If you are buying and holding either single or multi-family properties, you may be wondering whether you are a landlord or an investor doing property management.

Having been an investor acting as a landlord (by managing my own properties) and currently being an investor practicing property management, I can tell you that the difference in the mentality of an investor who is a “landlord” is vastly different from an investor who is practicing “property management.”

When I bought my first three-family apartment building just over 13 years ago, I was the manager, maintenance man, plumber, carpenter, leasing agent, housekeeper, etc. If it had to be done, I did it. I was a “landlord.” This went on for a three and one-half year period, as I acquired more and more three- to six-family buildings.

I created more and more systems until finally I hired an office staff and gave up day-to-day control of the properties and began to oversee the systems that I now had in place. I had transitioned into “property management.”

As I write this article, I currently own over 6,000 apartment units in eight different states.

Landlord Pros

There are certain benefits to managing your own property and being a “landlord.” The primary benefit is control. As a landlord you have total control over your property. You know exactly what your tenants are doing, what your exposure is going to be at the end of the month, what marketing is the most effective, what your cash flows are and what your expenses will be on your properties.

You have total control over your cash flows; you collect the rents, you pay the bills, and you have your finger on the pulse of the action because everything goes through you. Another benefit is increased cash flow. With the average management company charging 10% of gross collected rents, that’s money that you are not paying out of the property as a monthly expense. As a result, you have more money in your pocket at the end of each month.

You have absolute control over expenses; you decide what repairs need to be made and when they will be made. You may even do the repairs yourself to save more money. For those repairs that require contractors, you meet with the contractor, get the bids but more importantly, you get a “gut” feeling as to the character of the contractor and whether or not you want to do business with him/her.
Most landlords that I know are landlords because they want this control and they don’t want to give it up. They feel that if they hand over their asset to a third party, they will not be able to run it as efficiently as they do.

You must realize that when you are a landlord, you are in the tenant business. Your sole purpose is to keep that tenant happy, handle the tenant needs, account for the tenant cash flows and pay the expenses that it costs to keep the tenant in the building. While it is true that you are technically an investor, your main business is serving other people’s needs.

As mentioned earlier, I did that for over three and one-half years. I liked having that control over my properties. In that time frame, I accumulated over 104 apartment units and my monthly cash flow was in the high five figures a month. I thought I was King of the Hill!

The benefits the investor gains by being the “landlord” of his properties are offset by the long-term gains that he loses by managing the property himself. While the landlord is collecting his rents, handling his tenant needs and complaints (Oh, every once and a while, tenants call to say how happy they are to be living in your property but that’s every ONCE in a while!), making repairs, and paying the bills — the investor could be out attracting more deals, creating more cash flows and cashing more checks.

Landlord Cons

While I was King of the Hill, I must admit, there were a few things I didn’t like. I didn’t like collecting the rents every month. Oh, it was great when they sent them in by mail to my P.O. Box but I didn’t like going out to collect them. You might be asking, “What’s not to like about collecting rents? People are giving you money!”

Yes, that part I liked; what I didn’t like was when the tenant would ask me to come back in a couple of days. Or when they weren’t home, I would have to go back again. By the time I collected all of the rents; it was time to start collecting them again for the next month.

I didn’t like fixing clogged toilets on Saturday mornings when my favorite real estate infomercial was on. I didn’t like fixing clogged toilets at any time of the day or night, for that matter. Though I must admit, I was always curious to see what was going to pop up after I pushed that plunger up and down a few times. Sometimes it was very funny; I remember one time a doll’s head popped up from the depths of the flush – I wondered what the “Tidy Bowl” man did with the rest of her.

I liked collecting the checks and making the deposits but I didn’t like paying the bills every month. It wasn’t the bill paying that bothered me, we all have to pay for our services but it was the process; collect all the bills, open the mail, rip off the stub, put remainder in that bill’s receipt folder, write the check, make the journal entry, stick both stub and check in envelope, adhere stamp, lick envelope, write in return address, etc. Doing that for one or two properties is easy; doing it for 22 properties is two to three nights’ work. I was very happy when I delegated that chore out (Of course I continue to sign the checks).

Of the many things I grew tired of while being a landlord, the one thing that always made me crazy was showing the apartments. The first thing I learned is that half the people don’t show up. You take time away from your family to go to the property to meet a person and they don’t have the courtesy to call you and tell you that they are not going to be there. You take time to drive there, wait for at least a half an hour (Hoping that they will show because you also know that most of the people have no respect for your time and come late), and then drive home.

Even when they would call that day and confirm that they would make the appointment, a lot of them wouldn’t show up! I finally adopted the policy of having them meet me at my corner donut shop (Later, in my office) and then we would drive to the property, regardless of how far away it was from the donut shop. I learned that if they didn’t show within ten minutes, I could be back in my home office back at work in two minutes. And when they showed up late, they usually called and I would simply walk out my door and meet them.

If you are experiencing those pains right now, you are a “landlord,” although those pains are offset by cash flow, financial freedom and pride of ownership.

But then I discovered something at the three and one-half year mark. I discovered that if I gave up a little of the control, I could give up a lot of the madness and I could make more money faster. I had graduated to “property management.”

Property Manager

Let’s not confuse “property manager” with “property management.” A “property manager” acts like a landlord but doesn’t own the property; he/she is being paid a fee for his/her services. The one major responsibility of the “property manager” is tenant retention. Keep those tenants happy because your tenants are your cash flow. When practicing “property management,” you hire a manager to oversee all of the day-to-day activities.

Property Management

“Property management” is the overseeing of the systems that it takes to keep a property running at maximum profits. “Property management” oversees a system of reports; traffic reports, maintenance logs, exposure reports, profit and loss statements, executive summaries, budgets, and forecasts.
Instead of showing units to prospective applicants, an investor looks at a traffic report every Monday. The traffic report tells you how many people came to see the property during the last week, what marketing got them there and how many were converted into tenants.

Instead of going out to fix clogged toilets, the maintenance log tells the investor how many tenants called in for repairs, and when they were scheduled for completion by the maintenance man or handy man, and what the approximate cost was.

Exposure reports tell the investors how many vacant units there are, how many are pre-leased, what the physical occupancy is and what the economic occupancy is (the people who are in the unit and paying rent). It reports to the investor how many leases are coming due and in which months. The investor can then instruct the “property manager” to either ramp up or ramp down his marketing efforts.
The profit and loss statement is prepared each month along with an executive summary. The “property manager” reports to the investor exactly what the profits and losses were, as derived from the income and expenses.

The executive summary explains the profit and loss statement and variances from the proposed budget that the “property manager” created at the beginning of the year and is now tracking on a monthly basis.

Viva La Difference

Reading reports and tracking progress instead of dealing with tenants and maintenance issues allows an investor to go after more deals and create more cash flow: the end result is that he/she becomes wealthier — faster.

While initially landlording for three and one-half years, I created a portfolio of 104 units. In the next three and one-half years, my involvement in property management allowed me to increase that portfolio by another 706 units. Same amount of time, different investing mentality.
Today my portfolio is over 6,000 units and growing. The difference between being a “landlord” and being involved in “property management” is the difference between working in your business versus working on your business.

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