Disadvantages of Self-managed Real Estate Properties

Rental properties can be an excellent investment opportunity. Investing your money in real estate can be a very lucrative and profitable business if you recognize your chance and opportunity in time. If you are thinking about buying real estate and renting it, you may be interested in what awaits you as a landlord. Asset management is a very demanding job, although, at first glance, it seems that the matter is very easy, do not allow yourself to be deceived by the title of the landlord.

Let’s start from the beginning. You bought a property, and you want to make passive income by renting it, or selling it as it increases in value. Sounds like the perfect plan, easy money without much effort. Is that really so? It is if you hire a property management company.
You didn’t plan an intermediary in this business? Let’s face the challenges that await you.

Disadvantages of Self-managed Real Estate Properties

How to find a tenant or a buyer?

At first glance, this should not be difficult. In the world of modern technologies and social networks, we are just two clicks away from everything. Do we know which sites can advertise our property? Do we know the right form of marketing to apply?
This is the job of a real estate agency. They have ways of researching the market as well as models and ways of finding suitable clients for each property, in relation to its location, value, and the target group to which they offer it.

Legal issues

Let’s start with all the legal actions that you have to do yourself. Are you familiar with the law and bylaws on leasing real estate?

If you are not a real estate agent, you probably do not have passed the professional exam and license in this field, which leads to many things and questions that are unknown to ordinary people.

Dealing with legal issues involves concluding contracts with future tenants or buyers. This requires a good knowledge of the law because you do not want “holes” in the contract. It also includes various agreements, collection of rent, expenses, and security deposits.

On the other hand, you will have to deal with unscrupulous tenants on your own if any problems arise. The advantage of a real estate agency is that they are always up to date with laws and new regulations related to the landlord-tenant relationship. In case of any dispute, they know how to react. That protects you, as an investor, from unnecessary stress, waste of time, and money.

Wasting Money Concept

Real estate maintenance issues

There are breakdowns and various accidents in every household or business premises. Are you ready to make yourself available to your tenants for all kinds of repairs 24/7? We didn’t even think you are. Real estate agencies mostly work with various breakdown repair companies (plumbers, electricians, craftsmen of all kinds). Your tenants will be happy if they know that there is a service they can rely on.

Rent collection and taxes

Finally, we come to the most sensitive issues. If you are advertising your property for sale or lease yourself, you need to make research on the market and realistically determine the monetary value. Price formation (sales or annuities) is influenced by many factors such as:

  • conditions of your property, 
  • location, 
  • nearby infrastructure, proximity/distance from the urban part of the city.

If you overestimate your property, you will not find tenants/buyers.

An even worse scenario would be to underestimate it and not get appropriate monetary value.

The problem arises when the tenants do not pay their financial obligations on time, on which you, as the owner of the real estate, have to pay taxes. Becoming a landlord for the first time will make filing your taxes more complicated. If you need help with taxes, consider working with a financial advisor.

If you own rental real estate, you should be aware of your federal tax responsibilities. All rental income must be reported on your tax return, and in general, the associated expenses can be deducted from your rental income.

What is considered rental income?

If you are not from this profession, things here become really interesting, or to say, this is really a rollercoaster ride through lessons on finance, taxes, legal and economic definitions. Ah, all those papers. Headache? Guaranteed!

The rental income you declare on your income taxes will depend on your method of accounting. Most individuals use the “cash basis method.” This method requires you to report income as you receive it and expenses as you pay them out. But some businesses use the “accrual” method of accounting. This counts income when it’s earned, not when it’s received.

If you’re just a private citizen with a rental property, you’ll probably use the cash basis method. That means you’ll count rent money that you receive as income in the relevant tax year. You may also be able to count the security deposit that your tenant provides. You can do so if you use the security deposit as a final rent payment or you take all or part of it as compensation for damage done by tenants. But if you take a security deposit with the intention of returning that deposit when the tenant leaves, don’t count the deposit as income.

Feeling dizzy? Me too.

In the end, if you decide to do this job yourself, arm yourself well with patience, knowledge, you will benefit from the help of a financial advisor in calculating taxes, as well as a lawyer in drafting the contract. Marketing agencies too. The list is getting longer and longer.

On the other hand, all your troubles and headaches can be solved by a real estate sales or rental agency that will save you a lot of money, nerves, and effort, which you can invest in new real estate and thus gain benefits and financial security. If you are able to afford the services of property management in New York City, do not hesitate. They are worth every penny. You will not have to worry about daily activities that include self-management of real estate.