property management: self versus hired

In short

A friend of mine bought a duplex and swore he would never pay a manager a dime. Eighteen months and three midnight plumbing calls later, he started adding up his hours. If you own a rental, or plan to, you have probably wondered the same thing. Managing it yourself costs time and nerves, and hiring out costs money. Putting a fair price on your own hours helps show which cost is bigger. Written quotes from a couple of local managers show what the fee really covers. Setting that fee beside the value of an owner's time shows where the two paths meet. The management agreement spells out every duty and cost, and the owner is bound by each line once it is signed.

The whole of it

What it is

I once watched a landlord stand in a hardware store aisle, phone pressed to his ear, trying to talk a tenant through a leaking faucet. He was a good man doing three jobs at once. That is what property management really is. Someone has to find tenants, collect rent, handle repairs, keep records, and follow the law.

If you manage a property yourself, all of that is yours. When an owner hires a property manager, a person or company does most of it for a fee. Some owners split the difference. They keep control of big decisions and hand off the daily grind, like showings or after hours calls. A manager works for the owner, and the written agreement sets out exactly what the manager must do and what it costs.

How it works

If you are thinking of hiring out, here is how the money tends to flow. The tenant pays rent to the manager, or into an account the manager runs. The manager takes the agreed fee and any approved expenses, then sends the rest to the owner. The owner still owns the property and still carries the mortgage, the taxes, and the insurance. A manager does not take those off the owner's plate.

Fees come in a few shapes. Many agreements charge a monthly percentage of the rent collected. Some add a leasing fee when a new tenant moves in, often set as a share of one month of rent. Others add a renewal fee, a fee for managing a big repair job, or a fee for an eviction filing. These extras are where a cheap looking quote can turn expensive. So ask for the full schedule in writing.

Doing it yourself has its own costs, and they are easy to miss. An owner pays for listing sites, tenant screening reports, a lease form, and maybe landlord software. There is a price in hours and in sleep too. And the owner carries the legal duty to follow the rules about deposits, notices, and fair housing. Those rules come from state and local law and from federal law. The owner answers for them whether a manager is hired or not.

The numbers, and where to find yours

You deserve figures that fit your own town, not a guess from a stranger. For the federal side, the U.S. Department of Housing and Urban Development explains the Fair Housing Act at hud.gov. That law bars discrimination in renting, and it applies to a self managing owner just as much as to a company. Rules on security deposits, notice before entry, and eviction steps vary by state. Look for your state attorney general or state housing agency page, and your city or county page too.

For the tax side, the Internal Revenue Service explains rental income and expenses in Publication 527, Residential Rental Property. That publication is the place to see how management fees are treated for rental income. A tax professional can tell you how it applies to your own return.

For fees, the only numbers that matter are the ones in a written quote. Ask each manager for the monthly percentage, the leasing fee, the renewal fee, the repair coordination fee, any setup fee, and the cost to end the contract early. Ask who holds the tenant deposits and where. A good manager will answer plainly. If the answers get slippery, take note.

A worked example

Let me tell you about a woman named Marcy. She owns a single family rental that brings in $1,800 a month. She was spending about 6 hours a month on it, between texts, repairs, showings, and bookkeeping. She figured her time was worth $30 an hour, since that was close to what she earned at her day job. So 6 hours at $30 an hour is $180 a month of her own time.

Then she got a quote. The manager wanted 8 percent of collected rent. Eight percent of $1,800 is $144 a month. Over a year that is 12 times $144, which is $1,728. The manager also charged a leasing fee equal to half a month of rent whenever a new tenant moved in. Half of $1,800 is $900.

Marcy ran two scenarios. In a year with no turnover, managing herself cost her $180 times 12, or $2,160 of her own time. The manager cost $1,728. The manager looked cheaper by $432, which is $2,160 minus $1,728. In a year with one turnover, the manager cost $1,728 plus $900, which is $2,628. Her own time that year might run higher too, say 20 extra hours for showings and screening. Twenty hours at $30 an hour is $600, so her own cost became $2,160 plus $600, or $2,760. Close call. The manager came in $132 cheaper, which is $2,760 minus $2,628.

Marcy noticed something. The money was nearly even. What tipped her was how she felt. She dreaded the phone buzzing at dinner. She hired the manager. Her sister, who had the same numbers, kept managing herself because she liked the work and lived ten minutes away. Both chose well.

Where it goes wrong

I have seen good people trip on the same few stones. The first is pricing their time at zero. An hour spent on a clogged drain is an hour not spent on something else. Count it, even if you count it low.

The second is signing a management agreement without reading it. Some contracts renew on their own. Some charge a hefty fee to leave. Some let the manager approve repairs up to a set dollar amount with no call to the owner. Read all of it. Ask what the manager may spend without asking the owner, and who picks the contractors.

A third is thinking a manager removes the owner's legal duty. It does not. The owner is still responsible for the property and for following housing and landlord tenant law. A manager is a helper, not a shield.

The fourth is going cheap on screening when managing alone. One bad tenant can cost more than a year of management fees. A careful, consistent screening process, applied the same way to every applicant, protects the owner and keeps the owner on the right side of fair housing rules.

The fifth is mixing money. Rent and deposits belong in separate accounts, with clean records kept. A state may have specific rules about where a deposit must be held. When records are messy, tax time hurts.

Questions to answer before you leave this page

How many hours a month do I really spend on my rental, and what is an hour of my time worth to me? Do I live close enough to handle a burst pipe or a lockout without a long drive? Do I enjoy this work, or do I dread the next phone call? Have I gathered at least two written quotes, and do I know every fee, including the leasing fee, the renewal fee, and the cost to cancel? Who would hold the security deposit, and where would it sit? What repair amount could the manager approve without calling me first? Do I know what my state and city require of a landlord, and have I checked the federal fair housing rules at hud.gov? Have I looked at IRS Publication 527 or asked a tax professional how management fees are treated? And if the numbers come out nearly even, which choice lets me sleep better?