You might not guess this but four years ago, I was all about hiring a property manager rather than self-managing my properties. I was the biggest proponent out there.
My parents had self-managed for my entire childhood. I grew up painting, showing the house, etc. They were the ultimate DITY role models. I learned a lot from them, but being the typical young adult, I thought I knew it all. I had a general idea of the requirements, at least in the eyes of a kid. I had a full-time job, a husband, etc., and didn’t think that self-management was for me since we were going to be investing in property out of town.
After deciding to hire a property manager, I did what everyone does. I started to research and search for a new property manager. I made a spreadsheet comparing all the different companies and coming up with all my questions. I then sent my questions to a potential property manager and requested he send a copy of the management contract. He answered all my questions and sent over a copy of the contract.
This was when my world got rocked and my view on managing properties completely changed.
After closely examining the contract (I read contracts for a living so I was comfortable reading fine print), I found so many things that bothered me that I ended up throwing the contract across the room!
The Problem with Hiring a Property Manager
1. The Fees
Oh my gosh, I was SHOCKED about the fees they were charging. There was the normal monthly fee of 10% and the placement free of one month’s rent, but it was all the other hidden fees in the contract that bothered me.
- Pet Fee – They kept all pet fees.
- Late Fee – They kept those too!
- Maintenance Fee – They charged 10% for any repairs they organized.
- Project Management Fee – If there was a huge repair, they got a percentage of the cost of the project for having to organize it.
- Selling Fee – They required 6% to be paid to the management company if the tenant buys your house.
- Eviction Fee – Any eviction work regarding the tenant was $25 an hour.
- Renewal Fee- This was half of the monthly rent.
- One-Time Paperwork Fee – This was around $300.
- Yearly Contract – No matter what, you were required to keep the property management company for a year –even if they were awful.
I was astonished. These fees add up really quickly. I felt like I was paying someone to place a tenant and then just a really expensive retainer fee.
The fees weren’t all I was not happy with. The answers to my questions pushed me away even further.
- Replacement – If the tenant broke the lease, we were still required to pay another placement fee.
- Installation – It would take 30-45 days to place a tenant, so you would lose at least a month of rent because your house would be empty!
The nail in the coffin:
When I started to complain, he said everything was up for negotiation. He said he would happily negotiate a better deal! Now, I know I might be old fashioned but I do not like to negotiate. The idea that I had to figure out what was unacceptable and what was acceptable to me was the final straw! That broke my trust as I found that dishonest and shady. I felt like I was talking with a used car sales man!
Managing My Own Properties
On that day, I said forget this! I figured hiring a lawyer to bail me out would be cheaper, and I have been right so far. Three years later, I have successfully self-managed my homes from all over the country and even when I travel overseas!
On my houses, I save over $15k a year just on placement and monthly fees.
Contray to the rumors and thoughts I have heard, I am all about realtors! I only buy houses off the MLS (the professional listing service that realtors use). I have a trusted realtor in every city I buy properties in, and I love them!
Realtors and property managers are just tools in your land lording belt. This article is about my story into the land of self-management. My goal is for you to be able to make an educated decision. If you decide to go with a manager –as they say, there are different strokes for different folks.
Use this article to know what to look for and how to negotiate the best contract ever. Remember you want everything in writing because otherwise it doesn’t count.
What is your story? Do you self manage or hire a manager for your properties?
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Wow! You had some bad luck with your property management. I have 2 different property managers and they dont have a bunch of those rules you specified above. Maybe its dependent on location I guess.
I do self manage one property but my other 3 rentals I have a property manager because they are out of state.
So eventually when you are sipping on your yacht 😉 you are going to need a property manager right? Are you planning on getting one in the future when you’re closer to retirement?
I have found it is VERY area dependent! I am super thankful that it turned out this way as it taught me to be the landlord (property manager) I am today.
Although, I am sure some day I will have to hire a property manager, right now I am happy self-managing.
I self manage too, but in our situation that just makes sense 🙂
I too am a military property owner. I currently have 3 homes, 2 of which I rent out and am in the process of going to 4 and 3 rented.
On the subject of property managers, I too agree that they are a dirty, sometimes even criminal business when it comes to mishandling your property for copious amounts of money.
