How To Hire a Property Management Company (or be a DIYer)
Note: This is Chapter 7 of an entire guide on How To Buy Your First Investment Property.
By this point, you have a home you've just closed on. It's yours! So, congratulations on becoming a (investment) homeowner!
But it's not time to relax yet. There's one last decision you'll need to make. Should you hire a property management company or do it yourself?
💡 Definition
A property management company is a company that provides a service to real estate owners usually in its operation, ongoing maintenance, and oversight.
But as with everything, there are advantages and disadvantages to look for. Let's get into it.
Property management companies often do all of the work necessary to make sure your investment home is rent-ready and rented.
This means they'll
That's what they do — but doing all of this means that you as the investment homeowner can sit back and relax while the property management company does all of the work for you. This means passive income for you!
This makes hiring a property management company extremely useful for people who:
If you fit into any or all of the buckets, it may be a sign you want to connect and hire a property management company. As your portfolio increases in size, it generally becomes more complex in nature as well.
The last advantage has to do with taxes. In most cases, property management fees are generally tax-deductible expenses for your property.
The main disadvantages to hiring a property management company for your rental home is cost and pricing structure. But there are others that are more nuanced.
Cost and Pricing Structure
In terms of cost, a property management company on average cost 10% of your rental income fee as a servicing fee. This can often mean that your home may not cash flow if you hire one.
Moreover, because the company will deal with maintenance and repairs for you, they may make money on markups to services rendered to your investment home.
And lastly, management companies generally charge a vacancy fee if the current resident ever decides to leave. This is usually 50% of the rental income for a given month. This is a misaligned pricing incentive as it is better for the management company to find residents that are more likely to leave since they'll make more money this way.
Some other fees may include:
💡 Just so you know...
Doorvest currently conducts property management for flat fee of 10% of the rental income.
• No maintenance markups
• No vacancy fees
• No fees unless the home is rented out
This is all done to align our pricing structure with you as our customers and to give you transparency on how we make money.
Lack of Control
Given you are handing off the home to a property management company, you often lose a lot of the control you have as a homeowner. The company will likely be managing hundreds to thousands of homes. This means they will not be able to provide the same amount of attention to your home.
Moreover, sometimes, companies will make decisions for you especially in regards to necessary maintenance and repairs.
If after reading this article, you want to hire a property management company, here are some best practices to find the best management company for you:
The main question for you to consider is how much is the service worth to you. If you rather be more passive, hiring a property manager is a great idea. However, if you have time and are more cost conscious, it may be better to try to DIY.
In the end, this is your investment home and you can do it your way!