First time investors often ask whether I can recommend a good management company for their first duplex, triplex or fourplex. While I can certainly make suggestions, it usually doesn’t make sense to hire someone.
Most management companies charge between five and ten percent of your gross operating income (annual rent collected). Properties with fewer units typically don’t have as large of a cash flow as large apartment complexes. Therefore, five to ten percent of the gross revenue on a duplex can be the equivalent of half of your profit.
For example, if a duplex generates $30,000 a year in income, and let’s say that after expenses and the mortgage is paid, the owner is left with a positive cash flow of $3000. As the property management company earns their pay off of the gross, not the net, they would be entitled to five percent of $30,000, or $1500. That is half of the positive cash flow!
Another reason to manage your first income property yourself is for the experience. Investment property ownership isn’t for everyone, and you may find it doesn’t suit you.
However, if investing is something you enjoy, and you grow your property portfolio over time, the lessons learned from managing will enable you to keep an eye on the management company you hire.