Property Management vs. Self-Management: Pros and Cons
Have you ever considered the potential benefits of self-managing your rental properties instead of hiring a property manager? While it might not be for everyone, more and more real estate investors are exploring this option to save money, improve cash flow, and have more control over their investments.
With the help of online tools and resources, self-managing is becoming increasingly accessible for real estate investors. Let's dive into the basics of property management vs. self-management to help you decide if it's the right path for your rental business.
Understanding self-management options
First, let's clear up a common misconception: Self-managing doesn't necessarily mean you have to do everything yourself. There are two types of self-managing:
- 100% self-managing: You're the owner and property manager, handling all aspects of the rental business — from listing the unit, finding tenants, collecting rent, and managing bookkeeping.
- Hybrid self-managing: You're the owner and oversee rental operations, but delegate some tasks to others. This allows you to focus on the aspects of property management most important for you while still being in control of your investment. Think of it like DoorDash — you request food delivery, but you’re not required to be the driver.
Interested in learning more? Let's explore the pros and cons of property management vs. self-management for your rental properties.
6 benefits of self-managing rental properties
Following are the primary advantages of self-managing versus hiring a property manager.
- Cost savings: By self-managing, you can save on property management fees, which typically range from 8-12% of the monthly rent. That 8-12% at the top line often translates into 20-30% of your bottom line — and can end up significantly cutting into your profits. Getting rid of these property management fees can result in robust savings on your bottom line which will compound even more down the road.
“With compounding, even slightly higher returns can make a big difference in the outcome… If you’re investing for the long term, the strategy is simple: Continuously reinvest your profits at the highest possible rate of return.” – Real Estate By the Numbers by J Scott and Dave Meyer
- Hands-on control: Self-managing allows you to have full visibility and control over tenant selection and maintenance decisions, often leading to faster resolutions during tenancy. Plus, if you build a network of trustworthy vendors, self-managing is the best way to ensure high-quality work and fair repair costs.
Real-world investor story:
Vicki hired a property manager for her rental properties. When the air conditioning unit broke at one of her rentals, the property manager hired an HVAC technician for the job. But the next day, the tenant reported that the A/C had failed again. This time, Vicki reached out to a different technician herself, who told her the previous technician did a lousy job — using used parts and not making any real repairs. This concerned Vicki, who now tries to check all vendors’ reputations herself before hiring.
- Building relationships with tenants: By managing your properties directly, you can foster positive relationships with your tenants, which helps result in long-term tenancies and more responsible renters. This also means you’ll be less likely to be burdened by a messy house and unreported damages at the end of the lease.
Real-world investor story:
Autumn has been working with a property manager for two years on her long-term single-family rentals. The property manager requested that Autumn not make direct contact with tenants, which she respected. However, two recent setbacks have made her reconsider. First, Autumn received a $1,200 fine when one of her tenants failed to forward her several HOA letters that she wasn’t aware of. Second, after having to evict a family that she knew was risky from the beginning, she found out their security deposit was much less than what she had expected. Now, facing two months’ rent loss and a major repair bill, she regrets not being more in control of tenant screening and lease decisions.
- Real-time insights into your finances: Because you’re managing your own rental finances — including rent payments and property expenses — self-managing gives you a closer view of your cash flow and financial performance. This will help you quickly identify any weak spots so you can find ways to optimize your portfolio and maximize your investment.
- Becoming a better investor: Being hands-on in your rental property business will teach you more in a shorter amount of time. Knowing the business inside out entails better judgment in investing. The best way to gain such knowledge is to do the job yourself. That’s why the CEO of Uber spent months undercover as an Uber driver!
- Tax benefits: Although this usually applies only to those investors with a mid-to-large portfolio, qualifying as a "real estate professional" might make you eligible for additional real estate tax benefits.
4 challenges of self-management
Following are key considerations for real estate investors who are considering self-management versus hiring a property manager.
- Time commitment: Self-managing requires your time, which can have opportunity costs if your time is more valuable elsewhere. For example, if you’re a consultant who makes more than $200 per hour and are struggling to find enough free time, you’ll likely be losing money by self-managing. On the other hand, if you think the benefits outweigh the cost of your time, you can test the water by self-managing one property.
- Lack of expertise: If you're new to property management, there can be a steep learning curve to overcome. Therefore, if you aren’t interested in the hands-on approach or gaining new knowledge as an operator, self-managing isn’t for you. Once you start, you’ll have to constantly learn new things and build your network.
- Occasional frustrations: Dealing with the day-to-day communication and coordination of tenants and vendors can be challenging. There will inevitably be disappointments and annoyances, such as when a prospective tenant is a no-show, or a renter doesn’t pay on time. A certain level of patience and tolerance for setbacks will go a long way when you self-manage.
- Legal and regulatory compliance: It goes without saying that you’ll need to understand and ensure compliance with your local real estate laws. Noncompliance could entail outsized losses or other unnecessary consequences. Thus, you should self manage rental property only if you’re prepared to navigate these regulations — whether by learning about them yourself or relying on guidance from experienced professionals.
Is rental property self-management right for you?
Given the considerations above, it’s safe to say that self-managing is best suited for those investors who are curious, resourceful, and willing to learn. If you enjoy running a business and have the time and energy to devote to it, self-managing would be a great fit! Bonus points if you like optimizing processes and analyzing data, as such traits will allow you to amplify your gains even further.
Many investors are already self-managing some of their properties or taking on property management tasks without realizing it. As online tools and marketplaces become more available, self-managing is becoming increasingly common and more accessible.
To learn more about self-managing rental properties, check out Azibo which helps investors collect rent online, find quality tenants, and simplify their bookkeeping, and more.
Being a self-managing investor means becoming a real estate entrepreneur. Are you ready for it?