Over the last 10 years, I have been asked this question almost daily. Most investment owners feel they can save money if they DIY repairs during a vacancy. There tends to be a stigma that property management vendors are more expensive. Most homeowners feel that they can get better pricing on carpet, paint, and all the little items that go into rehabbing a property than property management vendors.
What most homeowners fail to realize is their time is valuable as well. Most contractors will want to see the property to provide an estimate, so you have to schedule an appointment to meet them at the property, then hope they show up on time or at all.
Go to the carpet store, pick out carpet, schedule an appointment to have the space measured, and then schedule for an install. Someone has to be there to unlock the door and hope that they show up on time.
You have to wait to install the carpet until the house is painted, and what do you do if the painter is delayed in completing the job….well, the whole project is pushed back. Not to mention, “the small repair job ALWAYS turns into something bigger” phenomena that seems to afflict all DIY projects. We have all been there, you watch a YouTube video on changing out the garage disposable and think to ourselves, “that looks easy enough”. We head out to the hardware store, get all the supplies we need and embark on this “simple project”. Low and behold, you start in and the old supply lines don’t fit the new garbage disposal, back to the hardware store you go.
At the end of the day, you have to ask yourself, “Did I really save money by doing the repairs myself?”
In this article, we will look at the true cost involved in the DIY rehab versus using Property Management Contractors. Do you really save money doing it yourself?
A Vacant Property: Now What?
Your rental property is now vacant, and you just received the estimate of repairs from the property management company. The dilemma now begins, do you complete the work yourself or pay to have someone else do the work? After all, completing the work yourself will save you on labor costs, right?
Remember Mark, from our “How much, does a tenant eviction cost? A detailed breakdown” article?
Mark, had rented his home in Corona, CA to a tenant for $2,000 a month and ended up in an eviction. This eviction cost Mark nearly $15,000 in time and loss of rents. He did chose Management One to manage his property. We recently had this very conversation about doing the repairs himself or having the property management company subcontractors complete the work.
Just as a side note, his property rented for $2600 a month, $600 more a month than he had previously rented it. Additionally, the property rented in 72 hours of going on the market! Right out of the gate, a professional property management company put $7200 more in his pocket.
Crunching the Numbers
On May 3rd, Mark received the job estimate from the property inspector and felt the total cost was too high. The total cost of his rehab was $5500.00. This included new carpet, complete interior paint, and cleaning of the home. Of this $5500 total, labor cost was $2500.
On May 4th, Mark called our office and stated that he wanted to do the work himself to save on the labor costs of the rehab. After all, he had just gone through an eviction of $15,000 and he needed to recoup as much money as possible. As we talked we broke down the “true” numbers.
Mark works full time, a daily pay rate of $127 a day. The daily rent rate of his property is $86.67 ($2600/30 days). Since Mark works during the week he will only have time work on his rental property on the weekends. Mark indicated that he would need 30 days to complete the work. Thus, his property would not be ready for the new resident to move-in until June 8th at the soonest. Keep in mind his property was already re-rented at $2600 a month.
* Marks’ time = 8 hours a day for 8 days (Saturday and Sunday for 4 weeks) = $8128
* Monthly rent rate= $2600
* Repair costs= $3000 (remember he saved on Labor costs of $2500)
Clearly, Mark’s time alone exceeds the labor costs of the subcontractors. However, our perception is our reality. Mark felt that by doing the work himself he would save on labor costs, not taking in to account that his time is valuable as well.
Benefits of Using Property Management Contractors
Most subcontractors give property management companies better pricing on material and repairs, due to the sheer volume of work that is provided. Your average property management company manages on average about 200 properties. Each rental property will have at least one rehab every 3 years. This means the subcontractors will have about 60 rehabs a year.
These subcontractors also offer a better labor rate to property management companies because of the volume of work. This keeps the costs controlled for you, the homeowner.
Working for the property management company tends to be the sole source of work for the subcontractors. This allows for them to flip a house in about 4 business days. They can complete about $1000 worth of work a day. In Mark’s case, his rehab of $5500 would take about 5 business days to complete. If you recall, he needed a month to complete the work, due to his work schedule.
Using a contractor to complete the work would have allowed the new tenant to move in on May 11th. A whole month sooner than him completing the work himself, that’s an extra $2600 in his pocket.
Tax Benefits of Using Property Management Contractors
Any repairs done on a rental property is tax deductible. In California is about 40% tax break, this includes repairs and labor. If Mark does the work himself he will not be able to deduct his labor costs, as he is the owner of the property. This would be a tax savings of $1000 for Mark for using property management vendors.
Let’s go back over the numbers
Mark’s property was rented on May 1st at $2600 a month.
Rehab costs were $5500 ($2500 in labor and $3000 in repairs)
Mark’s labor= $8,128
Tax Savings LOST= $1000
Loss of Rent-$2600 plus the cost of utilities (add $200)
Mark’s Cost of doing the rehab himself = $14,928
Total Cost of property management vendors completing the work:
Rehab cost of $5500 ($2500 in labor and $3000 in repairs)
Mark’s time= $0
Tax Savings Gained= $1000 (total tax savings $2200)
True Cost of the Rehab= $3300 after you consider his $2200 tax savings
Fewer Headaches When Using Property Management Contractors
By allowing the property management vendors to complete the work, you have fewer headaches, more time to spend with your loved ones, and more money in your pocket. If Mark would have allowed the property management vendors to complete work, he would have put $11,628 in his pocket. That is in addition to the $7200 he gained just in the increased rental rate. Let property management vendors do the work while you sit back, relax, and enjoy the extra money in your pocket.
Here at Management One we use licensed, bonded and insured vendors. We operate on a pre-set price list, to control costs, and to save you time and money. We prepare the estimates and work with the vendors so you have fewer headaches and more time with your family instead of standing in line at the hardware store.
Related Articles:
Wood Rot: What Does Deferred Maintenance Really Cost?
Best Property Management in Riverside and Moreno Valley in California (Reviews/Ratings)
Top 5 Property Management Companies in Orange County