On the other hand, for a military member who has a clearance to maintain and doesn’t have the know how and experience to do it properly, having the buffer between them and potentially angry/wrong tenants can be huge. I tried to do my first property on my own. I rented to a DoD civilian on base that turned out to be a step shy of certifiably crazy. This person would send me all caps texts at 11 at night, harass me at work (found me in the global at my new duty station) for toilets they clogged, and even attempted to contact my Squadron commander (luckily they reached my First Sergeant and I had already briefed my security officer on my problem tenant) for not returning their deposit within 3 days of move out though I had 30 days by law. This person gave me ulcers and my health was worth losing $150/month and the one month up front, putting me at a further loss on the property, just to get a semi-ok manager to come in. Sadly this person was a decent renter by all accounts, because my property wasn’t trashed when they left it.
Also, new landlords away from their rental property may not have acquired trusted contractors for all trades in each property location. Property managers are like insurance; when you don’t need it, its a wasted expense, when you do need it they can be a necessary evil or even a life saver.
Also consider, if you haven’t already, to deduct the tax deduction you are not getting from deducting the property manager as an expense on your taxes. I would assume that you would see roughly $4,000 of that back at tax time.
On the other hand, I’ve had property managers hire contractors, for premium prices, with less know how than myself having no formal training. I’ve had my property manager charge unapproved fees to my tenant. I’ve had to hold my property manager to the fire more than once; but they are running a business and its different dealing with a business person than an emotional occupant.
I would just say that its not cut and dry for everyone. Not all property managers charge all the hidden fees (I would avoid those with too many of them). I have had 3 out of 4 tenants have some sort issue when leaving. The property manager allows that impersonal buffer between you and the tenant that can sometimes keep you from making a mistake.
One last thing to consider, unless you own the properties outright or you get up to 10+ units with mortgages (very had to do), you aren’t likely to get rich off the monthly rent on a property. The real money for military landlords is in purchasing homes in up and coming markets and renting them out while someone pays the note on the property. The capital gains tax exemption extension for military members who move from a property timed with a PCS, allows extended time to allow a home to gain value and then sell it for a profit without the IRS taking a 25% cut. For me I am willing to give up the roughly 20% of my rental monthly profits to reduce the stress involved in the process of the larger gain, allowing both my wife and I to work full-time while gaining additional monthly income and equity in 3 property locations. I frequently consider dropping my property managers but then decide not to.
“The capital gains tax exemption extension for military members who move from a property timed with a PCS, allows extended time to allow a home to gain value and then sell it for a profit without the IRS taking a 25% cut.”
What does this mean?
There is a special capital gains window for military that allows them to extend the capital gain window. If you do not qualify than you have to pay capital gains tax. Depending on your tax status you could owe more or less than 25%.
I am on my 3rd property manager. The owner of the first management company was some one I had known professionally for many years and some one one who I respected for their leadership in the area of rental real estate. The bottom line was that they were a 2 person shop which did not have the ability to respond to my requests/questions in a timely manner.
Management company Number 2 was a company with a much larger staff and originally I dealt almost exclusively with a man who always responded promptly and positively with anything I contacted him about. As time went on I was dealing more with employees over the phone, people that I had never met and it seemed as though their highest priority was to “clear” my problem. That did not mean solve my problems. I still wonder to this day if they did not use their multiple reports to justify keeping more of the funds than I had ever agreed to. They raised their prices 4 times in less than 2 years without even informing me in advance of their intent.
I am now on company Number three and their fees are quite similar to the ones you have listed but they have been able to significantly raise the amount of rent so it is a win-win situation for both them
and me. Again I have been dealing with primarily one person who responds very promptly and very logically to any questions or problems I have. She has contacted me after hours from home and even once when she was out of town on vacation. Maybe this bubble will burst but in the meantime I am
doing great.
Now the kicker. Why after many years of successful self management, why would I decide to hire someone to do what I had for many years? The answers are very simple. I became the primary care giver for my wife who was diagnosed with Alzheimer’s and I was told that I should never leave her home alone. There were occasions when I had to leave her home alone but I was never comfortable doing so and I was always wondering what I might find when I returned home. After a few years, she passed away, but now I am 84 years old and physically unable to do even the simple things I used to do. If I want to retain my rental units, I must delegate much of the management tasks to younger, smarter, and more efficient professionals.