House Hacking: When Should You Hire a Property Manager?

When you're house hacking or building your rental portfolio - it's important to have an idea of when you should hire a property manager - and also figure out if you'll even need one. 

So we're going to talk briefly about what property managers do - the costs that come with it - how it affects your cash flow and return on investment - and then a few pro's and cons to help you decide if or when you need a property manager

So what do property managers do

The short sum-up of this - a Property managers role is overseeing the day-to-day operations and management of rental properties.

They handle a number of things - such as marketing, vacancies, screening tenants - collecting rent, addressing maintenance issues - and ensuring compliance with local regulations. (that's a big one)

So with their expertise and experience they can really take over all of those duties of being a landlord for you.

The services they provide though - vary by company and by location.

Some provide all of the above, some only do a few, and some let you pick and choose what services you want them to provide. 

Now of course, the more services you need or require - the more expensive it will be

Again, the fees can vary depending on location - and specific services provided - but you'll typically see around a 10% fee of your gross monthly rent, give or take.

So if you're renting out your house hack for say $2,000/mo - and this covers all those services we mentioned - and the fee is 10%, you'll pay your property managers $200/mo.

Now there has been some confusion in the past - of people thinking this also covers your maintenance and repairs.

It does not. You as the property owner are still responsible for paying for those repairs.

So how does this impact your cash flow?

On the positive side - property managers bring efficiency, expertise - and the ability to attract high quality tenants - potentially reducing vacancy periods - and getting the max amount of rental income possible.

However, it's important to understand how this impacts your cash flow.

Once you take that $200/mo fee into account - your cash flow looks a heck of a lot different.

For example - If you're getting $2,000/mo in gross income - and your mortgage, property taxes, and insurance total $1,500/mo - you're at $500/mo in net cash flow.

Even though I mentioned property managers can help reduce vacancy - we are still going to account for it - because you never know. That's another 10% of your gross income - which is another $200/mo

Then we also set aside $ for repairs and maintenance - because again, those costs are still on you as the property owner - which is another 10% (or $200) we are saving.

So add these all up - the total expenses per month come to $1900 - which is $100/mo in cash flow.

Now we hire a property manager here for another 10% - all of a sudden you're negative $100/mo in cash flow

This is why it is so important to do your due diligence - and hire a realtor to help run numbers on your house hacks - especially if you're considering a property manager.

Now I probably just scared a lot of people with that - but when you break it down on paper - the pro's and cons are pretty even 

Time and Stress Savings with Property managers - because they are handling tons of various time-consuming tasks - which allow you to focus on other aspects of your life, business, etc

Expertise and Experience here are huge as well when it comes to house hacking - they have in-depth knowledge of local rental markets - tenant screening procedures - and property maintenance and local contacts. 

This leads me to their Access to a Network of Professionals.

Experienced Property management companies have established relationships with reliable contractors -  who are quick and reliable - and often times pretty cost efficient. Which is a huge bonus.

Now the cons are pretty self-explanatory

They are Costly. The management fee can really impact your net cash flow - and in some cases, it may not even work financially - particularly for smaller properties or when the rental market is highly competitive.

By handing over these duties to a manager - you also have a little Loss of Control on your properties.

By delegating these duties to someone else, you may have less direct involvement in decision-making and tenant interactions - (which, depending on how you look at it - could be a pro)

Lastly, it doesn't necessarily make your rental properties "passive"

A lot of people think once they get a property manager - it's hands off from there.

And now we can go on vacations 365 days out of the year and drink margaritas on the beach all day.

Unfortunately, you're still getting those calls from the property manager when things break - you're staying in touch making sure things are running smoothly - and checking up on the property periodically. 

Yes, the property managers are the ones taking the calls at 2am when the ceiling is leaking - but you are still "managing the manger"

So to wrap this up here,

most people don't know the first thing about property management - or those steps of turning your primary residence into a rental property. And that is okay! That's what property managers are for, and that's what I'm here to help with.

When deciding when to hire a property manager - it's all situational.

Will you still cash flow - what is your time worth - how do you value the services - what services do you need - am i really too busy to hire these landlord duties out.

It's all up to you when you run the numbers - and look at what the overall return is for each of these services - when looking at your current lifestyle, goals, and financial situation