit, as with a single family home, for example, you will manage all the units of the rental property. Property management solves this problem because all units will be taken care of. The extra time you receive can be used to find more investment properties, which can be a great way to earn more income and diversify your real estate investment portfolio.
2.) Owning Multiple Investment Properties
Owning multiple investment properties can be a surefire way to have high positive cash flow. One thing’s for sure though: Owning multiple rentals is not easy. Just like multi family properties, a big reason why this can be difficult is the property management tasks associated with the multiple investment properties.
Whether you own multiple single family homes, Airbnb rentals, multi family homes, condos, or a mix of different property types, you need to have top-notch property management. Owning multiple income properties does not leave much time for self-management, so property management fees are definitely worth it. Owning multiple properties is similar to owning an apartment complex in this sense. Managing multiple units or properties can cause financial and mental headaches. It’s best to have professionals take care of this for you.
Unfortunately, unlike with multi family properties, some property management companies will not manage all the properties under the same bill. Once again, the reason for this is because the rental properties are not under the same roof, as is the case with units in multi family homes. So, property management fees when owning multiple properties can be expensive, but if your cash flow and budget do not take a massive blow because of the fees, hire property management.
Related: Multi Family Real Estate Investing: Is This the Right Strategy for You?
3.) Out of State Real Estate Investing
There’s little to no debate that real estate investors with out of state properties should hire professional management. Being away from an investment property by many miles severely limits the possibility of visiting it constantly for management purposes. Therefore, property management fees are an ‘unofficial’ necessary expense that accompanies out of state income properties.
Related: How to Invest in Rental Properties Away from Home?
For some types of out of state properties, property management is already included. This is mainly seen in turnkey properties, which are relatively inexpensive properties that can be rented out as soon as they are purchased.
For other types of out of state properties, property management is not part of the deal. Income properties are treated the same way when purchased locally in terms of property management: you make the decision to hire.
Hiring property management can differ depending on the state you are in. Laws concerning property management and different management companies may not be similar to the ones in your housing market. Before you hire management for an out of state real estate investment property, make sure you are aware of any legal and principle differences.
4.) Not Having Enough Time to Self-Manage
Sometimes, no matter how many rental properties you own and no matter where they are located, property management fees are worth it. Why? Well, simply because you have no time to manage the property or properties yourself.
A perfect example of this is if you have a full-time job outside of real estate investing but still want to reap the gains of a rental property. Even if one property is all you have, paying property management fees will be worth it in this scenario.
The catch, though, is whether you can afford the property management fees. Some companies tend to charge between 8% and 10% of the monthly rent. Some also include the full first month’s worth of rent for every new tenant. Other companies do not charge as much and may ask for a fixed price.
Before you consider property management for a property you cannot manage due to time constraints, make sure your overall cash flow does not take a huge hit. If you can afford the property management fees, or better yet, find a company that does not charge much, go ahead and hire that company.
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