The importance of a good property manager

If your investing strategy includes rental properties, there are 2 main ways to do it:

1) Manage it yourself. This may seem like a cheaper way, but it does have risks. For one, you run the risk of falling into the "landlord trap" where you end up spending a lot more time than expected dealing with tenants, making repairs (or overseeing the contractors who make repairs), and you also limit the number of properties you can effectively manage, thereby placing a cap on your income potential. This also limits you geographically and increases the risk that you will lose money or miss out on opportunities if your local market gets into an extended slump.

2) Hire a property manager or managers. This has higher apparent costs, as property managers typically charge both a monthly fee (for ongoing management) and fees to place tenants in the property. Still, this approach (when done right) frees up more of your time so that you can focus more on finding additional investment properties and can enable you to diversify geographically so as to reduce your risk in having all your "eggs" in one market "basket."

Hiring a good property manager or managers is crucial to making this approach work for you. Unfortunately there are lots of bad property managers out there, so it's vital to do your due diligence before committing to a property manager.

This article highlights some of the bad things that can happen when bad property managers are used:

Unethical Business Practices Attract Criminal Tenants
http://broadcastatlanta.com/index.php?option=com_content&task=view&id=7088&Itemid=2134

The owners could have avoided many of these problems by properly screening the property management companies, not deciding on fees alone (the cheapest isn't necessarily the best), and through regularly overseeing their activities (such as making sure the bills are paid, getting a periodic report of financial statements, tenant info, and so on). As the article shows, having a bad property manager can not only negatively impact your cash flow from the property - it can place good tenants at risk for their safety, negatively impact the property values in the area, and even become a drain on public resources and waste taxpayer dollars. When the police have to respond to calls from your property, that keeps them away from doing their jobs anywhere else and also costs the taxpayer.

So it's important to bear in mind that just because you have a property manager, you shouldn't expect that you can be totally hands-off with that property. Set up a system to work with / check in with your property manager(s) and do it regularly. This shouldn't be too time-consuming and can save you a LOT of money and prevent a lot of headaches.

That being said, I personally would prefer to use property managers rather than a total DIY approach. I'm investing to achieve financial freedom and passive income, not to create a full-time job for myself. It's important to buy right - if you pay too much for the property, it's hard to make it cashflow with or without a property manager.

Real estate investing is a high-stakes game where the rewards can be huge, and mistakes can cost a lot. I find it easier to learn from mistakes others have made. Of course I do make mistakes too - after all, I am "only human" - but I'm a firm believer that educating yourself helps reduce the number of mistakes you'll make, and therefore reduces your costs and increases your profits.

To your success,
David
www.creatingrealestateinvestors.com