Owning investment property is a fantastic way to create passive income and create equity and appreciation growth. That said, being a landlord is not for everyone. Sure, it has its perks with income generation and tax deductions, but prior to making the leap into self-managing rental property, it's important to consider several things—and that includes worst-case scenarios, because they DO happen.
Recently, I worked with clients who had been self-managing a rental property from out of state. I was told that the tenants were wonderful and kept the property in tip-top shape, and they did not expect any surprises or issues with the property's condition, as they personally selected these tenants and really liked them. It was quite a surprise when this seller heard that there were several more residents than those authorized; even more so, to learn about the condition of each unit...AND the marijuana grow set-up. To top it off, there had been an active water leak that the tenants were aware of but had not reported, in the beginning stages of causing significant structural damage. Add the fact that the rental agreements had several items that have since been amended or changed under State of Oregon tenant/landlord law.
The advantage of self-managing rental property is the financial savings of not paying a property management company; yet the old adage "time is money" couldn't be truer. Managing investment property is often very demanding: maintenance requests, dealing with problematic tenant situations, marketing and screening tenants, keeping up with current housing standards and tenant landlord law, not to mention the bookkeeping and records tracking.
"PLUS Property Management has received an increased number of phone calls from self-managing owners since the onset of the pandemic," said Gretchen Stauffer, general manager. Owners asked questions such as, "My tenants are not paying rent. What can I legally do right now? I think there are extra tenants living in my rental unit. How do I get them out? My tenant has three large dogs that I didn't approve, and the yard looks like it's getting torn up—what can I do? My tenants have quit communicating with me and won't let me in the house and they haven't paid rent in six months—what legal recourse do I have?"
In addition to the time demands, there are other cons to self-managing. The vast majority of management companies have streamlined processes for marketing a property, application screening/tenant selection and tenant turnover.
In the State of Oregon, tenant/landlord law is constantly changing. From the passing of the state's first statewide rent control bill in 2019, to no-cause evictions, habitability standards and fair housing laws, it can be very tricky to stay abreast. Furthermore, it can be extremely costly—both in terms of time and money—if a landlord does not follow the laws exactly. This ranges from everything to proper application selection, rent collection, rent increases, notices, lease violations and evictions. The advantage of using property management companies is that they know the most current laws and the repercussions of violating those laws. This reduces the likelihood of potential legal proceedings and financial loss.
Property management companies are held to the strictest of standards in terms of financial accounting and records keeping. This is invaluable in terms of income and expense evaluations, tax and portfolio planning; and when selling an investment property, the detailed records address the common questions an investment buyer will have.
Finally, property managers remove the emotional component. Having a neutral third party (the property management company) maintains the business aspect of owning investment property, creates distance and limits risk exposure.