Here are four quick-and-dirty reasons why, if you’re in the market for a residential property manager for your investment rentals, you should hire one who has a rental portfolio of their own.
The PM understands why it’s important to control expenses and improve cash flow.
If your goal is to buy and hold long-term rentals, it’s likely that your focus is on generating a decent-to-good cash flow to pocket as passive income, or use to reinvest, or rely on to quit your (perhaps not-beloved) day job real soon. A PM who owns a least a few units and has had to spend money to fix them knows a few things about expenses—for instance, when it’s better to spend more money now to prevent large expenses in the future, or to spend less now to meet more short-term cash flow goals. They’ve seen the hit to their bottom line when they hired the cheapest plumber to fix the ceiling leak and then had to go back and hire the best plumber to fix that fix. But they’ve also seen the cost savings in buying a lesser-quality product than they would for their own homes to maximize cash flow.
The PM sympathizes with problem tenants and works hard to set realistic expectations to get them to pay rent.
A PM who owns rental property knows that it’s never okay to slack off on collecting rent from a problem tenant and create a situation where an owner hasn’t received a rent check in months—seriously cutting into their bottom line. On the other hand, they know that it costs money to pursue an eviction, and that sometimes people run into rough patches in life and need a flexible, temporary payment arrangement. They know firsthand what happens when NO money comes in—whether from a nonpaying tenant or a vacancy they’re trying hard to fill—and will work to get your tenant back on track and remain your tenant for the term of their lease and perhaps a renewal (or two) because they appreciate the second chance.
The PM understands discussions with the banks if you want to grow your portfolio.
Investing in buy-and-hold rentals takes a lot of financial analysis. You crunch numbers, jockey spreadsheets, negotiate deals and communicate with lenders about loan terms, interest rates, and the crazy world of underwriting. Your PM who owns a few duplexes and a quad has already been there and done that. They have experience to share with you, guidance to provide, opinions to offer and most likely, professional contacts with lenders, title agents, attorneys, and tax folks to share with you.
The PM understands why good tenant screening can be key to the long-term success of the property.
The experienced PM/owner has rented their own first apartment once and learned a lot about what not to do and what kind of tenant not to place in their rental. They’ve figured out good screening products and companies and the main reason to use them—to put a good tenant in the rental and keep them there. They’ve come up with a list of pre-qualifiers that will thin out the number of applicants to the best pool to choose from (i.e. three times the monthly amount of rent in gross income; no violent or drug felony convictions; a zero-balance on past evictions and two years eviction-free, etc.). And they don’t make exceptions to strict screening rules, because real estate investing is a business.
There are more reasons to hire a property manager who owns rentals when you’re looking for management, but the most important is because experience is the best teacher.