When it comes to property management, multi-family investors split into two camps. On one side, many investors will tell you to hire a property management company. Why? Because a good manager specializes in all the things that matter most: reducing maintenance costs, increasing occupancy rates, and maximizing your net operating income. On the other side are those (including myself) who think self-management is best. Why? read more For one thing, you save yourself a healthy chunk of monthly expense (more on that below).
More importantly, self-management allows you to maintain control of your property. When many investors hire a property manager, they end up in one of two places: either they spend too much time managing the manager or not enough time watching the details.
Trust me; you don’t want to take the second route. I learned that lesson years ago when one of my managers managed to embezzle over $100,000 in rent.
What Self-Management Isn’t
New multi-family investors often lean towards hiring a management company simply because they haven’t taken the time to learn what self-management actually looks like.
Here are a few things investors would rather pay someone else to deal with:
- Showing Rental Units
- Taking and Processing Rental Applications
- Fielding Phone Calls from Angry Tenants
- Fixing Toilets in the Middle of the Night
- Knocking Down Doors to Collect Rent
Fair enough. But, what if I told you that you could self-manage a property without having to deal with any of these day-to-day nuisances?
In what follows, I’ll not only give you what you need to succeed in self-management, but I’ll even show you how to delegate those pesky on-site tasks without losing control.
Getting Your Legal Ducks in a Row
First and foremost, you’ll need to get on the same page with local leasing/tenant laws. Every state is different and, I’m sorry to say, many of these laws aren’t very landlord friendly.
Rental regulations make up a significant portion of what you’ll need to know before you start managing. While you should always strive to keep your tenants happy and your units occupied, you’re ultimately going to have to bone up on eviction laws and procedures as well.
Make sure you understand local and federal anti-discrimination laws like the back of your hand. All you need is one legitimate discrimination claim against you, and you better believe you’ll find yourself on the wrong end of a lawsuit. Be warned: There are professional scammers out there who will intentionally try to bait you into discriminating against you—all so they can take you to court for an easy payday.
Screening, Leasing, and Collecting Rent
Thanks to digital media and social networking, marketing a property is easier than it’s ever been. Nevertheless, finding a good tenant requires patience and due diligence.
That said, every potential tenant must fill out a comprehensive screening questionnaire. At a minimum, screening should include a credit report, criminal background check, verification of employment, and a conversation with your potential tenant’s current or former landlord.
Once you’re convinced you’ve got a reliable and trustworthy prospect, you can move forward to lease signing. Be sure always to execute a written agreement with your new tenants.
Here are some of the basic details that should be included in every lease:
- Names of every tenant
- Limits on occupancy
- Rental term (annual, month-to-month, auto-renew, etc.)
- Rental rate
- Deposits and fees
- Repair and maintenance expectations for both tenant and landlord
- Rights of entry for landlord and/or management
- Restrictions on illegal activity
- Pet prohibitions/restrictions
Use your lease to set appropriate expectations. Especially when it comes to collecting rent, I tell tenants that rent is due on the 1st. If they fail to pay by the 5th, they’ll receive notice. If they still haven’t paid by the 15th, I begin the eviction process.
That may sound harsh, but it’s always best to make sure everyone is on the same page. I’ve gotten fantastic results by communicating policies up front with firmness, clarity, and respect.
As far as bookkeeping goes, keep scrupulous records of every financial transaction that takes place with respect to the property: rent collected, deposits held in escrow, fees taken in, refunds paid out, maintenance costs, supplies, etc.
If your property has less than 100 units, I’d recommend QuickBooks to get started.
Hiring an On-Site Manager
“But wait a minute, I thought self-management wasn’t about having to do all these things.”
As the owner and manager, it’s ultimately on you to dictate how your property will run and be run. So, each of the policies and procedures outlined above has to start with you.
When it comes to implementing these things, on the other hand, there’s no reason why you have to be the one to show properties, screen tenants, and field maintenance calls.
This is where an on-site manager comes in.
The on-site manager is your first line of defense; they’re the in-person representative you’ll hire to show units, field telephone calls, interact with residents, coordinate contractors, maintain common areas, collect rent, and take care of any other on-site needs as you deem appropriate.
By hiring an on-site manager, you’ll be able to deflect virtually every mundane issue that comes up with managing a property. That’ll free up precious time to spend on more rewarding activities—like securing your next investment property.
Even better, a well-chosen on-site manager can mediate between you and your residents. A manager will let your tenants know you’ve got your eye on the property and are eager to take care of their needs. At the same time, they’ll provide you vital information about what’s going on in and around your property.
Who to Hire
The ideal candidates for on-site manager include residents who are trustworthy, reliable, organized, and capable of doing minor repairs around the property. They should also be professional, warm, and courteous.
Remember: this person will represent you to your tenants.
My favorite candidates are retired couples. They’re generally more reliable than single tenants, especially when the wife is organized and the husband knows his way around a toolbox!
What to Pay
Another benefit of on-site management is that you have the flexibility to compensate your manager in a way that works best for the both of you. Here are a few options:
- Reduced monthly rent
- Direct compensation
- Bonuses for new/renewed leases
- Bonuses based on occupancy and/or net operating income (NOI) benchmarks
- A combination of any of the above
How much you compensate your manager will be a function of the number of units you have and the condition of the property. For newer/smaller properties, you can get away with giving your on-site manager a monthly discount. For older/larger properties, on the other hand, your on-site manager will most likely need a monthly salary on top of free or reduced rent.
Yes, this is an expense, but consider the alternative: off-site property management company can charge anywhere from 4 to 8% of your monthly gross rents. For even a modest sized multi-family property, that monthly outlay will easily outpace what you’d pay for an on-site manager.
Not to mention, management companies charge extra for basic landscaping, cleaning, and maintenance, whereas that work is already “baked into” the on-site manager’s job description.
As far as I’m concerned, hiring an on-site manager is money well spent.
In this post, we’ve discussed what it takes to manage a multi-family property. With a little research and attention to detail, there’s no reason why you can’t take the reins and manage your own property more effectively than any management company ever could.
Interested going deeper?
Check out the Lifetime Cashflow Academy, where I cover these things in much greater detail.