STRA Episode 9: Should I Use a Property Manager for My Short Term Rental?

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[00:00:05] Hey everybody. Welcome back to the podcast. We are John and Wendy Williams with the short-term rental authority, your authority for all things, short-term rental related to help make you the best operator ever. And today's podcast. We're going to be talking about whether or not you should have a property manager.

[00:00:27] So we're going to talk about situations where it would be appropriate to have a property manager and then situations where it may not be as lucrative to have a property manager. That's a good way to say it. Yes. A good, a lucrative, not as lucrative, right? Yes . So let's start out by saying. What is a property manager.

[00:00:55] Oh, that's good. Cuz I would just assume that everybody knew what that was, but okay. Right. And I, and I think a lot of people, especially if you're coming from the real estate investor space, well then you definitely know what that is. Right? You, you already have an idea of, of what a, what a property manager is.

[00:01:15] Right. It's someone who. Manages your property for you. Right. But in the short term rental space, what is a property manager? And it's it's, I would say it's basically the same thing. Yeah. There's more to do. There is there's way more to do. Right. But it's someone who has the listing. For example on, on any of the, the OTAs, the, the platforms, Airbnb, VRBO, et cetera.

[00:01:45] And they are responsible for the guest experience. That's probably the best way that I can put it. Yeah, I would say they're very similar in a, in a, in a 10,000 foot view. So you hire a property manager, whether [00:02:00] it's long term rentals or short term rentals, you hire them. I'm gonna call them tenants just for now, but you hire them to find the tenants.

[00:02:07] You hire them to collect the rent. You hire them to take care of any maintenance that needs done coordinate all of that. It it's way for you to be cleaner. Hands off. Well, not we'll cleaners. Yeah. In both sides. Right. Cause you have to be turnover. Sure. Yeah. So they're handling the turnover typically when one tenant leaves and another arrive.

[00:02:28] The, the biggest difference in the, the short term rental space is that happens more often, right? right. So it's it's instead of once a year, they're finding a new tenant it's it may be every couple of days that you're having to find a new or turnover the property. Right. Right. So there's, there's a lot more activity that goes on in short term rental property management.

[00:02:50] And for that reason, short term rental property management typically is more expensive than. Your long term rental property management, just because there's so much extra work involved. Right, right. And typically not always cause you can negotiate anything, but typically property management is a percentage of gross revenue.

[00:03:12] In other words, top line revenue before expenses, usually property management is a percentage of that. Whatever that number is, monthly gross revenue. Okay. Right. Mm-hmm yeah. And that's how they make their money. So in a long term rental, if it rents for 1500 at least in, in our area, it's very typical that a property manager would make 10% of that.

[00:03:29] So they would get $150 and minus any other expenses. And then you, as the owner would get what's left over. Whatever's left, basically. Yeah. And then it's your job to go pay mortgage taxes, insurance, that kind of thing. And the short term rental world it's same thing. It's just that number is higher, right?

[00:03:48] So on a $1,500 rent, you might make three. As a short term rental a month gross. And then typically property management, at least around here is taking 15 to 20% of that [00:04:00] off the top. Yeah. So they're take, so if it's three grand, just we'll just say it's 20% now that's $600. and you have down 20 and minus expenses.

[00:04:12] Right? Right. And then you take what's left over and do the same thing, pay your rent, pay your mortgage, pay your right, whatever utilities, all that kind of thing. And then, and there are companies out there who will do that for you. Yes. Right. And so in the, in the short term world space like evolve. VA Casa Uhhuh.

[00:04:29] Those are some of the big ones. Those are some of the big ones. And then there are local people that do it too. Yes. Right. There's lots of people that property manage. Mm-hmm and now we're talking short term mental side only that do that. Just keep in mind that in most states technically to be a property manager, you're supposed to be licensed if you're doing it for other people, for somebody else.

[00:04:48] Yes. And now there's that gray area in there where people are doing that in the short term rental space. It's called co-host. Where they are essentially acting as a property manager, but they're not always necessarily licensed. And I feel like that's something that's gonna come into play at some point legally, but for now it's just something that's happening.

[00:05:08] Yeah. But that you see those too, you know, that nobody's really regulating it or looking at it right now. Right. Yeah, but that's, what's going on there. That's that's the world of property management, right? So that's what a property at a high level manager is. And that's what a property manager does. And there are some situations where it may make sense for you to have a property manager, for example if you have a, if let's, let's say that you own.

[00:05:38] Condo at the beach, for example, and you don't live there and you don't live there. Yeah. But you want to use it, right? Maybe it's a, a second home for you or, or a house at the lake or, or so let's say, and you own it. And you, you own it because you want to use it. And then [00:06:00] when you're not using it, you.

[00:06:03] rent it out. Mm-hmm to on, on Airbnb or VRBO or wherever. Right. But you don't necessarily want to manage it yourself because you may not have time to do that, right? Yeah. Because it is a bit time consuming. So, well, I wanna say in that scenario, there's two things coming into play. One of those is, well, you only have the, one of.

