For many, the thought of self-managing a rental property without acquiring the skills and expertise of a rental management professional may look to bring some significant benefits. Those willing to undertake the challenge of self-managing their rental property perhaps want more control over their property and potentially minimize the costs associated with property management.
The decision to become a landlord, and not use a property management company depends entirely on each person’s expectations and circumstances. However, to successfully self-manage a rental property requires the relevant skills, real estate knowledge, and expertise in property management.
There is no one-size-fits-all answer, and to help you navigate the various complexities of being a self-managing landlord, we’ve broken things down to help you decide whether self-managing your rental property is the right option for you.
KEY TAKEAWAYS
- Having a rental property may provide a sustainable income for landlords.
- Not having a property manager may reduce costs, but places more responsibility on the landlord.
- Managing a rental property requires hands-on management to fulfill tenant demands.
- Property management companies have the skills and expertise to deliver tailored services.
Pros of Self-Management
For some people, self-management might be a better option than paying a property management specialist. Being a landlord provides a person with more control over property decisions, tenant screening, and saving the property management fee.
Hands-on Management
As a self-managed property owner, you have more control over the day-to-day operations of a rental property and can make decisions based on property needs. Being a landlord allows you to make important decisions yourself without having to consult with a property manager beforehand. This can be handy for people who have strong preferences for managing certain tasks in a way that works for them.
Increased Profit Margin
By cutting out unnecessary spending you can save more money each month on the portion of rental income received. Reducing costs on a rental property takes careful planning, as multiple moving parts may require you to make financial decisions based on property requirements or tenant needs. Many people will argue that paying for property management fees will lead to increased rent payments, and decrease the profit margin on their own property.
Proactive Maintenance
As a property manager, you have the freedom to build a network of reliable and trustworthy contractors. In all stances, a property manager will already have a network of vetted contractors they rely on for maintenance and repairs. However, this can limit a person’s available options and may result in you paying a higher maintenance cost. As a landlord, you can make decisions that will impact the overall maintenance of your property.
Tailored Management Approach
Not all properties are managed in the same way, and requires a person to have a unique approach to managing property needs, without resulting in increased costs or a property standing vacant for extended periods. Being in control of your property, tenants, and maintenance makes it easier to have a DIY property management to rental management, and ensures that you can cover all property needs.
Hands-on Tenant Management
As a landlord, you will have more hands-on control over tenant management such as advertising the property, screening potential renters, and building a relationship with them. Using a rental property management company may remove this connection, making it harder to screen new tenants properly. Proactive tenant management will ensure that you choose the right person for your property and create a personal relationship with them throughout their lease period.
Tax Benefits
Being a landlord may have some tax-related benefits, however, this will depend on personal circumstances. In Canada, there are provisions made for individuals and corporations that own and rent out a property. Taxation on property income can be highly complex to navigate, and it’s advised to consult with a tax advisor or accounting professional regarding the potential tax benefits of self-managing a rental property.
Cons of Self-Management
Being a landlord can have some complications and there are a number of hoops a person will have to jump through to successfully self-manage a rental property.
Responsibility Burden
Being a landlord means that you have to carry out all the responsibilities related to your rental property. Being in control of your rental property will allow you more oversight, but you will also need to keep track of all property-related expenses, rental income, lease agreements, repairs and maintenance, and managing tenants. A professional property manager is trained and equipped with the necessary skills to handle all maintenance requests, legal compliance and financial management of the property.
Legal and Regulatory Considerations
Landlord-tenant laws can be highly complex to navigate, and laws may vary across states and city jurisdictions. Additionally, as a landlord, you will have specific responsibilities that you will need to oversee and fulfill following local regulations. Legal and regulatory compliance can make the management process more complicated, and potentially increase tension between you and the tenant.
Tenant Screening
Getting the right renter for your property takes time, and requires landlords to carefully screen all applicants. Not only this, but landlords will be in charge of arranging on-site inspections before and after a lease agreement is signed. Keep in mind that part of the screening process includes vetting all applicants’ rental history, financial conditions, and credit history.
