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When investing in real estate, one of the first questions you’re going to want to consider is whether or not you will mange your own property. There are pros and cons to both self-managing and hiring a management company. In choosing which is best for you, you must analyze how much time and opportunity cost it will take. See below for an overview of our first year under a rental management company and how much management fees and maintenance expenses actually cost us.
Overview
When my husband and I got married in May of 2019, we decided that instead of selling my house we would rent it out since I had only owned it for a year. Being very new to the real estate game, we decided to go with a rental management company. See below for a breakdown of what it actually cost us in our first year under the rental management company.
Management Fees
If you choose to hire a rental management company to manage your property, most likely they are going to charge you through a management fee. Management fees are typically a certain percentage of your monthly rent and can sometimes include fees to market and rent out your property. A typical fee is somewhere around 8-12% of your monthly rent for a large management company.
Our rental management company charged us our first month’s rent (for a 2-year lease) and 10% of every month’s rent thereafter.
We are basically paying almost $300 per month over the 2-year lease to pay for the management company finding a tenant and managing the property. When you are trying to generate a positive cash flow, $300 every month is A LOT of money.
Maintenance Expenses
Part of the benefit of hiring a management company is not having to deal with maintenance issues as they come up. However, you then do not have the control to determine how much it should actually cost to fix the issue. Some of the issues that have come up over the past year were easy fixes that myself or my husband could have addressed for much less than we were charged.
As you can see from the above expenses, every “maintenance issue” that came up was an easily manageable situation. Many of the expenses we paid could have easily been reduced by performing most of the maintenance ourselves. While every rental house and tenant situation is going to be different, this first of year expenses opened our eyes to the money we are losing by going with a rental management company. Some months, we pay 10% of our rent for absolutely nothing other than peace of mind.
Is a Rental Management Company Worth it?
Looking at the numbers for 2019, we could have netted an additional $300/month just by managing the property ourselves. Based on where we are at in our real estate journey, that $300 is worth our time. We also could have potentially saved a portion of the $800 maintenance expenses by handling the issues ourselves as well. One key part to actually capturing all of this value is ensuring we find quality tenants much like the rental property did. Deciding whether to hire a management company or rent out the property yourself, you must decide how much your time is worth and how passive you want the investment to be. It truly is a decision only you can decide for yourself.