Property Management Fees Tax-deductible - Does This Justify The Cost?
Hi,
My husband and I are in the process of purchasing our first rental property. He works full-time. I do not work outside the home, but I have two small children. I lean towards hiring a property management company to handle the property. I also thought that it was a plus that management fees are tax-deductible. My husband wants to do it all himself. I wonder if he will really have the time and all with his job. Any thoughts on this from those more experienced is helpful.
P.S. the positive cashflow on this property would be about $350-400 before any management fees.
What are you guys trying to be, landlords or investors?
It all depends on what your goals are.
Your rental will supposedly be bringing in around $4800 a year. You get the headache and crap that goes along with it. Or you could pay someone to manage it, make a little less, free up your time, go buy some more properties and call it a day.
If a $4800 increase is your goal, then you may be willing to tolerate the headaches.
Stop counting the pennies and go after the dollars. Who collects the money at Trump Towers?......I'll bet you it's not Donald Trump.
Trump Towers, the checks come in from the Business Managers and Financial Assistants. But the lady who is charged with receipt of payments. Oh my god, she is a dream. She wears glasses but only for protection. The day she lets her hair down and dumps the glasses, well
I only wish I were about 80 years younger. And of Course Singles, yeah...
How many units, do you have a resident manager on property. Weekly Monthly or whatever payments. Answer these questions and will advise.
Cogitating Lucius
Lufos,
This is a one unit rental. The property management companies that I've checked out charge 10% monthly of gross rent. This is not a situation of a resident property manager.
Thanks for your help.
Daneeque, it all really depends on what the two of you want as a couple. Most people would probably benefit from hiring property management and 10% of gross rent usually is not a high price. The property management company would definitely have a lot of good advice to give you regarding the condition of the property and most of them ( if not all ) pre-screen the prospective tenants which increases the chance that you will get good renters.
The flip side is that you will be paying 10% ( if the monthly rent is $1000 you will have paid out $1200 in a year) to someone that will do something that you could learn to do also. You will still have to fix any problems that arise with the rental or pay someone to fix them. It would be a good idea to check if there are any extra fees that you might have to pay for maintenance requests that the management company receives.
One final note. The management fees being tax deductible is nice, but make sure that you understand what that means. Given the above example of management fees running $1200 a year, that will probably only reduce your tax debt $100 to $300 or so, depending your total income. That means that you will still be out $900 to $1100. I think of tax deductible as a small government discount, which is nice, but each person needs to decide if it is worth it.
Wish you well on your investment and keep us posted!!!
Don't let the deductibility determine the decision. Your personal concept of the value of exchanging the time for the service should. For example, you don't buy the company car because it is deductible, you buy it because it's a more efficient way to get around (i.e. you need it). The deductibility is a bonus.
Just my 2 cents...[ Edited by norrist on Date 01/06/2004 ]
If this is your first rental property, then you have no prior landlord experience.
Do you- know how to screen tenants,
- have the resources to run a credit check,
- know how to evict a tenant,
- have the time and experience to go to court when you need to,
- know the landlord tenant law, so you don't create any legal hassles,
- have a landlord friendly lease agreement already drafted
- have established relationships with building contractors who can make the repairs that are beyond your capabilities,
- want to deal with tenants and toilets at odd hours of the day or night, and,
- have the ability to immediately respond to any emergency that may arise?
If the answer to most of these questions is NO, then you should probably hire a professional property manager until you get your feet wet and want to take on the task yourself.
Hey,
I hate Property Managers. I always have. So I am very negative towards the idea of having a PM. So here is the other side of the debate:
People who talk about hiring property managers always get it backwards. You do NOT need a PM when you have 1 property; you need a PM when you have 20 properties.
If you have one property or ten properties, the amount of time it takes each month to manage these properties is MINIMAL. Don't let anyone tell you different.
Tenants do NOT call at funny hours. I have been managing my own properties for a long time and NOT ONCE have I received the call at 2:00 AM for the broken toilet. It is a myth. In fact there was a thread on this website about it.
If you want to learn how to be a landlord, go buy a book on it. It will show you how to screen tenants (it is only asking a few questions and making a few phone calls), how much to get for deposit, etc, etc.
There are companies that will run credit checks/employment checks/criminal record checks for you for a fee. I am charged $25 per application.
You can get a good lease from an attorney. Surprise, surprise, they have standard ones. You might be able to get one for free from the attorney you used for Closing. If you don't get one for free, it will cost you a couple hundred bucks.
PM also charge you when they get a new tenant for your house. Usually half to one month's rent. So make sure you include that in your numbers.
Bruce,
Just because you have not had to deal with a toilet problem yet, does not suggest the problem will never come up -- for yourself or anyone else.
Check this link.
http://www.thecreativeinvestor.com/ViewTopic19362-24-16.html
Hey DaveT,
I have never received a call about a broken toilet at 2:00 AM...
BUT, I have received my share of broken toilet calls.
The solution to a broken toilet is:
1) Provide a plunger and DEMONSTRATE how to use it. Cost $5. I have had some stolen when tenants move out.
2) Advise tenants that they are responsible for the first $50 of any repair
OR
2) Advise tenants that they must pay the complete cost of clogged waste pipes due to tenants activites. They don't pay for tree roots, for example.
BOTH of these are in my lease (like I said I have had experience with clogged pipes)
3) Call plumber if 1 or 2 does not fix it.
Saving me from having to make that 10 minute call, DOES NOT justify taking 8% of my rent each month.