[00:06:31] right. So it's to, to your point, like spending time doing that, and it's not your ma it's not your business, right. It's not your business. It's kind of like, it's your vacation home. But the second part of that, that I think is even bigger is you don't live there. Like for us, if we had a condo, a condo at the beach, or even two or three well that's three hours.

[00:06:54] and you may not have the local contacts or you might not have the, and, and wonder if, what if it's, Hey, I have a condo in Florida and I live in New York that New York place. Yeah. Right now I'm even further removed from being able to do that. Yeah. Right. Especially on, on a, if it's something like to your point, Hey, I, this is just my vacation home and I want to rent it out so that it offsets some of my costs, but really the goal isn't necessarily.

[00:07:22] Make money, right. It's to it's just to have a place have, have it so you can use it. Mm-hmm whenever you want to. Right. Right. So in, in that case, having a, a property manager may make sense for you. Right. However, , if you are looking to actually start a short-term rental business, and this is your business, and you're looking to make money doing this and maybe not have just one, but a whole entire portfolio of short-term rentals.

[00:07:59] Now [00:08:00] we're now that property, that 15, 20%. Is gonna get really expensive. It does. And, and we just know from our experience operating and coaching other people and, and looking at the numbers that typically if you're doing the math, right, we'll talk about that some other time. But typically your expenses run somewhere between 70 and 80% percent mm-hmm of gross revenue.

[00:08:26] Yep. Which means if you make 10 grand that month, somewhere between 7,000 and $8,000 of that is expense. in, including the rent you're paying or mortgage, you're paying insurance, insurance, you're paying utilities and all that utilities you're paying. Right. Any, any kind of thing you're using. Right. And then if you then go pay a property manager, 15 to 20%, well that eats up the rest of it.

[00:08:49] Yep. And, and what I've, what we've found is that a lot of people who end up going down that road soon, discover that, oh, well, I'm not actually making any more than I would have. How if I'd just made it a long term rental or very little more. Right. And they, you think you're giving away 15 to 20%, but it's really 50% or more of your actual short term rental side of the income, right?

[00:09:18] Right, because we've already talked about separating the real estate from the short term rental business. Right. And it's yes. So yes. And, and so those are two separate businesses, right? So I'm only talking about what does the short term rental side of it generate? Cuz I remember this isn't real estate investing really.

[00:09:35] Right. Even if you own the real estate, that's the separate kind of thing. Totally separate business. And that thing does rent. Even if it's a beach house, it has a market rent as a long-term rental. It just does. Yep. And that you have to start at that number. And then the short term rental is how much more do I make?

[00:09:51] Yep. How much more on top of that? Yes. Right. And that's only looking at it as, okay. This is a for profit business. Mm-hmm when you, when you have your condo at the beach that you just [00:10:00] want to go to, then that is not as important. Right. So then back to, okay, well, I can just put property management and I don't really kind of care and really kind of break even, and trying to break even anyway.

[00:10:10] And just have this condo that's gonna appreciate over time. Right. And that I get to use. Sure. Right. So that's a whole different play. That's a whole point of it though. Right? Mm-hmm . And, but if the, if you're, if your strategy is, well, I wanna create a, a large portfolio of short term rentals, then that's the.

[00:10:31] In that instance, it would make sense for you to create your own short term rental property management company, which is what we. coach other people how to do, and to be clear, that is managing your own portfolio, managing your own portfolio. Yes. So you're, you're now not in that gray area of, even if you're not licensed, Hey, you're not doing it for someone else.

[00:10:54] You're doing it for yourself. So in yes. I wanna say probably every state in the union, we're talking to the us here. It, you can manage your own properties. That's perfectly fine. It's when you start doing it for someone else that that licensing requirement comes in mm-hmm right. But, but to your point, yeah.

[00:11:08] That's When you, when you start building out a portfolio, well, it's cheaper to, to run it yourself for one. And what we teach people to do is, well, you're not really doing it yourself. You're building a team, you're building the, the software infrastructure. You're building the automations, right. You're building all of these things.

[00:11:29] And one of those true benefits of that. Is not only is that where actually the money is made in the short term rental business, it's in the management, it's in the, providing the service cuz that's the value to the marketplace yeah. Is providing the service. Sure. And if you try to outsource that, well, there goes the value.

[00:11:49] Right. And not to mention what you mentioned earlier that that may have slipped by, but when you use property management, typically. Their [00:12:00] website, it's their customer. It's loss of control. It's not only loss of control, but it's loss of value because the value of the business is who are your customers?

[00:12:09] Yeah. What's your customer list. What's your brand, right? Yep. And when you turn it over to property management, typically now it becomes evolves customers. Yep. It becomes vacation customers. It becomes local property managers, customers, and. now you don't have anything to sell, but a property cuz you have no customer list.

