So...should you get a property manager or should you run your own show? Well although there is no single right answer to this question there are some factors that I think investors should keep in mind.

I’m big on outsourcing jobs that I have no business doing. Yeah, I could roll up my sleves and lay a new carpet myself in that vacant unit I’m turning – I could get a knee kicker and a power stretcher and wrestle my way through the job, but I’d burn a whole weekend in the process and the results would probably look pretty lousy. Actually I’d burn two weekends – I’d have to ask one of my buddies to help me and as a quid pro quo I’d end up helping him move at some point in the future.

So is property management something that real estate investors should outsource? My answer: “no” for beginners, and “maybe” later on. Here’s how I see things...

Start out on your own: There’s a lot of real estate investment advice out there that I will charitably describe as being of “questionable quality”. There’s a reason for this: folks giving you advice are not trying to make you a better investor. They’re trying to sell you something. To this end they often are trying to assuage your fears so you’ll whip out your credit card and buy their get-rich course. And one of the biggest fears of aspiring real estate investors: dealing with tenants. “Don’t worry,” you’ll be told, “just get a property manager and he’ll take care of everything.”

Don’t buy this line of reasoning. If you don’t want to deal with tenants then take your down payment and invest it in a mutual fund (right now perhaps the bond market is safer). In the real estate game there’s no getting around dealing with people, and if you’re squeamish about this then you’re going to have a tough time.

Even if you use a property manager, the buck stops with you. It’s your property. As I learned when I was a young Army lieutenant, you can delegate authority but not responsibility. This is why I believe that new investors must mange their own properties. This is the only way to get the feel for what makes a good tenant, and for what improvements are discretionary and what maintenance cannot be deferred. This is how you learn how to build the right kind of relationships with contractors, and how to avoid being ripped off. This is the blocking and tackling of real estate investing. You don’t have to do it forever, but if you don’t learn the fundamentals you won’t make it to the next step. And you learn by doing.

Property management is a force multiplier: I seem to be stuck on the military metaphors today, but this is the best way I know to put it. If you’re like the vast majority of investors then you’re a part-time investor. You spend your days teaching kids or fighting fires or working in an office, and you invest in real estate on the side as a means of securing your economic freedom. So you can’t let your investments take over your life. Having a property manager may be the difference between owning a couple of single family homes and owning a larger portfolio of properties.

Since you’ve spent some time managing your own investments you’re now in a better position to supervise a professional property manager. Even if you’re working with an honest property manager, you’ll create a better relationship with your manager if you know the ropes – if you’ve done it yourself.

Write the contract that suits your needs: There’s a standard all-encompassing property management model out there – a turnkey service that essentially pulls you out of the picture. You’ll pay up to 10% of gross rental income for this type of service. This is suitable for some investors – particular out-of-state owners – but might not be right for you. Don’t feel constrained by the contract that you have in front of you. Re-write it to reflect your desires. This is an open negotiation between you and the manager; the only “right” answer is the one that you’re comfortable with.

Turn to your realtor: When I started using a property manager I thought about the qualities I wanted: good people skills, effective communication, meticulous. That describes a lot of real estate agents. I need a manager to handle inquires from tenants, chase down contractors, make small capital decisions, and generally keep everyone happy. My Realtor provides all of this for me, and for a reasonable fee.

And the upside for her: my fourplex produces a steady stream of young professionals (resident physicians, law students, interns) who often become buyers once they move. This is a steady stream of potential clients with whom the Realtor/manager can cultivate a relationship. It works.

Tight credit, flat prices, and a narrowing pool of buyers have caused many Realtors to take a more entrepreneurial/flexible approach to diversifying their income sources from chasing sales commissions. Each year I pay a lump-sum upfront payment for the coming year. This is a nice, symbiotic relationship.  Many Realtors don't want to be property managers (most, perhaps) and some don't have the right skill set - but when it works it's a great solution.