When Does Self-Managing a Rental Stop Making Financial Sense?
Go Back To Previous PageRental properties can be extremely profitable when done correctly. Yet many turn into huge money losers as they drag on for years and years. All seemingly straightforward on paper, owning a
property and collecting monthly rental checks from tenants.
Many landlords see the property management fee as an unnecessary expense – something easy to cut. In truth, skipping professional management can cost far more in lost rent, extended vacancies, and legal missteps than the fee itself would have. It’s not just an added cost. For most landlords, it’s a question of whether self-managing is actually generating a return or quietly eating into one.
The costs of self-managing a rental property are not immediately apparent to many landlords. Understanding where those costs actually come from is the first step to figuring out whether doing it yourself still makes sense.
The Time Cost Is a Financial Cost
The most common mistake self-managing landlords make is underestimating how much time the job actually takes. Responding to tenant inquiries, coordinating repairs, handling lease renewals – none of it is complicated on its own, but it adds up fast. And every hour spent on property management is an hour not spent on something else.
That’s not a soft cost – it’s a real one. According to the U.S. Bureau of Labor Statistics, average hourly earnings for professionals continue to rise over time. Thus, each hour a real estate investor spends dealing with a tenant becomes increasingly expensive over time.
While managing one unit as a side business may require only a few hours a week, hours add up as more units and full-time work are added to a landlord’s plate. Add to that the demands of family and business, and it becomes apparent that the time spent managing a rental, regardless of whether it’s being done to save money on management fees, is an invisible expense, and that expense is being pulled from other sources, i.e., higher-paying work or personal time.
Self-Managing a Rental: Legal Compliance in New York Is Not Optional
New York’s landlord-tenant laws are among the most complex in the country – and non-compliance, even unintentional, can be expensive. Rent stabilization rules, required lease disclosures, lead paint regulations, window guard requirements, housing court procedures for non-payment and holdover cases – self-managing landlords are responsible for staying current on all of it.
Self-managing landlords are responsible for staying current on:
- The laws regarding rent stabilization and/or rent control for the rental property.
- Required lease disclosures and rider attachments
- Lead paint and window guard regulations
- Housing court procedures for non-payment or holdover situations
- Certificate of occupancy compliance
Even one mistake can be very costly. Remember, landlord legal fees in NYC Housing Court can increase exponentially very quickly, largely due to lack of documentation of a landlord’s actions and or mistakes in serving notice to tenant(s).
Self-Managing a Rental: Hours Equal Costs to Self-Managing Landlords
The process of coordinating maintenance and repairs is one of the biggest time sucks for a self-managed landlord. Even after you have found a good contractor, it is often necessary to get multiple quotes, arrange access, and then check the completed work to ensure it was done correctly.
Emergencies don’t wait for a convenient moment. A burst pipe at 11 pm or a heating failure in January requires an immediate response, not a quote comparison. Landlords without established vendor relationships often end up paying emergency premiums or waiting hours for a callback.
A property management company maintains a pre-screened network of licensed contractors with pre-negotiated pricing – companies like Rely Property Management, for example, structure their vendor relationships specifically to enable faster response times at better rates.
Cost of Vacancy for Your Rental Properties
Most people wrongly calculate a property’s savings by considering only the management fee and then saying, “That is what I save each year.” They forget the cost of vacancy- the fact that a property which is professionally managed will get its property re-leased quicker, with better rent, as a result of superior marketing and tenant selection, far outweighs any benefit of not paying management. For example, a rental property that earns $ 2,800 per month in rent would only need to be vacant for one month to lose the same amount of money as it would save in one year by not paying management!
An owner-managed property typically does not receive the same level of consistent marketing and tenant screening as a professionally managed property. In the example above, the $ 2,800-per-month rented unit would lose $2,800 for one additional month of vacancy per year, a sum greater than the owner would pay for an entire year of management. The question then is, what does poor management cost the owner?
Time-Consuming Tenant Communications and Conflict Resolution
Managing tenants requires great patience and a consistent understanding of the law. If a landlord has trouble dealing with late-paying tenants, lease renewals, noise complaints, or managing a vacant unit after a tenant has moved out, the stress can create great tension and, in the end, harm the landlord-tenant relationship.
In cases where a landlord is also a neighbor of their tenants, or for some other reason has difficulty being firm in their professional dealings with tenants, these problems can cause a landlord quite a bit of stress or even “emotional trauma” over time. And whilst this type of trauma may be difficult to quantify in dollars and cents, it most certainly has the power to affect a landlord’s perception of his or her investment, i.e., they may soon begin to feel it is no longer worth their while.
When the Numbers Start Working Against You
So while there is significant potential to save money by acting as a property manager, that potential is significantly reduced as factors like lack of time, poor local repair contacts, lack of experience with lease compliance and tenant disputes, and an increased number of properties or units, etc., increase.
Ask yourself honestly:
- Are you spending more than five to ten hours per month on property-related tasks?
- Have you had a lease compliance issue or tenant dispute in the past year?
- Did your last vacancy last longer than 30 days?
- Are you relying on “handshake agreements” with various maintenance people rather than contracting with licensed, insured, and qualified service providers (the typical property management model)?
If most of those answers are yes, there’s a good chance your self-management costs already exceed what you’d pay a professional. The hidden costs of managing rental properties are easy to overlook – until you actually add them up. For most landlords who do, the results are surprising.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
