Pros and Cons of Using a Property Manager for Nightly Rentals
Over the past few months, I have been wading into real estate investing by purchasing a couple of nightly rental condos in the Saint George, Utah area. Because this is my first experience with nightly rentals, and due to the fact that I already have more things on my schedule than I currently have time for, I decided to enlist the help of a property manager to handle all the details of renting out the two condos I’m using as an introduction to nightly rental investing.
I’m going to share with you what I consider to be the pros and cons of using a property manager based upon my experience so far.
Robbins Nest Retreats Nightly Rentals in Saint George, Utah
Firsts, some background on what led to my choosing to get involved in nightly rental investment properties…
At the recommendation of my accountant, and because I feel like there is a lot of wealth to be built in real estate, and that I’ve put it off too long already, my wife and I decided to start shopping for an investment property last year. As luck would have it, there is a popular tourist area in southern Utah about three and a half hours from where we live. The hub of all of the tourist activity is Saint George, Utah, which is a natural getaway destination for people seeking refuge from the cold of northern Utah (an area that is also growing quickly, meaning more people looking to get out of the cold and snow for a large part of the year), and which is surrounded by state and national parks, including (most famously) Zion National Park.
Based on that set of conditions, we started looking last year for a condo or townhome to purchase in the Saint George area. In the process of searching, we had questions about property management for the realtors who were selling agents for the condos we looked at. One of them recommended the property manager we use now: Red Sands Vacations. After a quick couple of phone interviews with the owner of the company, I decided to commit to using them to manage my first property, even though I hadn’t even picked it out at that time. As it turns out, I have also relied upon them for help not only managing my first property, a condo in the Las Palmas Resort community, situated in a prime location on the west side of Saint George, but also for locating another opportunity for a nightly rental investment property in another area should I expect to do well for me.
Overall, I’ve been happy with the management style and the useful information provided to me by my property manager. However, as I’ve gained more experience with renting my property, I’ve come realize that not everything is perfect, and that a property manager represents the interests of many clients, which means that their focus on one particular property can become watered down.
With that context, I will explain the pros and cons I’ve experienced with using a property manager to take care of a nightly rental investment.
Pros of Using a Property Manager for Nightly Rentals
As a new investor in nightly rental properties, there were more things I didn’t know than what I did. I knew that you could list your property on websites like VRBO and AirBNB, and that those marketplaces made renters accessible. In fact, before I bought my first rental property several months ago, I started working through the process of adding my home address to VRBO.com just to see how the process worked and to get a feel for what people might look for when they are searching for a rental.
As I walked through the VRBO listing process, it occurred to me that with my current schedule, there was no way I could keep up with a new “business” that was obviously more complicated than what I anticipated when I first began thinking about whether I should manage my properties myself (or hire someone who would work on my behalf) or to outsource all of that to a property management company.
Most real estate investors who are in the dabbling or moonlighting phase like I am simply don’t want to take on the roles, responsibilities, and headaches associated with managing their own properties.
This is a list of the benefits I’ve seen from using my property management company.
Understanding of and Experience with the Entire Rental Experience
As I mentioned before, the owner of the company that manages the condo I recently bought actually went with me prior to the purchase being completed. I asked him to join me on a tour of the home to get some validation about the price I was paying for the property and the potential it had for attracting rental income. His reassurance about the location, the layout of the condo, and other aspects of the home allowed me to feel a lot of confidence in my decision to purchase the property in the first place. Not all property managers are willing to put in that kind of work up front, but those who are open to it are likely the best candidates for managing your property.
As we walked through this condo that I was soon to be the owner of, my property manager friend explained how to lighten up the bedrooms (they were built with only one or two poorly placed lights in them, which made them unpleasantly dark when the curtains and shades were not open) with brighter LED lights and lighter colored bedspreads. He strategized with me about the most practical ways to update the property to make it more attractive to potential renters, including everything from adding brighter colored pillows to the couches in the living room to rearranging the rooms and adding bunkbeds to increase the number of occupants for the rental, purchasing a quality blow up mattress for extra visitors, and adding a Nintendo Switch and a pack and play crib for babies that would be appealing to the many families we’d expect to stay there. We also talked about lower priority, higher cost fixes that would be ideal for the future, after some cash flow had come in from the property.
After the property was purchased, I’ve continued to receive feedback on adjustments to the property that make renting it a better experience for my growing clientele.
That entire experience was reassuring, and kept me from second guessing and experiencing the analysis paralysis that tends to prevent business owners from making progress because of uncertainty.
Access to an Established Rental Pool
Another advantage I can see with using a property manager is that they have an established pool of renters who they can draw from to steer income to your property. In situations where rental properties lack some of the elements that attract a steady stream of renters (whether it be because of location or something about the property itself), it is helpful to be able to coordinate with a property manager who can help with marketing, promotions, and other ways of attracting occupants among its own pool of loyal clients.