Handling Maintenance and Repairs
Individuals who are not well-equipped with the skills and knowledge required to handle the maintenance and repairs of their rental property will have difficulty managing complex tasks and finding the appropriate contractors to complete repairs. Furthermore, the burden of repairs will be placed on the landlord should anything happen on the property such as leaks, broken windows, or more extreme events such as floods or break-ins.
Managing Tenants
Keeping track of tenants across multiple locations can be challenging, and self-managing a property could mean that you need to already have some personal skills that allow you to build a respectful relationship with a tenant. More than this, handling tenant demands and requests could put a strain on a person’s relationship with any renter. More than this, managing unexpected costs, such as breakages, late or missed rental payments or changes in the lease agreement could become increasingly difficult to manage across various properties.
Handling Unexpected Challenges
There are bound to be plenty of unexpected challenges that require more hands-on management. As a landlord, you will be expected to resolve any unexpected challenges efficiently and effectively to ensure the safety of a tenant and protect the property against any potential damage.
Financial Implications
Outside of considering the pros and cons of managing a rental property by yourself, it’s important to think about the financial implications of becoming a landlord.
Tenant Screening Cost
Screening tenants requires landlords to review their rental history, credit score, and vetting financial information. Not only is this a time-consuming process, but requires individuals to work with the appropriate authorities and agencies. Costs can vary, depending on the process, and may cost anywhere from $25 to $100 per applicant.
Legal Fees
Property managers typically have a team of legal experts and professionals to assist with drafting legal documents, lease agreements, or resolving potential disputes. Without this assistance, all of these costs will fall on the landlord to cover.
Maintenance And Repairs
Rental maintenance costs and repair can vary depending on what needs to be maintained. Maintenance costs can be calculated using several techniques. For example, the 50% Rule states that you set aside 50 percent of rental revenue for additional costs, such as maintenance. The second is the 1% Rule which states that you set aside 1% of the property’s value for maintenance costs.
Accounting Fees
Becoming a landlord means that you will need to wear many different hats at any given time. Taking care of the financial aspects of your rental property would require you to have the necessary accounting skills or pay for these services.
Loss Of Rental Income
Extended periods of vacancies can cost you income. Making sure that all your rental properties have tenants means that you will need to be efficient in finding a suitable tenant that meets your requirements and property needs.
Tenant Management
Tenants are the most important part of your rental property. Keeping tenants satisfied will ensure that your rental property has suitable renters that take care of the surrounding property, and informs you about maintenance needs.
Successful Tenant Screening
A big part of renting includes finding suitable tenants that meet your requirements. Additionally, you will be required to review and verify their rental history and follow up with their references. Next, you will need to conduct interviews with all applicants and conduct entry and exit inspections.
Setting Up A Lease Agreement
Once you’ve found a suitable tenant, you will then need to set up a lease agreement that carefully outlines the terms and conditions of the rental property and each person’s responsibilities.
Managing Security Deposit
You may be required to ask for a security deposit from a new tenant. This amount will then need to be placed in an interest-bearing account and paid back to the tenant once a lease has matured or been canceled before the maturity date.
Obtaining Rental
Next, you need to think about how you will obtain rent from tenants. In some instances, a tenant may set up an automated payment that deducts the rental amount from their bank account on a specific date. You will need to make sure that this amount has been paid in full each month, and follow up with tenants should they have missed a payment or a payment was late.
Privacy And Safety Considerations
Renting out a space in your primary residence? Perhaps you have a small apartment on your property that you are renting to another person. Consider how having another person in your home or property will change the overall dynamics of your household and what you can do to create private and safe living arrangements for them.
Record Keeping
Besides keeping track of your expenses, rental income, and tenants you need to keep a record of all the purchases you make, adjustments or improvements made to a property or simply keeping track of various requests from a tenant. Using software management software is highly recommended, and a property management company already have the skills and knowledge to use these systems effectively.
Making the Decision: Self-Management or Professional Help?
There is no one-size-fits-all approach to becoming a landlord. Each person’s circumstances will be different, and varying property or tenant needs will influence the level of management interference required to effectively manage a rental property.
Using a property management service will help make things easier for someone who has limited resources or property management skills. Besides the hands-on management, there are several moving parts that can make property management immensely challenging, driving up costs and eating into rental property income.
