Whether to hire a property manager

So here is what it boils down to; Did you buy the property to invest your money or to buy a job?

The fact of the matter is that if you are buying a property you MUST include a management fee as part of the operational cost during your decision making process. You will either pay it to a management company or pay it to yourself. Either way including that fee best ensures you are making a decision based on the reality of the business and are compensated according to the effort you are willing to put into it.

So let’s start off with a quick list of why you might be looking to get into real estate investments.

  1. Looking to add a stable, long-term income source to their investment portfolio
  2. Can’t or don’t want to sell your home and need to hold onto it whilst not bearing the burden of 2 mortgages
  3. You’ve heard real estate is a good investment anyone can get into and get rich

If you’re a long-term investor who is adding to an already existing investment portfolio you already understand management doesn’t cost anything more than normal operating costs. No matter what investment you own there is someone managing it. The example I like to use is a stock broker; who having access to your money is charged with applying the money to stocks they believe will meet or beat your financial expectations. The operations of how the money is actually used is completely dependent on the management team of the various companies your cash has been loaned to. They build, market, and sell the widget or service. Your money is working and hopefully it is churning out cash and value at the other end of the process.

Getting into real estate investments is very similar to the stock market. The cash is outlayed for the acquisition of ownership, in this case real property (house, apt building, strip mall, etc). Along with that acquisition comes the management of the property; that is to say the day-to-day activities, building efficient processes, competing, marketing, customer service, leasing and being able to report financials to yourself, investors and Uncle Sam.

This is where any other reason other item 1 above gets to be a little awkward. Real estate has a relatively low entrance barrier. You as an individual are buying both the asset and the operational structure of an entire business. It’s alluring because you get to be the CEO of your company and no doubt the pro-forma you were given by the seller made all the sense in the world.

Here is how you know whether you have the opportunity to even decide whether you have a choice of hiring a management company; Are you an expert? Simple enough, but what do you need to know to do it effectively, to make money at it w/o exposing yourself to major risks?

Wow, I re-read that and it seems like a scare tactic. That was not the intent, and it isn’t to say you don’t have the skills &/or patience to handle it. This is an industry and this industry has experts all over the place. If you are not an expert and are competing against experts you can bet the learning curve will be steep before you start meeting your financial objectives in many cases. As negative-Nancy as it comes across each of these areas present very real risks; anything from disappointed tenants to $11K per day per occurrence in penalties.

What does a management fee include? Well, that’s you’re pro-rated portion to pay ┬áinto the infrastructure of an already existing company. It’s the administrative and executive labor & the underlying company structure you will not have to build yourself.

Bottom line: Are you acquiring an investment or buying a job? Answer that and you’ll know whether or not to hire a property manager. Either way it can be a great long-term decision.

 

 


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