For properties that are in high demand because of features of the home, location, or for other reasons, this perk associated with having a property manager is not so critical. In fact, for those types of properties, there may be downsides of using a property manager, which I’ll discuss in my cons section.
Not Having to Deal with Tenants
One of the headaches I wanted to avoid with nightly rentals involved fielding questions and solving problems for tenants. In the past, I’ve had long-term renters in the home that I kept after we moved out of it into a new home. It seems like renters know exactly when is the worst time to contact you with small issues that they’ve figured out how to make into big problems. For instance, while I was on vacation in Hawaii several years ago, I had a renter call me and tell me that he couldn’t get the hot water heater to work, which was an emergency for him. It turns out he had left the garage door open (where the hot water heaters were stored), and a strong wind had blown out the pilot light. Fortunately for me, I had neighbors who were nice enough and knowledgeable enough to take care of the problem for me, as the renter had no intention of trying to solve it himself. This situation, and many others like it during the three years I rented out that home before I sold it, cured me of wanting to have my days interrupted by having to respond to service requests from people who can be highly innovative about not using things the right way and who lack simple intuition.
As I’ve interacted with my property manager’s team of customer service people, I’ve been a little surprised at some of the requests they have responded to, and I’m glad that they have protocols and methods in place for putting out all the small fires that happen when new people temporarily live in a home they are not familiar with.
This point is a pro for property management that is not just for new nightly rental owners, but even for those who have been doing it for a long time and simply don’t want to deal with the problems that come up with renters’ needs.
Connections with Local Contractors and Service Providers
I have found that my property manager has already sifted through plumbers, electricians, repair guys, and others who might be needed to service a nightly rental. Because of their relationships with these people, they have the clout to move to the front of the line in situations where a quick response is needed. This is an invaluable asset brought to the relationship by a property manager. The fact that they provide a lot of business to these contractors allows the property manager to expect a higher level of service than someone who calls a contractor for a one-time job or on a much less regular basis than a property manager that uses them for dozens of nightly rentals.
Cons of Using a Property Manager for Nightly Rentals
I’ve reviewed several of the positive aspects of using a property manager to handle management of nightly rentals. Now I’ll talk about some of the reasons you might choose to not use a property manager.
Several months ago while I was in an airport, I met a couple who had a property rental near Yellowstone Park in Montana. I told the wife about my plans to buy a condo and hire a property manager. Her response surprised me. She told me that they had used a property manager for a time to manage their Yellowstone rental, and that they found out the property manager was siphoning off clients and sending them to other competitor rentals. This woman’s strong advice was to not use a property manager. Of course, she and her husband were older, they were retired, and their kids were all grown up and out of the house. In that scenario, they had the time (and the desire apparently) to manage the rental themselves.
Here are some reasons why you would decide not to use a property manager for your nightly rentals.
Cost: Normally 30% of Rental Revenues
Property managers don’t work for nothing. In fact, the commissions they take on rental revenues (the typical payment structure) is normally 30%. Some property managers will take less that this amount in situations where the property owner takes on more of their workload, or if the property doesn’t require much or any marketing to keep it at full occupancy.
The majority of nightly rental real estate investors finance their properties, even up to 100%. [There are lots of books, podcasts, and webinars that describe this approach to building wealth through real estate investment. I don’t recommend it.] The worst case scenario for a real estate investor should be to at least break even on property rentals, with the expectation that the mortgage will be paid off in 15 to 30 years while not having to dip into other cash resources each month to make ends meet on a nightly rental unit.
If your property is financed, and the 30% commission taken by a property manager puts you in the red, it’s possible that you simply cannot afford to hire a property manager. It’s as simple as that.
In other situations where very little of the rental property is financed or the investment has been paid for in cash, there is more flexibility for paying the commission fees charged by a property manager. Still, in this case it’s important to consider whether you’re getting what you’re paying for. If the property is not being rented out very consistently, it may be time to fire the property manager and hire another one or simply do the marketing yourself. Even if a nightly rental is paid for in cash, there are maintenance, HOA, and tax expenses that make it so that the minimum revenue you need to break even is still significantly higher than $0.
Diversion of Attention from Your Specific Rental Business and Brand
My family stayed at our rental condo last weekend so that my wife (who was seeing the property for the first time; apparently she trusts my investment decision-making capabilities) and kids could have a chance to enjoy the property, and so that we could get a feel for how things worked from the “renter” side.
As we toured our property, we couldn’t help but notice that all of the signs were branded with Red Sands Vacations. It was clear that our property manager is using our condo to promote their brand, which includes selling them (their website and phone number are listed on each of the posted notes) nightly rentals that compete with ours. It occurred to me as I looked at how they had staged our condo that it didn’t make much difference to them ultimately whether someone rented our condo, the Robbins Nest Retreat at Las Palmas, providing income to us personally, or whether they chose another one of the Red Sands Vacations listings. In fact, I could see that it would benefit them more if someone chose a more expensive property than ours, since the commission was higher. I’d hope that in their individual dealings with people whose visit to our property, our property manager helps us retain the clientele we’ve attracted, but it’s hard to be sure.
