Owning investment property in Los Angeles comes with a steady stream of decisions, many of which directly impact profitability. One such decision many investors face is whether to self-manage a property or hire a professional property management company to do it for them.
All things considered, there isn’t a stock answer that fits every situation. You may own one property or several, and if it’s the latter, you need to consider how much time you have to put into it, your investment goals, and risk tolerance.
While you might think that self-managing a property will save you money, there are hidden costs you might not have accounted for. Though property management comes with fees attached, it can keep you efficient, compliant, and minimize vacancies – all of which will save you money in the end.
Today we’ll dive into some of the nuances of property management and the various tradeoffs that can help you maximize your investment now and build value over time.
Self-Management Pros and Cons
First-time investors might balk at paying a company 6-10% of monthly rental income, thinking they can easily do it themselves. And if that’s all a property manager does, it certainly would seem exorbitant.
However, there’s more to being a landlord than simply collecting rent. You will need to screen new tenants, understand state, regional, and local landlord-tenant legislation, and respond to maintenance requests promptly.
If you don’t intend to live on the property (many investors live elsewhere, maybe even out of state), continuity might be challenging.
On the other hand, this might be part of the appeal of owning a property, and there are certain advantages.
For example, your operating costs will be lower because you’re not paying a property management company. You’ll be able to establish personal relationships with your tenants, have more control over maintenance decisions, and have hands-on oversight of everything on the property. With a better understanding of the day-to-day, you’ll always be on top of details and be able to plan accordingly.
The tradeoffs of self-management
If you’re only thinking about the fees you’re avoiding, you might not be calculating the value of your own time – or the potential cost of a mistake.
Here’s a rundown of the things you can expect to do as a hands-on property owner:
- Marketing your property
- Being available to show units
- Screening applicants
- Preparing lease agreements
- Managing vendors (for maintenance, etc.)
- Dealing with emergencies and repairs
- Tracking operational expenses
- Managing inspections
- Understanding and complying with California tenant laws
- Dealing with tenant disputes
- Legal handling of security deposits
These tasks require specialized knowledge, and any missteps or delays can result in legal action, non-compliance, fines, penalties, and poor tenant relations.
Compliance with state and local ordinances has become especially complicated in recent years due to evolving regulations around fair housing, rent stabilization, and other tenant protections.
Property managers, for their part, are incredibly valuable here as their job is to monitor and implement the changes before they become an issue.
The Opportunity Cost
Consider that every moment spent managing your property is time you can’t spend growing your portfolio, pursuing new acquisitions, and spending time with your family, doing what you love to do.
Every real estate investor enters the market to build wealth and equity, but most of them aren’t looking for a full-time job. As portfolios grow, the hours you spend managing them will multiply. Whereas one property might be manageable, managing eight multi-family buildings across Los Angeles County is another thing entirely.
How Professional Property Management Adds Value
Hiring a property management company is less about outsourcing and more about optimizing performance.
A professional property manager brings the experience, vendor relationships, and systems that independent landlords and investors likely don’t have.
Some of the tasks they handle on a day-to-day basis include:
- Marketing vacancies to attract the right tenants
- Leasing speed: reduce vacancy periods
- Legal background checks and screening to reduce risk
- Proactive maintenance to avoid big repair bills
- Optimized vendor pricing
- Maintain market rental fees
- Timely rent collection to maintain cash flow
- Accurate financial reporting and forecasting
- Stay on top of changing ordinances to ensure compliance
- Manage renewals to reduce acquisition costs
- Round-the-clock emergency response: ensure good tenant relations and safety
Getting back to the question of fees, let’s evaluate the bigger picture.
Let’s say you have a unit renting for $3,000 monthly. Assuming the management fee is 8%, that’s $240 you’ll pay to property management.
Now, let’s compare to the costs of self-management:
- Month(s) of unexpected vacancy
- Inadequate tenant screening leading to evictions
- Improper lease documentation
- Paying too much for repairs because you had to pay “emergency” markups
- Legal fees stemming from noncompliance
- Lost hours because you had to step in and manage everything yourself
When you consider all this, that fee is more of an investment than a liability.
It’s less about what property management costs and more about what ineffective management will cost you.
Managing Commercial Property Requires Niche Expertise
Commercial property leasing is vastly different from residential, as they frequently involve things like triple-net (NNN) lease structures[i], common area maintenance (CAM) reconciliations, capital planning, building system maintenance, tenant improvement coordination, and highly complex insurance.
You’ll also have to manage many diverse tenant relationships. Commercial tenants tend to have high expectations, and any lapses can impact future negotiations and even the possibility of renewals.
All things considered, does self-management still seem like a good idea? Let’s drill it down.
When Self-Management Makes Sense (Or Not)
Self-management might be an option for you if:
- The other properties you own are nearby
- You are not new to this
- You have time to manage tenants
- You’re comfortable with California’s tenancy laws and willing to follow the updates
- You enjoy being hands-on
You’ll know when it’s time to hire a professional property management company when:
- Your portfolio is growing across multiple locations or out of state
- You own commercial properties
- Your time is limited
- You’re frequently out of the area
- You prefer predictability
- Your priority is on acquiring new properties vs. managing existing ones
When you’re ready to consider what a Los Angeles property management company can do for you, it’s worth a call to learn more. Speak to the experts at Belwood Properties today, and let’s talk about how we can maximize your investment capacity.
