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

Property Management Company

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.

The Advantages to a Property Management Company

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

• deal with residents directly
• advertise and lease the property for you
• conduct the ongoing maintenance (such as landscaping)
• handle the leasing agreement
• collect rent for you
• deal with evictions as necessary

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:

• find their time is limited (i.e. they already work a full-time position)
• can afford the cost (discussed later as a disadvantage)
• have multiple rental properties
• are investing out of state
• or you are plainly not interested in managing the property

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 Disadvantages to a Property Management Company

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:

• Setup fees
• Leasing fees
• Advertising fees
• Lease renewal fees

💡 Just so you know...

The Doorvest Difference

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.

Hiring a Property Management Company

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:

• Look at review websites like Google and Yelp to hear from actual customers of the property management company
• Look at how large the company is in comparison to the amount of homes they are servicing. Generally, smaller "boutique" management companies will cost more, but give you more of a small-business feel to their structure
• Be clear on any markups in the contracts and other fees the company may charge you in the future
• Get recommendations from colleagues or local real estate investing groups

Conclusion

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!