It all starts with the idea of getting out of the rat race to have more free time to spend with family and travel and have fun. The desire for free time leads us to think of establishing a passive income stream that brings in the revenue with us working for it.
The best and hustle-free option among the many passive-income strategies is investing in real estate. Now it is quite easy to manage the property you purchase but when you manage it yourself, it's not really a passive strategy anymore. It becomes an active strategy again. And we don’t want that.
Therefore we look for other people to manage our property. There are two types of people who can manage properties for us. First, in-house management. Second, a third-party management service.
Since flipping single-family houses is considered to be profitable business but yet again it is not a passive income strategy. The goal here was to have income by relatively doing less work. Therefore, holding property for longer periods is the way to go for passive investors. And here comes the necessity of property management. Let’s have a look at the two ways we can let someone manage our properties.
What is In-House Property Management and What are the Pros & Cons
In in-house property management, you hire professionals to manage your property. The hiring process itself is hectic. You have to look for the best project coordinator, property manager, the best accountant, the best CPAs. and then managing in-house cost time and energy as well, because you have to supervise the staff.
On top of that, in-house management costs higher. Staff salaries and in-house staff benefits keep adding up which affects the numbers and decreases the ROI.
Pros:
In-house management focuses on securing your investment unlike third-party who are interested in handling properties for more and more clients.
In-house management attracts more investors because of its better integration which increases management efficiency.
Better QoS: In-house management provides a much better quality of service as compared to the third parties.
In-house management saves on construction since you enjoy lower construction fees and pay no margins to third parties.
Cons:
It costs higher to bring management in-house. Especially, when one has a limited number of properties it becomes very hard to afford in-house management.
There is a possibility that you will hire a less experienced team and that can cost you a huge sum in the long game since less experienced property managers are more likely to make mistakes.
You won’t be able to focus as much on your core business if you have to manage a team in-house.
What is a Third-Party Property Management and What are the Pros & Cons
You made your first purchase or developed property. Now it needs to be managed. That is where the wheels get on track. The more efficiently the property is managed, the better.
The more efficiently the property is managed, the happier the tenants would be. And that make sure you get a steady cash flow.
If one is dealing with fewer properties, hiring a third party management company becomes a lot more feasible. On top of that you get a pretty experienced savvy property manager that will manage your property. Moreover, these companies comes with years of experience and have the work force, technology and infrastructure to manage properties. This experience helps in handling generic problems upfront and saves you time and money before even the problem arise. On one side where there are upsides to third party management, there are downsides as well. Let’s discuss pros and cons to find out whether it will work for you or not.
Pros:
Years of experience which makes it really easy for them to handle any issue.
Cost less in case of fewer properties as compared to in-house team.
Availability of enough human resource, technology and infrastructure.
Highly experienced team of accountants, project coordinators, property managers and staff.
Cons:
Since, property management companies manage multiple properties, that won’t be able to focus as much as in-house team can on particularly your property.
While it would be really easy to get in touch with the in house management, it is relatively harder to get support from a company which manages too many properties.
For a company it won’t be feasible to pay enough attention to one property which here is your property.
In conclusion, both in-house and third-party management have their advantages. While in-house management works best for one person, it will not work so good for others. One can make a decision based on how much property he own and how he want to manage it.
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