Property Managment: Cost Benefit Analysis
Weighing the Benefits of a Property Manager vs. The Cost
Step-by-Step Cost-Benefit Analysis
A cost benefit analysis is a great tool to help decide whether or not it is time to include a property manager in your real estate investments. While several factors come into play when determining this, it is important to remember that every investor's portfolio differs and there are different indicators for each individual investor.
1. Monthly Rental Income
The first step is to determine the total amount of rent collected per month either per unit or as a total portfolio.
Example:
Rent of $2,000/month
2. Property Management Fee
Next, calculate the property management monthly fees. On average, most managers charge a monthly management fee between 8%-12% depending on the location. There are additional fees that property managers charge such as tenant procurment or leasing fees, maintenance coordination fees, onboarding fees, etc.
Example:
10% property management fee= $200/month
3. Time You Spend (or Would Spend) Managing It
This figure may be difficult to calculate at first, but it's best to be realistic on the amount of time it may take to do the following tasks on a monthly basis on average:
- Collecting rent
- Handling repairs
- Communicating with tenants
- Finding new tenants
Then assign a dollar value to your time (your hourly rate).
Example: 10 hours/month × $30/hr = $300 value of time saved
4. Cost of Mistakes or Legal Risks
It's harder to put an exact number to this, but thousands can be spent in legal fees pertaining to evictions, potential missed legal requirements or any misunderstandings with a tenant. A property manager actively prevent and help avoid potential legal issues.
Example: $1,000/year in avoided legal or compliance issues
5. Tax Deductions
In most instance, property management fees are tax deductible and directly taken off the top of taxable income. This can help soften financial impact from investment properties.
Example Summary
Rental income: $2,000
Property manager fee (10%): -$200
Time saved (10 hrs @ $30/hr): +$300
Avoided legal/repair issues (annualized): +$83
Net monthly benefit: +$183
Net monthly owner draw (before any other deductions such as repairs/maintenance): $2,183
Deciding Factors
- Quantify if the time saved + avoided headaches is worth more than the management fee. The efficiency and peace of mind a property managment firm offers can help make the cost make sense.
- If you happen to have a easily maintained property with a reliable tenant and enjoy maintenance and repairs, a property manager may not be necessary.
Many investors have previous personal experience managing their own properties and this experience helps them easily recognize how utilizing the services of an excellent property manager actively saves them time, maximizes profits, and helps protect their investments.
For more information on how Ring the Bell Property Management can help you achieve your real estate investment goals, Ring Us Today!
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