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Why a Great Property Manager is More Important Than a Great Property

Written by laurenhenslin

September 21, 2015

Image of a man holding a tiny house in the palm of his hand

Investing Is Not Easy

Investing in a piece of real estate can be an exhausting task. You have several variables to pay attention to, lots of math to do, and your financial future rides on the efficacy of every decision you make as part of that process.

Once you have invested in a rental property and gotten it ready to rent, you should be completely done with that place. If you’re not, then you probably didn’t stress enough. But unfortunately, that level of exhaustion and declining interest makes it very easy to open a phone book, pick a name with “property manager” in the title, and hire them.

That is actually the worst idea you can have. It’s better to have an average property and a great manager than a great property with an average manager.

Why is This?
An average manager is going to allow many more problems to reach you than a great manager is. In addition, a great manager is going to save you more money compared to an average manager.

Here’s an example:
Investor #1 has a home with great investment qualities. He rents it out for $1,450/month, pays only $450/month total in all costs, and spent $35,000 cash to buy and $25,000 cash to renovate. He’s looking at a rental yield of 20% ,but his property manager is forced to evict two tenants within six months. Each tenant leaving the place empty for a month and costing $2,100 worth of repairs to complete. This was all due to a failure to properly screen out bad tenants.

Income for those six months: $5,800
Costs for those six months: $4,800
Net profit: $1,000
Investor #2 has a home with average investment qualities. He rents it out for $850/month, also pays $450/month in costs, and spent $52,000 with only $8,000 in renovations. Total rental yield is 8%. This is respectable, but not the best. However, his property manager screened his tenants properly, found one with a great credit history, good job, and no major issues. That tenant signed a two-year lease, and six months later:

Income for those six months: $5,100
Costs for those six months: $2,700
Net profit: $2,400
So not only did the lesser of the two investments pay more money, but there was also significantly less stress because a great property manager is worth more in the long run than a great property.

What we learn from this example is that after you have spent six months of hard work carefully reviewing the house, neighborhood, and your finances, don’t let your exhaustion come into play when picking the right property manager. Even if you need to wait a week or two and take a break, do it. Once you have had time to rest and recover find the best property manager available for your property. This will save you more trouble and money in the long run.

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