Are you a first-time rental property investor? It is understandable for most first-time rental property buyers to be skeptical about engaging the services of a property manager. In fact, at one point or another most property managers have contemplated whether they should self-manage or not. However, property self-management is not for everyone. After all, there are legal obligations that need to be met. In addition, it is quite a time consuming, plus there is a lot of work involved.
What is self-management?
In the real estate space, we refer to self-management as a situation under which the landlord handles the management of their investment property. The management of a property alludes to overseeing the day-to-day affairs as well as ensuring that maintenance and upkeep affairs are carried out. Rent collection is also a crucial aspect of property management. As the person overseeing management affairs, your tenants will look at you for any issues.
The benefits of property self-management
There are several advantages to self-management if you have the relevant skills, expertise and time to undertake it. Let’s take a look at a few of these benefits:
1. Increased control
To start with, self-management gives you a greater degree of control over the family operations. This also entails running your investment property exactly how you want to run it. Moreover, you will be the one in charge of all decision making, thereby ensuring that your vision is executed just the way you want. You also get to eliminate any third-party that will put a dent in your rental revenue.
2. Reduced expenses
Let’s face it, we are all always on the lookout for ways to cut costs, reduce expenses and increase our savings. With this in mind, most investment property owners tend to self-manage in an effort to save money. When you use the services of a property manager or management firm expect to pay them between 8 – 10% of your rental income. And so one of the greatest motivators for self-management is the savings on property management fees.
3. Learning curve
Self-management is a very important learning curve that will help you gain management experience. The more experience you get, the better you will become at self-management. You will undoubtedly hit a few snags in the beginning, but it will get easier with increased experience. This will aid you to become not only sharper but also smarter in the rental property business. Ultimately, you will be able to increase and expand your investment with confidence.
4. Greater care of the property
Contrary to common belief, just because you have a property does not necessarily translate into your property being well looked after. The person or firm entrusted to look after your investment can fail to do so. However, with self-management, you are assured that your investment is in good hands. Moreover, you know that your investment is protected as you will handle all aspects of the management on your own.
The dangers of property self-management
Firstly, it is important to make an unbiased examination of the risks, as well as the pros of self-management. In addition, your personal circumstances will play a pivotal role in determining the route you take. Self-managing comes with a few inherent risks. Let us take a look at some of them:
1. Finding tenants
Your primary objective as a rental property investor is to earn revenue through rentals. As such it is crucial to reduce vacancies and source tenants as quickly as possible. There is no question you may be able to find tenants for yourself through a newspaper or online ads. However, property managers have the experience, tools, and resources to rapidly find tenants. In addition, property managers have access to massive databases of potential tenants. Moreover, a property manager will have advanced tenant screening capabilities enabling them to find you the most suitable tenants.
2. Placing suitable tenants
In the second place, the greatest danger of self-managing a rental property is coming across unsuitable tenants. Unsuitable tenants tend to have a bad rental history and in most instances are a problem to deal with. Because such tenants understand the rental process they will try to avoid strict background and rental history checks. Hence they will opt to avoid properties being managed by professional property managers. This means they will deliberately look for private listings. It is also important to note that a property manager will be able to carry out a thorough background check on any prospective tenant. This check will include analyzing a tenant’s rental history, as well as verifying references.
3. Inadequate documentation
Another mistake that self-managing landlords make is to not have sufficient documentation. Whether it be a lack of knowledge or a desire to retain tenants, but some self-managing landlords neglect to have full documentation. Needless to say, this is a recipe for disaster and a risk not worth taking. As a landlord, you always want to be on the right side of the law. And one of the best ways to achieve this is to document everything and file all the relevant paperwork. An experienced property manager will never forgo formalities or any legal requirements. Moreover, will draw up enforceable contracts and agreements that protect you and your investment.
4. Lacking mechanisms to protect your property
It is also common for inexperienced self-managing property owners to fail in protecting both their asset and the income earned from it. If you are a property owner that is self-managing, then ensure you not only know the law, but you also take adequate action to protect your investment. One of the most effective ways to protect your asset and revenue is to comprehensive documentation on the property. This documentation must include a property condition report. In addition, you must also include visual aids such as pictures and videos. Such action is essential to avoiding disagreements or any disputes down the line.
Remember that self-managing a rental property is more than just rental income – (mortgage + expenses) = profit. There is so much more to property self-management that it can easily become overwhelming. Your management duties will range from seeking tenants, collecting rental payments, as well as dealing with maintenance issues. All this can be time-consuming and quite immense to handle. Self-management should not be taken lightly, rather you should think about it objectively before diving into it. Lastly, remember that your decision should reflect your circumstances and be the best solution for you.