The DIY Myth and Why Professional Property Management Will Increase Profits

Greetings Valued Readers!

Today we are going to discuss one of the biggest reasons to use a professional property management company…the DIY Myth.

The DIY Myth is the belief that it is better to do something yourself instead of wasting money paying a professional to do it.  In a world where specialization has become so valued it is surprising that so many people still think it is better to try and do everything yourself.  It is even more odd that somebody who owns an investment property (which should be run like a business) would think that it is better to manage everything that has to do with the property themselves.  This would be like the owner of a restaurant doing all the cooking, cleaning and serving themselves.  An owner needs to have time to make decisions about big things like the long term goals for the business and the major repairs and improvements that need to be made.

Before going on lets be clear about one thing: if you own your own property where you live it is very important to known how to do many minor repairs yourself.  You can save a lot of money by being able to snake a toilet, stop a leak, paint a room, fix a crack, replace a fascia board or any of the hundreds of other little things that a house requires.  So DIY is not a myth when it comes to minor repairs on your own home.  But even with your own home there is a line that should not be crossed where it will become more expensive, difficult and dangerous to do the repairs yourself.  That line is different for everyone and largely depends on the level of knowledge and skills that the homeowner has.  It also has to do with how much spare time a homeowner has as well as how valuable that time is.

Here is a simple formula for determining how valuable your time is compared to what it would cost to pay a professional…

If 2X(Hourly Earnings) > Cost to Pay a Professional then Pay a Professional

If 2X(Hourly Earnings) < Cost to Pay a Professional then DIY

First, figure out how much you earn per hour in your normal profession or business.  Then multiply that by two to account for unknown problems that can (and will arise) during a complex repair.  If the resulting amount is higher than what you would pay a professional than you will actually be saving money by paying a professional.

So now that we are clear on when DIY does and does not make sense for property owner-occupants we can see why hiring a professional is even more important for investment property owners.  Because in addition to the same repairs that owner-occupants need to worry about, investment property owners have many additional responsibilities.  The first of these is finding a suitable tenant for their property which includes running background checks and credit checks to avoid major problems in the future.  Then once a tenant is found a proper contract must be prepared that will protect the property owner and the property.  Next the property must be inspected prior to occupancy to ensure that any damages that occur are documented and can be deducted from the security deposit.  Any mistakes during these steps can result in costly legal fees in the future.

Then once the tenant is in place there will be constant calls for questions about the property and repairs that need to be made.  This also involves the selection of contractors to do the work and the management and payment of those contractors.  It will also be necessary to collect rent and post any notices if the tenant does not pay.  And even worse, if the tenant refuses or is unable to continue paying rent then the eviction process will need to be started.  If the tenant does pay eventually they will need to move out at which point there is a whole other series of steps to take in order to close out the contract and prepare the property for the next tenant.

So when we add all of this additional work you need to add up the total amount of hours that you spend doing these tasks and apply the formula we discussed before to see if it makes sense to hire a property manager.  If we take a very conservative estimate of 5 hours of work per month and assume a personal income of $20/hour and apply our 2X multiplier then it costs around $200/month to manage a property.  Compare that to the standard fee of 10% to manage a property at an average rental income of $1000 per month then you are profiting $100 a month by paying a professional property management company to handle all of the hassles for you.  The formula works at almost any level of property, because if you have enough money to buy a rental property that generates $2000 a month your personal income is probably closer to $30 or $40 an hour or more.  So as you put more money in your own pocket each month you also have additional time to research the market and search for your next property in order to continue building your investment real estate portfolio.