The Perils And Pitfalls Of Self-Managing Your Investment Property

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Contributor, Benzinga
August 2, 2022

Owning investment property can be a tremendous benefit to any portfolio. It offers owners the ability to earn passive income while the property appreciates in value, which amounts to a double benefit that few other investments can offer. 

However, as the old saying goes: Every rose has its thorns. While it’s true that investment property can be a great money maker for investors, those benefits come with significant drawbacks.

Most investment properties generate expenses almost as quickly as they generate revenue. This is especially true in the case of residential property, where debt service, maintenance, property taxes and insurance all take large chunks out of investor returns. Many investors try to minimize those expenses by self-managing their property. Keep reading to find out why that may not be the best idea. 

Property Management Is Not A 9 to 5 Job

It’s perfectly reasonable to understand why you might want to manage your own property. A solid property management firm will usually charge about 6% of the rents they take in plus a commission on leasing vacant units. This commission can range anywhere from one month’s rent to 6% of the total value of the lease. 

If you add the two costs together, with all of your other ownership-related expenses, your revenue will definitely take a hit. That’s why so many property owners are tempted to manage their own properties. However, before you do that, you may want to consider why property management is so expensive. Any experienced property manager has done the job long enough to know the saying: Nothing breaks until 7:45 p.m. Friday night.

Emergencies Don’t Care About Your Schedule

The first thing you should do as a property manager is prepare yourself to work odd hours. This is not a part-time or even a full-time job. It’s an all-the-time job. Without a professional management team, the 7:45 p.m. Friday emergency will be yours to handle. You have to be honest with yourself about whether you have the energy to deal with that after a hard work week. 

It’s not just Friday, either. Tenant emergencies happen on Saturdays, Sundays and holidays. A burst pipe doesn’t care whether you’re at the airport on the way to your daughter’s wedding or that this is the first day you’ve had off in three weeks. More importantly, your tenant doesn’t care either. In many cases, they are paying half of their take-home pay to you in rent. 

That means being tired and wanting to deal with it tomorrow or turning off your phone won’t suffice. You’ll have to head to the property yourself to fix the emergency or coordinate with a maintenance employee or other service provider. You could just as easily get an emergency call while working your day job, too. Either way, you will be on call 24 hours a day, seven days a week. 

There was a time 40 or 50 years ago that a property lease between a tenant and property owner was secured by nothing more than a handshake. Even when there was a written lease, it was often just a simple one-page document that laid out the basics of the lease such as tenant’s name, landlord’s name, rent amount and lease term. In today’s overly litigious society, that doesn’t work. 

Remember, your lease represents the full range of your responsibilities and the tenant’s privileges. Anything not written in that lease is subject to interpretation. Usually, the benefit of the doubt in that situation will go to your tenant, not you. In the eyes of most courts across the country, any otherwise legal activity that’s not specifically prohibited under the lease, is allowed. 

It may be common sense to you that your tenant can’t have his rock band practice in his apartment until 2 a.m. every night, but if the lease doesn’t prohibit it or include quiet hours, you’ll be powerless to stop them. Additionally, there is a raft of legal restrictions and rules you will be expected to know and follow as a landlord. Examples of these rules include the following:

  • Rent control ordinances, which are common in larger cities and buildings that were constructed before a certain date and regulate everything from maximum allowable rent increases to the circumstances under which you can terminate a lease
  • Fair housing regulations at both the federal and state level
  • Maximum allowable security deposit
  • How long you have to refund a security deposit after a tenant moves
  • How to properly serve notices such as eviction, lease termination, pay or quit

Bear in mind, these laws change on an almost yearly basis. As a landlord, you will be expected to know and obey all of them. If you make a good-faith mistake out of a lack of knowledge, you could easily find yourself in court. Here, the judge will firmly tell you, “Ignorance of the law is no excuse” before issuing a ruling that causes you to shell out damages to an aggrieved tenant. 

The Personality Problem

One thing everyone has in common is that no matter how nice, or mean, they are, they all need a place to live. As a property manager, you’ll have both nice and mean people as residents. Regardless of what kind of tenant you have, it will be incumbent on you to deal with them professionally and consistently. You can’t play favorites with tenants anymore than you can with your own children.

There can be a lot of tense situations that take place on a property. Even your nice tenants may not be so polite when a pipe in the ceiling bursts and water is gushing all over their belongings. In addition to that, your not-so-nice tenants may decide to take out all the frustrations of their life on you when something goes wrong in their rented space. 

That doesn’t mean you have to put up with abuse or threats, but you will have to maintain decorum at all times. That may seem easy as you read this, but you might find keeping your cool with a tenant screaming at you while you have a migraine isn’t so simple. If you don’t have the temperament to stay cool under fire, property management isn’t for you. 

Your Tenants Don’t Know About Your Problems And They Don’t Care

Imagine your boss coming to you on payday and telling you times have been hard and his kid is sick, so he’ll only be able to pay you half of what you’re owed. A tenant of one of your properties is even more likely to have this kind of situation. In either case, your response would be something along the lines of, “I’m sorry to hear that, but we have a contract and I need my full payment.”

