property management: DIY versus hiring out

In short

A friend of mine bought a duplex and swore he would never pay anyone to run it. Three winters later he was answering a frozen pipe call at two in the morning, and he told me he had never been so tired. If you own a rental, you have probably asked yourself the same question he did. Managing it yourself saves the fee, but it costs time, and time has a price too. Hiring out saves hours, but it takes a slice of every rent check. Add up both sides with your own numbers before you decide. Look at your local laws too, because some places set rules for landlords that a manager must also follow. Either way, the owner stays responsible for the property.

The whole of it

What it is

I once watched a neighbor of mine spend a whole Saturday chasing a tenant for a late rent check, then spend Sunday fixing a leaky faucet. He loved the house but not the chores. Property management is that bundle of chores. It covers finding tenants, collecting rent, handling repairs, keeping records, and dealing with the rules. You can do all of it yourself, which people call DIY. You can pay a company to do it, which is called hiring out.

Some owners split the work. They handle the tenants but hire a plumber, or they hire a manager just to find new renters. That middle road is a fair choice too. It is your property and your call.

A property manager is a person or company that acts for the owner. The owner signs a management agreement, which is the contract that says what the manager will do and what it will cost. Read that contract slowly. It is where the real price lives.

How it works

If you are holding a rental, you have probably noticed that the work comes in two kinds. There is the steady work, like rent and records, and the sudden work, like a broken furnace. The steady work is easy to plan for. The sudden work is what wears people down.

When you manage it yourself, you keep all of the rent minus your costs. You pick the tenant, you set the rules, and you get the calls. When you hire out, the manager usually charges a monthly fee. That fee is often a percent of the rent collected. Some managers also charge a leasing fee when they find a new tenant. Some add a fee for repairs they arrange, or for a lease renewal.

Here is a thing worth knowing. The manager works for the owner, but the owner still carries the risk. If the roof leaks, the owner pays for the roof. If a tenant is hurt and sues, the owner can be named. A good manager lowers the odds of trouble, but a manager cannot erase them. Insurance is how owners protect themselves, and a licensed agent can explain which kind fits.

If you are weighing a manager, you have probably wondered whether one needs a license. The rule depends on the state where the property sits. Your state real estate commission can tell you what applies. Check before you sign anything.

The numbers, and where to find yours

A neighbor once told me he never counted his own hours as a cost. Then he wrote them down for a month and went quiet. That is the number most owners skip. So start there.

Your own numbers come from a few places. The monthly rent comes from your lease. The management fee comes from the agreement a manager offers, and you can ask for quotes from more than one company. Your hours come from a simple log you keep for a month or two. Your hourly value is what you would earn at your own job, or what you would pay someone else to do the same work.

For rules about security deposits, notices, and evictions, look to your state and local government. Landlord and tenant law is set mostly by states and cities, so the rules differ from one place to the next. The federal Fair Housing Act also applies to rentals, and the Department of Housing and Urban Development explains it on its website. Those laws bind the owner and the manager alike.

The fee a manager charges is not set by law. It is a price, and prices can be talked about. Ask what each line covers.

A worked example

Let me tell you about a woman named Carol. She owns a small house that rents for $1,400 a month. She works full time as a nurse and earns about $30 an hour. She tried managing it herself for a year and kept a log.

Over the year, Carol spent 48 hours on rent and records, 30 hours on repairs and calls, and 12 hours finding a new tenant. That adds up to 90 hours. At $30 an hour, her time is worth $2,700 for the year.

Now picture a manager who charges 8 percent of monthly rent. The fee is 8 percent of $1,400, which is $112 a month. Over 12 months that is $1,344. The manager also charges a leasing fee equal to half of one month's rent when a new tenant moves in. Half of $1,400 is $700. Carol needed one new tenant, so she would add $700.

Her yearly cost to hire out is $1,344 plus $700, which is $2,044. Her yearly cost of her own time is $2,700. In her case, the manager costs $656 less than her time is worth. Subtract $2,044 from $2,700 and you get $656.

But Carol did not stop there. She asked herself a harder question. Does she enjoy the work? She does not. She told me she dreaded the phone. So the number agreed with the feeling, and she hired out.

Now change one thing. Suppose Carol valued her time at $15 an hour instead. Then 90 hours is $1,350, and the manager at $2,044 would cost $694 more. Same house, same fees, different answer. The choice depends on what your hours are worth to you.

Where it goes wrong

I have watched good people stumble here, and I do not say it to scold. It is easy to do. The first slip is leaving your own time out of the math. You think DIY is free, and it never is. The second slip is not reading the management agreement. A low monthly fee can hide charges for repairs, renewals, and advertising. Add those up before you compare.

Another slip is hiring out and then vanishing. A manager works better when the owner stays in touch. Ask for monthly statements and read them. Check that the rent you expect matches the rent deposited.

Some owners also forget the law. A manager must follow fair housing rules, but the owner is still on the hook. Treat every applicant by the same written standard. Keep that standard in writing. It protects everyone.

Money held for tenants needs care as well. A security deposit belongs to the tenant until the law allows the landlord to keep part of it. State law often sets where that money must be held and how fast it must be returned. Your state housing agency can tell you the rule. Do not mix it with your own cash.

Last, think about distance. An owner who lives far from the rental will find DIY harder, since a frozen pipe does not wait for a flight. Hiring a local manager can be sensible there. That is not advice to buy or sell anything. It is just how the work gets done.

Questions to answer before you leave this page

How many hours did your rental take last year, and what is one of those hours worth to you? What would a manager charge each month, and what extra fees sit inside the agreement? Do you enjoy the work, or do you dread the phone the way Carol did? Does your state require a manager to hold a license, and have you checked with your state real estate commission? Could you handle a repair call at two in the morning, and would you want to? Do you live close enough to reach the property fast? Have you read what your insurance covers, and have you asked a licensed agent what is missing? And if you hire out, how will you keep an eye on the statements so the money stays clear to you?