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If you’re considering investing in real estate there’s a good chance you are driven and successful in most aspects of your life.

So, while you are probably capable of handling most of the tasks a real estate management company would do yourself, there is a good chance that you’d be missing out on other opportunities while doing this. I’m talking about opportunity cost here!

There are a couple schools of thought on using a property or real estate management company:

One argument is that you should do everything yourself on the first couple deals so that you’ll know what to look for when outsourcing the work.

The second thought is the one I’m advocating for today, and that is surrounding yourself with good teammates from the beginning!

It ultimately comes down to personal preference, comfort level, and what the end goal is for the investing. I personally want my real estate to be as passive as possible. Going with the classic lesson from 7 Habits of Highly Effective People, I decided to “start with the end in mind.”

My initial goal is to own enough rental properties to achieve financial freedom so that I can pursue other ventures that I’m more passionate about.

I’m talking about first level financial freedom here, where the passive income from my investments is enough to cover the essential expenses in life. There is a second level of financial freedom where there is excess cashflow coming from investments, but we’ll save that conversation for another day.

1. Opportunity cost

Many of you know what opportunity cost is!

Initially, it might seem counter intuitive to use a real estate management company, especially if you’re someone who is quite handy around the house.

You might think, “why should pay someone to handle these small tasks that I could easily do?” This is a common thought.

Instead, I’d challenge you to consider your end goal, and think of the skills you could be learning/spending your time on that will bring significant gains to your investment portfolio.

Examples of these skills include analyzing deals, searching for properties, or learning from other more experienced investors.

Learning how to analyze a deal might save you tens of thousands of dollars, while fixing a toilet might save you a couple hundred dollars. Long term, the higher impact skills will pay off in a big way.

2. Saving you from buying a bad deal

If you buy a bad deal, it’s not going to matter much if you self-manage, or use property management.

Not all property management companies will review a property with you before you buy a deal, but some of them will. The ones that do will be able to quickly tell you what repairs will be needed and what they think the property will rent for.

You should do your own homework, and have an idea already, but this can be a way to get supporting evidence.

There are tons of books on analyzing deals and a good place to find lists is at BiggerPockets.

Check out one of my favorites, The Book on Rental Property Investing by Brandon Turner!

3. Reducing vacancy

Aside from repairs, vacancy is the next largest expense that’ll suck the profits from a rental property.

Trying to save the 8 – 12 percent a real estate management company will charge, but then having a property sit vacant for 2-3 months while you search for tenants doesn’t add up!

Let’s say your property rents for $1,000 a month. At 8% property management fee (which is what I have), that adds up to $960 a year.

But remember, they are incentivized to keep that property occupied, or they don’t get paid. 

These companies should have extensive reaches in all relevant tenant searching sites and they should know how to list and show the property. Just think of the time savings alone! I

f you tried to rent it on your own and it sits vacant for 1-3 months, that’d be $1,000 to $3,000 in lost revenue.

4. Finding the right tenant

One thing that’s as important to finding tenants quickly, is finding the right tenant and knowing how to screen them.

A bad tenant not only can drain the profits from a rental but can cost you a lot of money.

In any business that deals with people, (real estate investing is a people business), there will inevitably be tenants that don’t work out. The way to succeed is to reduce the odds of getting a bad tenant as much as possible.

This all comes down to the screening process.

A good property management company will have a robust system in place for screening tenants. Not only will their system be good, but the people will have interviewed hundreds of tenants and will pick up on things that you or I might miss.

The added benefit of the management company is that they’ve likely dealt with dealing with bad tenants and can make the process as quick and painless for you as possible. This by itself is a huge plus!

CHECK OUT THE ULTIMATE GUIDE TO RENTAL INVESTING HERE!

5. Repairs and Tenant Satisfaction

Once you’ve done everything right, you’ve bought the right property, and found the right tenant, the goal is to keep them happy.

My first rental property was a townhouse that shared a wall with my primary residence. It looked just like a duplex, but officially was labeled a townhome. I used a property management company for all the reasons stated above. They were fantastic!

They had a make-ready team that got the property in rent ready, a wonderful listing/showing team, and in-house technicians that can handle almost any issue.

After getting home from my W2 job the first day the tenant moved in, I happened to run into her on the front porch. She had wonderful things to say about the property, and the management company.

Then she told me that while her son was showing, there was a leak beneath the tub and that water had went all over the garage. Thankfully it wasn’t any worse.

My initial thought was, “How much is this going to cost?”

I asked her if she’d called the management company, which she had, and they showed up within 15 minutes. The technician knew exactly what to do to fix the issue and had the shower operational by the end of the night.

Sure, I could have fixed it myself, but it would’ve taken twice as long and the satisfaction of the tenant and myself would have been greatly reduced.

Having the management company there for the support took a situation that could have been highly stressful and reduced it to a small event for both the tenant and myself!

If you’ve had a good or bad experience with a real estate management company, please leave a comment below!

I’d love to hear how they’ve helped your business, or if you’ve got any tips on screening property management companies!