Should You Hire Some
Rental-Property Help?
April 17, 2002 -- When Hans Wydler, of Bethesda, Md., bought a seven-unit apartment property in Washington, D.C.'s Dupont Circle neighborhood last year, he faced a dilemma familiar to any small property owner: Should you hire a third party to manage the property, or should you do it all yourself?
He chose the do-it-yourself route, inspecting the building -- his second rental property -- at least once a week. "With a third-party manager, I'd have to pay 6% to 8% of my gross rental income, plus they would charge me commissions to lease up the property," he says.
Mr. Wydler's decision is one that anyone renting out apartments or homes must face: whether to pay a third-party manager to run the property -- leaving all the fixing of leaky roofs, faulty faucets and clogged sinks, plus rent collection and leasing the property to someone else -- or do everything yourself.
The decision boils down to two main considerations: cost and tolerance of middle-of-the-night calls from tenants.
Property managers don't come cheap. Owners should expect to pay 5% to 10% of the gross income from the property. The more services a property manager has to perform, the higher the cost. And fees are higher if the property is in an area with a reputation for problem tenants, third-party managers say.
"If you are doing this as your alternative job or you're retired, it might make sense to do it yourself, it will save you on substantial fees," says Stephen Lefkovits, principal of Joshua Tree Residential LLC, a San Francisco-based apartment investor. He recommends taking property-management classes given by local apartment associations.
But people with full-time jobs can manage their properties, no matter how close or far, provided you have the right tenants. John and Judy Hembling, of Oak Park, Ill., an insurance broker and a small-business owner, respectively, do so with a nearby condo and single-family home in Muenster, Ind., 45 minutes away and a single-family home in Key West, Fla.
While considering cost, a lot depends on an owner's proximity to the properties and the number of properties owned. Property managers themselves say hiring a third party to manage 20 units or less that are within reasonable distance may not be necessary.
Unless, of course, one hates to deal with daily landlord/tenant matters. The main reason for using a separate property manager is "we take the stress out of owning real estate," says Ed Boudreau, president of the Institute of Real Estate Management, a Chicago-based professional organization of property managers.
Irving Tobin, the owner of a few apartment buildings in northern New Jersey, each with seven units or less, leaves the dirty work of going after tenants to collect rent or fielding tenant phone calls to a third-party property manager.
"They take the burden away of collecting rents," Mr. Tobin says. "They do the bookkeeping, when repairs are needed they usually know who to deal with, they know who's good, who's reasonable. It's worth it. They take all the calls. You don't have to be bothered."
Some people new to the landlord game try managing the properties themselves and hire a manager later when they encounter difficulty. "We get a fair amount of calls from people who have bought small property, tried to self manage it and who say 'my life is kind of complicated enough without having to deal with maintaining this property,'" says John Bagwell, a property manager at Property Managers Inc., a Birmingham, Ala., manager of smaller-unit properties.
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