[00:12:32] You have no real business there. Yeah. Right. And that's valuable in and of itself. Right. So I, I always find that humorous when, for example, you see a house for sale, right. That says, Hey, it's been a great Airbnb. It's made this. Right. Right. But we used property management. So. So you're, so I'm not buying the Airbnb business, right.

[00:12:59] Or the short term rental business now really I'm just buying a house. Right, right. That somebody else has run as an Airbnb. Right. But I don't mean to talk down to that person. I'm just saying that they, they don't have any value in the business. There's there's no, there's, there is no business. There's no reviews, right?

[00:13:16] That come with that. There are no, well, there's no systems. There's no customer list that comes with that. I mean, how, how you run your business is your business. Yeah. And we're, we're currently reading a book called the ETH. Revisited. That's so good by Michael Gerber. Yeah. And he talks about that.

[00:13:33] Yeah. It's really good. The, the value in a business is actually the systems and processes and, and all of that kind of thing. Like how you do what you do. Yeah. And you always want to start a business with the thought of, even if you don't ever feel like you're going to, but with the thought of selling it and do you have something to sell?

[00:13:52] Right. And then to me, that's the biggest disadvantage to using property management is. If I decide to sell, I [00:14:00] don't have a business to sell. All I really have is a piece of property. Yep. Yep. Right. And, but that, that's what we do is we coach people on how to run that business, how to create those systems and processes and how to hire and train and fire all the, the team members that you need.

[00:14:24] so that you can work on your business and you're not in there in your working in your business. You you're just kinda managing the manager so to speak. Yeah. I wanna say that's one of the reasons, one of the big reasons people go to property management is because they're afraid of all the work. Well, you know, even if you, cause it sounds like a lot, have a property manager, you still need to.

[00:14:48] Know how to manage the property, know how to manage, manage the property manager. Yeah. Like how do you know if they're doing a good job? Yeah. Right. Really. Right, right. So, but yeah, I mean that, that's the, that's the thing is that, but that's why people do it though. Sure. I mean that, of course, cause that seems like a, a lot of work that seems like, well, that's a totally separate business.

[00:15:08] It is, it is a whole, whole separate business. I mean, it's a whole, it's a totally separate skill set. I mean, I mean, the automation's involved. And the knowledge that you need to know is something that you have to learn. You have to teach yourself those things you do, or have somebody teach it to you or have someone teach it to you.

[00:15:28] Yeah. You have to learn those things. But I guess where I was really going with that is it's not as daunting as you think. Well, not when you have a guide. Yeah. I mean, it's, I mean, if I were out there doing it myself, I would just be like, oh my God, am I, am I doing be starting it to zero? Yeah. Am I, what am I, what am I doing?

[00:15:47] Right. Really having a, having a mentor in the space is, is going to make or break your for success. Well, that's what we did. It's not like we, nothing is nothing is new [00:16:00] knowledge. Right. But we, we had mentors. Yes. We had other people we leaned on. Yeah. And we learned how to do it correctly and then added some things to it on our own and kind of refined what was good for us as a business.

[00:16:12] And now we have a complete system package. is it? I don't feel like it's that hard anymore. Yeah. Well, it was when we first got started, but to get started, it was, yeah, I can. I remember that. It was. Yeah. Yeah. But it's, it's not as, it's not as bad as you, you might think it's not worth giving up 20%. No, not at all.

[00:16:31] It's to have somebody else to do it for you, in my opinion, it's easy, but it's not simple. Well, it's simple, but it's not easy. It's simple, but it not, not easy. Yeah. I know what you meant. Yeah. But yeah, it was the other way around. It's it's simple. But it's not easy. Yeah, it does. It does take work. It does.

[00:16:47] Don't get me. Don't get anything wrong. It does. But, but a lot of that is up on it's on the front end. Yes. It's getting it set up. It's getting the business, you know, stood up mm-hmm and getting all those processes in place. But once you do that, it's easy just to plug properties into it. Yep. You know, you don't have to redo that every time you sign another lease or just plug 'em into buy the property or, or whatever you're gonna do, you're now plugging them into the system.

[00:17:10] Yeah. That then goes to work for you. Yep. Right. And that's where the value is in the short term rental business. Yep. Yep. Very good. Excellent. Well said. Yes. So there, so to sum up there, yes. There are some reasons you might want to use a property manager. We advocate for basically building your own property management system and to do that, you need well, you need properties that are close to you for one thing.

[00:17:34] We've talked about that. Yeah. Yeah. Which we've talked about before. So, you know, my advice would be if you're, if you're starting out don't go all over the country and have one house in Florida and one in Texas and one in Oklahoma. And because what you're doing is you're setting yourself up in a situation where you have to use property management.

[00:17:53] And then as you have 10 or 15 of these, that becomes very expensive and you have no business at the end of it. [00:18:00] Right? Yep. And that's where people kind of stop doing it and sell all the properties. Right, right. Yeah. Excellent. Oh, well, we hope that you have found some value in this podcast and if so, like, and subscribe, and we'll see you next time onto the next, onto the next.

[00:18:19] Nice.

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