It’s a reasonable position to take. However, the same principle will apply to you as a property manager. Your tenants don’t care about what emergency you have that’s preventing you from fixing their air conditioner. They’re only going to care that they paid you rent, they’re hot, and it’s your job to get the A/C fixed ASAP.

The bottom line here is that managing property is a results-oriented business. 

Your tenants expect you to resolve their problems quickly and efficiently, regardless of what’s going on in your life. Furthermore, many municipal rental codes have time limits on how long you have to make repairs before the tenant can make them and deduct the cost from the rent. 

Do You Enjoy Accounting, Recordkeeping And Paperwork?

If your answer to this question is no, do yourself a favor and hire a property manager. Record keeping is a mission-critical part of your job. Federal fair housing laws also require you to keep all of your rental records for seven years. This includes the following:

  • Leases of current and past tenants
  • Rental applications
  • Application fee receipts
  • Rent receipts
  • Reasons for denial of a rental application
  • Notices to tenants

That’s to say nothing of the bookkeeping accounting you have to do. If you manage your properties, you have to collect rents, make rental deposits and see to it that your property’s bills are paid on time. That includes:

  • Property taxes
  • Mortgage
  • Insurance
  • Invoices from service providers such as plumbers, electricians or attorneys

Can You Farm Out Jobs You Don’t Want To Do?

If you are determined to manage your own property, but you don’t want to handle the hard stuff, you can contract for vendors to provide necessary services. However, by the time you hire an accountant, an answering service for after-hours emergencies and any other service provider you may need, you will likely find the total is pretty close to the 6% you’d pay a management company. 

Bad Self-Management Can Cost More Than Good Professional Management

The decision to self-manage a property is one that is almost always made as a matter of economic necessity. Management costs money, which eats into investor profit. 

The reality is that professional property managers have specialized knowledge and experience when it comes to their jobs. In most states, off-site property managers are required to have a real estate broker’s licenses before they can manage property for a fee. 

The knowledge they gain in the licensing process, which requires numerous hours of classroom study, and the experience they gain in the course of managing properties is invaluable. The combination of fair housing and local laws that regulate property management mean that even an innocent mistake can land you in court. 

For example, imagine you have a fourplex with one unit available on the first floor and one upstairs. A family with children shows up to view your units and you only show them the lower floor unit because you think the kids will make too much noise if they live upstairs. It seems like a reasonable assumption. It’s also a fair housing violation called “steering” and tenants can sue you for it. 

That’s how quickly a bad decision or honest mistake you make while self-managing your property can cost you a truckload of money. If you lose a fair housing case, the 6% you saved on management is going to be peanuts compared to the judgment. In fact, the legal fees you pay to fight a fair housing case will dwarf your 6% annual management fee. Experienced property managers know how to avoid these pitfalls. 

There Is A Better Way

If managing your own property sounds like a ton of work, that’s because it is. In most cases, rental properties are assets worth six or seven figures. That’s why caring for them properly takes so much time and energy. If you don’t have the time or energy to do that, the good news is there is a better way. 

Let the Pros Handle It!

Let the pros handle it. Good help is hard to find, and just because you hire a management company, there is no guarantee it will be any good. That’s why a better idea might be to invest your capital into a real estate investment trust or real estate syndication deal. When you do that, you’re buying into a property that will be managed by a professional team that is experienced in growing wealth for investors. 

Online investing platforms like CrowdStreet and RealtyMogul have an incredible range of offerings across the real estate spectrum. You can buy into many of them for $25,000 (or less in some cases). That’s not a small amount of money, but it’s a lot less capital than you would have to put into buying a property free and clear. You can also take a look at Benzinga’s best online investment platforms here: 

Most importantly, investing in a real estate investment trust or syndication deal will give you the benefits of real estate ownership without the drawbacks. Yes, the investment risk is still there, but the late-night phone calls, accounting and other headaches are taken care of for you. The properties generate passive income while you go about your everyday business. Doesn’t that sound like a better idea than self managing your own property?

About Eric McConnell

Eric McConnell is a real estate writer with a years-long passion for the real estate industry and the desire to help everyday people learn more about real estate investing. He is a graduate of Pepperdine University, where he earned a BA in journalism. 

After graduating, Eric embarked on a career in real estate where he spent over a decade as an agent for multi-family and commercial properties in Los Angeles. In his career, he’s worked on almost every side of a real estate transaction. He has represented buyers, sellers, property owners and renters and served as manager for commercial and residential properties. 

In 2019, Eric started sharing his experience with the wider world as a writer. He got his start writing and editing real estate lessons for prospective licensees before joining Benzinga in 2021. Since then he has written a variety of real estate material ranging from investment platform reviews to covering and analyzing breaking news in the real estate industry. His work has been published by Yahoo News on numerous occasions. 

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