There are both advantages and disadvantages to managing one’s own investment properties. There is no question: It is the owner/investor who cares most about the condition and upkeep of the property itself; and it is the owner who is first to “feel the pain” of vacancy and credit losses. Even the most professional managing agent will lack the personal interest and sense of urgency typical of the property owner. Recognizing this, many investors choose to manage their own properties. But, in making this decision, there are a number of both personal and business related issues to consider.

Primary among these is the recognition the so called “savings” one realizes from not paying a managing agent does not come without cost. The $100 per month management fee one “saves” by self management should rightly be considered Earned Income from self employment, in this instance compensation for the time and energy required to do a proper job of managing the property. That $100 per month is intrinsically different from the hundreds of dollars in “passive income” one is presumably realizing as an investor.

That said, there are many who have both the time and inclination to manage their own investment real estate. These investors may have made the decision that Real Estate is to be their vocation, the way they make their living. In this view, the added income realized from managing their properties is what they live on; meanwhile, appreciation and mortgage pay-down over time (equity growth) are deemed “wealth building” or, perhaps, “deferred compensation” available for reinvestment in future.

If one truly enjoys the management side of the business, self management may prove a perfectly satisfactory plan. In such event, it is well to consider...

Phil Elmes, Investing in Affordable Housing (© 2007), an Urban Rehabber Program™ workshop www.UrbanRehabber.com

Chicago Real Estate Foreclosure and Rehabber

To assume routine management responsibility for one’s real estate investment(s) is to undertake a business activity only loosely related to the role of Investor. Real estate management is in large part technical. The professional manager must be knowledgeable concerning: landlord-tenant laws and regulations; leases and contracts; the function and protocols of housing courts and other relevant governmental agencies; together with more than rudimentary understanding of property maintenance and repair; and, importantly, cash management and record keeping. It’s a big job. And that’s before tenant recruitment, screening, and on going tenant relations (marketing really) are taken into account!

The investor considering self management needs to consider his or her own temperament. As suggested above, there is an attention to detail required of the real estate manager: There are operating records to be maintained, reserve and maintenance accounts to be funded and invested until needed, and routine property maintenance protocols to be developed and followed. These are decidedly “unromantic,” highly routine activities required if the investments are to not only hold their value but appreciate along with the marketplace; to do less is to “waste the asset.”

The human dimension. Many investor/managers find themselves challenged by the “human” side of property ownership and management. While many tenants are genuinely appreciative of considerate, conscientious management, there will be those who by virtue of circumstance or character choose to abuse their tenancy, or “game the system.” Good tenants deserve the very best of service and consideration from their landlords; and serious, committed landlords will readily oblige. Indeed, it is in their best interest to do so. Then, of course, there are the others – those who neglect or even spoil the leasehold property (house or apartment) and, in time, fail to meet their financial commitment to pay rent.

These situations are both predictable and largely unavoidable. As landlords learn soon enough– Cherish the good tenants and deal promptly and forthrightly with the bad. To do less is to endanger the quality of the investment, jeopardize credit and banking relationships and, in the end, is a disservice to everyone concerned (including the tenant). To voluntarily let a tenant fall behind in rent, against the promise of some future event which will “make it right,” is to permit the tenant to descend into a condition of debt for which there is seldom a realistic fix. But for some landlords, such “hard decisions” prove too difficult and, in the end, it is the landlord who suffers (little consolation that it was their own decisions that made it happen).

Skilled landlords are in position to assist and support worthy tenants by being considerate, professional property managers. Too many others, however, stumble inadvertently into difficult and compromising situations and relationships with tenants. It is the latter who are best advised to attend to building their investment portfolios while leaving property management to the professionals.

In the end, if you have both the marketing savvy and sense of enlightened self-interest to put the Responsible Tenant first in your personal and business priorities – while dealing forthrightly with those who fail to meet your reasonable expectations – then, by all means, consider being your own property manager.

Phil Elmes, Investing in Affordable Housing (© 2007), an Urban Rehabber Program™ workshop www.UrbanRehabber.com