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When you buy your first investment property, one important decision you need to make is whether to hire a property manager to find tenants and run the day-to-day operations, or to self-manage your property.
Obviously, self-managing is the more economical way to go. Paying a property manager is one of the largest ongoing expenses of owning a rental property. And there are some obvious situations where a property manager can be the only logical choice — like if your rental property is far away from where you live. But if you are buying a rental property in your local market, how should you decide?
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For long-term-rental properties, the industry-standard management fee seems to be 10% of collected rent. This can vary based on market conditions and levels of service, but you should expect to pay somewhere between 8% and 12% of rent to your property manager. Some charge a setup fee initially, and others charge a larger amount of the first month’s rent of a new lease, but these aren’t terribly common.
So if you own an investment property that brings in $2,000 per month, you should plan on a property manager taking about $200 of that. This isn’t exactly a small expense, considering everything else you need to pay for: taxes, insurance, repairs, maintenance, mortgage, and so on.
The most obvious part of a property manager’s job is to find tenants for you. This generally includes marketing the property, screening tenants (doing credit checks and the like), and collecting security deposits. But this is just one part of the job.
In addition to finding tenants, here’s what you can expect your property manager to do:
As you can probably imagine, there’s no perfect answer. Some rental-property owners love managing their own properties, while others find their property managers to be worth their fees and more. And in full disclosure, I’ve used a property manager with all but one of my rentals, and that was a duplex where I lived in one half.
The bottom line is that you need to decide how much time you want to spend on your real estate investments, and whether the value that a property manager brings to the table makes sense for you.
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