By Alain Aubé, chartered real estate broker with the Ayotte team

Future owners often ask me this question : to manage or have managed my income properties? If you’re asking it too, the answer lies in examining : your relationship to time and money, your property management skills and whether or not you want to manage your rental assets. Let’s take a look at each of these elements.

A question of time and money

Firstly, do you have the time to manage your real estate holdings? If they consist of a few apartments, the answer is certainly yes, since management then only requires ten hours or less per month. However, it will take much longer if your buildings comprise dozens or more housing units. We often talk about 25 doors as a limit for a landlord who wants to manage his rental assets himself, while still having the time to look after his family. Of course, this figure can vary, depending on a number of factors.

For example, it will take longer for an owner to manage more than one building if the buildings are far apart. And let’s not forget that time… is money! Hence this other, central question : financially speaking, do you want to continue to enrich yourself through new real estate purchases? If you’re retired or self-employed, the answer may be no. But if the answer is yes, and you manage your rental assets yourself, then we come back to the notion of time : wouldn’t the time you devote to this management be more profitable for you if you used it to seek out and seize real estate acquisition opportunities?

To find out, you need to know the value of management time if you’re the one doing the managing, the cost of entrusting management to a specialized company and, in the latter case, which would leave you free to prospect the real estate market, what an interesting purchase, or even a bargain, could bring you. This is known as opportunity cost. How much will external management cost? This important question is unfortunately overlooked by many first-time buyers, who don’t budget in case they decide to delegate the administration of their income property to a property management firm. This type of company generally offers to take care of all aspects of management with a turnkey service.

This can be achieved by charging a fixed monthly fee per unit, e.g. $30, or a percentage of the property’s gross revenues, e.g. plus or minus 5%, or an hourly rate. These 3 types of remuneration correspond to similar sums, which is why you need to allow for an administration budget of the order of 4 to 6%.

And if, in the end, you decide to manage your real estate assets yourself, this budget will remain in your pocket and will constitute your administrator’s salary, so to speak. Basically, the question of opportunity cost boils down to this. You may well save a few thousand dollars a year by managing your real estate assets yourself. But if you don’t have the time to find and buy another property below its real value and with attractive rental income, you’ll forgo the opportunity to pocket tens of thousands of additional dollars!

Have the skills to manage and enjoy doing so

A rental property manager is a jack-of-all-trades. He or she must acquire knowledge and demonstrate skills in several areas : law (leases, landlord and tenant rights, etc.), construction and renovations, marketing (to properly advertise and promote rental units), accounting, communications (relations with tenants and external suppliers). Communications are essential, and require qualities such as patience and tact, keeping calm and being highly available.

Tenants can have a problem… at three o’clock in the morning! And collecting overdue rent is often both a stressful and demanding task. Not to mention the evening and weekend visits to vacant units by prospective tenants. If you’re about to buy your first income property, will you be able to cope with all these situations? Will you be able to negotiate with your tenants and, if need be, reassure them? It’s often the lack of communication skills on the part of some landlords that leads them to entrust the management of their rental assets to a specialized company. Of course, the other components of management are also important.

For example, the choice of a renovation contractor is crucial because, whether the work is well done or botched, it can make the difference between adding or subtracting value from a property. Finally, the most important question is whether you’ll be comfortable managing your rental assets. If you’re not, if you’re too stressed about managing them, not only will you get no pleasure out of it, but you’ll also be more likely to make mistakes that could prove costly. For more food for thought on this subject, read our article The advantages and disadvantages of owning an income property.

Other considerations

• If you choose to take on the management of your income properties yourself, a concierge will be invaluable, especially if he or she is skilled in maintenance and repairs and is appreciated by the tenants. They can also be tenants to whom you grant a free or reduced lease in exchange for their services. Or consider a retired neighbor or relative.
• The Ordre des évaluateurs agréés du Québec has compiled a list of competencies required of property management companies, which you will find in this document.
• If you don’t want to act as manager, one solution is to buy rental property as a principal investor, with the support of an executive partner. This person would provide less money than you, but would have the skills and abilities to take on the management.
• If you wish to entrust the management of your rental assets to a specialized company, you should be aware that there are very few outside the major urban centers.

To find out more about rental property management, or if you’re interested in buying or selling an income property, commercial or industrial, contact us at 514 603-7000 or by clicking here.