Self-managing rentals: the opportunity cost

August 31, 2020

Self-managing your rental investments to save property management expenses may seem a good idea, but this decision has real tradeoffs. As a highly-experienced, tech-savvy property manager, Elara can optimize your time and money, putting your investments to work for you instead of putting you to work for your investments.

Your time is valuable

Elara makes hiring an institutional-grade property management company affordable.  Typically a rental owner will pay between 8-10% of monthly collected rent for a full-service property management company. It is important to note that the percentage only applies to collected rent, which means your property management company is only getting paid when you make money. If you own five properties that are generating $6,000 per month total in rent, the cost of a property manager will be roughly $480 per month. For that $480, you get high-quality asset bookkeeping, resident management, maintenance, vendor management, billing, collections and more.  With Elara you get additional access to a suite of technology solutions that further enhance the operating efficiency of your portfolio.

The fact that you own a rental property already implies that your own time is significantly valuable when applied elsewhere. Although you may not pay yourself to manage a property, there is a real expense to doing so because every hour you spending managing is an hour you do not spend on another high-value activity. As you evaluate that opportunity cost, ask yourself: what $ per hour would you be willing to go work for some other job that had nothing to do with your rental properties?  If you spend a work day per month on each property (a conservative estimate when we include all work - onsite, coordinating/calendaring, accounting, etc - that means you are basically paying yourself $12 per hour for the work you do.  Is that a number you would accept if they were not your own properties?  If not, and we highly doubt most owners would say yes to that, you should hire a professional management company and reclaim your time for more productive and lucrative opportunities.

While spending a day per property in this example is roughly equivalent to working for $12 per hour, you are not actually paying yourself that $12. Why does this matter?  When you pay a property management company the $480 per month, it is considered a property level expense and reduces your taxable income.  Because you do not actually pay yourself, you are not getting the benefit of this expenditure at the property level. So for simplicity, let's assume we pay 25% of our net property income per year.  This means that you are losing out on $120 of tax savings each month. Now you are implicitly paying yourself $9 per hour.  In other words, for 5 days a month, you are effectively working at or near minimum wage. If you are still not convinced, read on...

Economies of scale

Economies of scale effectively means that as you do things at larger and larger scale, the cost of doing a single unit of work decreases.  A professional property management like Elara can leverage economies of scale by managing properties for multiple owners and managing those properties at a much lower cost than a self-managing owner.  With some property management companies, you may not be directly rewarded from that scale, as the property manager may mark up labor and parts to become more profitable.  In these cases economies of scale is only helping the bottom line of the property manager, not the owner.  At Elara, we decided from the start that property owners should have the same advantages as large rental investors, so we have a 0% markup on parts and labor. Here's a quick real-world example of that owner benefit in action:

We all know the importance of good HVAC management, and the pain and price tag that comes with repairs and replacements. Elara's founders have established pricing on par with national real estate operators and passes those savings on to property owners with 0% markup. When you inevitably need to replace an HVAC in a property, instead of paying $8,000-$10,000 for parts and service (which would effectively drop the hypothetical hourly wage we calculated above to $4.40 per hour), with Elara you would pay less than half of that, saving you thousands of dollars over doing it yourself. If you assume that for each of your properties you will have a major expense event, like the above, once every 10 years, over the course of that 10-year period, Elara would save you about $2,500 annually, or $208 per month in maintenance expenses.

Remove the stress

Aside from the cost of your time, there are additional, less quantifiable downsides to managing your own properties. The reality is that managing rentals, communicating with residents, managing collections, coordinating maintenance, and managing HOAs are all fairly stressful for most owner-operators. At Elara, we build advanced technology and highly-efficient processes to tackle these challenges, so you can focus your effort elsewhere.

Stop working for your investments at discount prices and let your rental properties work for you. Elara is here to help.

About Elara

Elara is a full-service, technology-powered property management solution that handles acquisitions, renovations, ongoing management, and strategic disposition of residential rentals. With a combination of data-driven decision-making and world-class operating experience, we deliver efficiency and quality at scale to help you get more out of every home. Schedule a meeting with our team.