When considering whether to use a property manager for your nightly rentals, be sure to keep in mind that it’s very likely that they will be looking at your property as one among many others that comprise their product offering. Their loyalty to your property can only go so far. There’s also a high potential, as demonstrated in the story I described, that the ebb and flow of rentals through their community takes away more rentals and revenue from your property than it contributes.
One of the things I’ve noticed with our property manager is that it can take two or three times following up on an issue before receiving a response, and that there are things that they’ve agreed to do that take longer than the expectation they gave. That’s a sign of their attention being watered down a bit. The back and forth of having to follow up often makes it feel like I have to spend time managing my property management company, and it creates overhead for me personally.
Loss of Control of Your Brand and Attention to Details
When I signed the contract with my property manager and went through the onboarding for new clients, I was careful to sit down with my family and come up with branding that we will use for this property and others we’ll purchase in the future. We decided to designate our rental brand “Robbins Nest Retreats”, and this specific one we called “Robbins Nest Retreat at Las Palmas”.
Soon after everything was set up with my new property manager, I was eager to see our listing on their website. I was surprised to see it listed as “Robbin’s Nest Retreat”. For some reason, whoever added the listing (one of too many people who don’t pay enough attention to things that matter), decided to put an apostrophe in our last name. I had to follow up and ask them to correct the name on their website and other online listings they manage.
Later, when we arrived to stay at our condo, I noticed that the property manager had made a sign that said, “Robbin’s Inn”. Close, but not really!
I was disappointed that whoever was managing our listings and branding was being sloppy and not paying attention to our branding, which turns out to be kind of important in situations where you’re trying to build a brand.
When you hire a property manager, it’s almost certain that they will not have the regard for brand integrity and other important details that you would likely have if you did the management yourself.
Potentially Inferior Marketing
I’ve been fairly happy with the occupancy I’ve had so far on my property, but I’m not super impressed. The month of March, the property’s first month in the rental pool, is one of the busier times of the year. While the weekends (Friday through Sunday) in March were consistently full, none of the other days of the week were. I had hoped for a better start.
As I’ve audited the listings my property manager put on VRBO and AirBNB, I can see that there are some good things along with some not good things. Our listing on VRBO doesn’t even include the word “Las Palmas”, a name that is well-known among people looking to rent in that area of Saint George. I’m sure that we’re missing out on people searching for rentals in Las Palmas. Based on that oversight (in almost every search engine, titles are the number one factor associated with ranking a listing), I can only conclude that there are other under-optimized aspects of my property’s listings on VRBO and AirBNB and wherever else my property is supposed to be advertised as part of my contract with the property manager.
As a marketer myself, I have a specific strategy that I’ll be executing over the next several months and years to increase the occupancy. I’m going to claim the listing and use local SEO citations on Yelp and other local business directories to stand out from other listings by ranking in Google directly. However, most nightly rental real estate investors don’t have that kind of experience and background (they really should if they want the highest return on their investments), which leaves them at the mercy of the property manager’s marketing skill set or lack of it.
When Does it Make Sense to Do Your Own Property Management?
Using a property management company makes the most sense among new property owners whose nightly properties are not so leveraged that it’s impossible to break even after paying the property management company fee. As mentioned before, even for experienced, veteran rental owners, it often makes sense to continue to use a property management company.
Here are some example scenarios I believe are most appropriate for rental owners to do their own property management:
- When the total revenue from your property is not suited for (even with expertise marketing from a solid property manager) bringing in sufficient rental revenue to cover mortgage payments, property taxes, maintenance, property management fees (usually 30%, but potentially negotiable in this situation), and other costs, and still break even. The property management fee represents a big enough cut into the pie in this situation that it may be best for an owner to take on that responsibility. With some creativity, a property owner in this situation can often find a way to efficiently hire out some aspects of the management that make sense.
- When a property owner has enough rental units in a particular area (or, in some cases, even spread out geographically), economies of scale make it so that his own internal property management company can be created specifically to manage his properties. This would make it so that the profits experienced by an external property management company would be brought internally to contribute more to the investor’s bottom line. I’d guess that down the road, as I pick up three, four, or more rental properties in Saint George or in any other geographical area, or if I have enough geographically spread out rental units to take advantage of a single marketing team and customer service department, I’ll certainly evaluate the situation and ultimately take over property management.
I hope you’ve been able to benefit from my own experience with determining whether to use a property manager for my nightly rentals.
If you have experiences on either side of this pros and cons list, feel free to share your own advice.
Happy nightly rental investing!