Should I Manage My Own Investment Property?

Whether you’re about to buy your first investment property or are just thinking about making a move and not wanting to sell your current house, you’re going to be faced with the dilema of managing the property yourself or hiring it out.  On the one hand, you’re not excited at the idea of getting late night phone calls for the backed-up garbage disposal; yet, you don’t really want to part with money that it’s going to take to hire a professional property manager. What should you do? Well, let’s break down the typical activities a professional property manager will do and the average costs for each of them.  Once you start to understand the task list and corresponding fees, your decision making process may become crystal clear…

Tenant Placement

The first step to being a real estate investor is getting a tenant to pay you rent.  If you can’t do this, you’re not an investor … you simply own two homes!  This entails:
  1. Pricing the property
  2. Marketing the property
  3. Securing a tenant
Each one of these can be broken down further … as in:
  • Pricing the Property
    • Check out your competition on Craigslist.com (the de-facto site in Walnut Creek and the Bay Area to find rentals)
    • Look for leases in the local MLS (very few agents formally handle lease listings in my market, but it can be helpfully in your pricing research)
    • Look for leases on Trulia.com/Zillow.com (often these are just duplicates of what you find on craigslist, but still worth checking out)
    • Research your property and neighborhood on Finestexpert.com (a nice little site that aggregates rental ads – giving you a nice back-of-the-napkin idea of what you can get)
  • Market It
    • Take great photos (just like when trying to sell your house, having great photos of the property is important)
    • Write a great description (sell, sell, sell!)
    • Position it for the lifestyle (sell the lifestyle, not just the house … bus lines, ferries, freeway proximity, parks, trails, restaurants, etc)
    • Distribution (get as many eyeballs on your ads as possible – the same sites you used to price the property are a good start)
  • Fill It
    • Showings (I’d suggest you be there for all showings because it gives you a chance to meet the people and check out their car – seriously – if it’s messy and beat up, you can expect them to treat your house the same way)
    • Applications (Create a simple system for providing applications – mark the top corner of the application for the people that you liked.  This way, when the apps come back in a few days later and names and faces have started to blur together, you’ll know by seeing the mark on the app that you had a good first impression)
    • Credit checks (National Tenant Network … both individual investors as well as full-time property managers use NTN for all their screenings)
    • Contract (make sure you’re protected – it’s important to write bullet-proof lease agreements)
If you decide to hire this out, expect to pay somewhere in the range of half the first month’s rent up to 6% of the total lease agreement.  Assuming you could rent your property out for $3k/mo and were able to sign a 1 year lease, you’d be looking at roughly $1500 on the low end and $2160 on the high end.

Day-to-Day Management

This is always the big unknown. If you’ve been living in the house for the last 5 years and are moving out but not selling, you probably have a pretty good idea of how often things break down.  However, items that you may be willing to overlook, a tenant may not!  Do you want to be the phone number that the tenant calls?  Or, do you want to pay someone else to handle it?  If you are about to buy the property, this is an even larger unknown.  Hopefully, you’ll have the property properly inspected, but that won’t give you any indication as to how frequently minor issues will arise. Assuming an issue does arise (and, trust me, it will), are you going to want to try and fix it yourself first?  Or, do you want a professional called in immediately?  If a pro is required, do you already have a relationship with one that does great work and you trust? When the rent check is late, do you want to track it down?  Or, do you want someone else to play the bad guy? When things get so bad that the tenant needs to be evicted, do you want to learn the eviction laws and process?  Or, do you want someone else to handle all the legal work? You get the idea… If you hire this out, expect to pay 5% to 6% of the monthly rent for this – with our example $3k/mo rent, this would be between $150 and $180 a month.

Time vs Money

As you analyze different properties, you will come across some that only make sense on paper if you handle the tenant placement and management yourself.  That’s ok, you just need to decide whether an investment that requires your time is equal to an investment that requires your money. If you’re thinking about becoming a real estate investor in Walnut Creek or the greater San Francisco Bay Area and want to hire the management out to a pro, give me a call (925-817-8428) – I’d be happy to put you in touch with some of the prominent property managers in the area.

Why Work With the SPARRproperties Group?
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We easily went through 12 agents before running into Brian. Brian immediately stood out from the pack – he is extremely knowledgeable, smart, and real estate is his passion – which is an important distinction and an absolute necessity for a great agent.
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Brian’s been an incredible advisor, setting expectations for short sale & foreclosure opportunities, educating me on commercial property financial modeling, and going beyond the number crunching...
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