Are you really saving money by being a landlord versus paying a property manager?
Last week I wrote an article that explained the difference between active and passive income (See: The Truth About Active Income vs. Passive Income). In it, I talked about which investing methods fall under which income category. I identified having rental properties as being in the passive income category.
Guess what though… there is a hitch I left out. Are you ready? If you own a rental property, it requires management in order for it to produce income. The method of management you choose may change your property from being a passive income investment to being an active income investment.
Options for How to Manage a Rental Property
You have two choices on how to manage your rental property. You can:
- Manage it yourself, i.e. be a landlord
- Hire a property manager.
The difference? If you choose to landlord the property yourself, you force yourself to work in order for the property to continue providing income. Doesn’t that change that income from passive to active? Absolutely! But what impact does that change in designation cause? More than you might think.
The Financial Breakdown
Let’s use one rental property to break this thing down. This one rental property (owned by you) cash flows, after all expenses, $300/month. On average, this property requires five hours per month to maintain properly (some months will require no work towards management and others will require more, so just taking a ballpark here).
Scenario 1: You manage the property yourself. If you manage the property yourself, and you make $300/month doing it, that equates to you getting paid $60/hour for the work that you put in ($300/5hrs). That’s not too bad.
Scenario 2: You hire a property manager (PM). Property manager fees run on average about 10% of the monthly rent …read more