Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
I commented before on my situation, but just a quick recap so you know where I am coming from. I am self employed via eCommerce and my business bring me about 15K/ month profit and rising - leading me to want to invest in real estate.
I am in Cleveland but eventually want to invest in growing markets (Texas/Atlanta/Florida) and hire a property manager (I dont want to nor have the time to be a landlord). My investment goal here is appreciation/equity build up/ tax shelter/ and cash flow - In that order.
Most comments on biggerpockets seem to bash property management because of bad managers and it cuts into cash flow. The advice I get is "Manage it yourself, save money and headaches."
For me - my business is my main concentration and form of cash flow so I am okay with taking a smaller cut and letting professionals screen tenants and control rent. The 6-10 percent they take is WELL WORTH the amount of time it will give me to run my business and peace of mind.
Is there anyone doing what I want to do? Can someone tell me a successful property management story? I know good ones are out there...
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
I won't say BP is negative towards PMs... but you have to realize, most of the landlords here are fairly small time. So lets correct a few misconceptions.
For the small time landlord, the fee is closer to 12 - 15% of rents, not 6 - 10%. They are going to charge you 10%, plus some amount to fill vacancies, plus some mark up on all repairs.
Second, having a PM doesn't mean the investment becomes passive, it simply changes who you manage. When you're a landlord you can either manage your tenants... or you can manage your Property Manager. A quick search here will show you what happens when you simply turn a blind eye to your property manager. Expect to speak with them every 2 weeks or so. If you aren't squeaking, they will likely get complacent.
For me, it frustrates me that I have to do that much screening to find a good PM given the amount I would be paying, even at my small level. Until the work load becomes some overwhelming that it takes over other parts of my life, I'll continue to do it myself.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
I won't say BP is negative towards PMs... but you have to realize, most of the landlords here are fairly small time. So lets correct a few misconceptions.
For the small time landlord, the fee is closer to 12 - 15% of rents, not 6 - 10%. They are going to charge you 10%, plus some amount to fill vacancies, plus some mark up on all repairs.
Second, having a PM doesn't mean the investment becomes passive, it simply changes who you manage. When you're a landlord you can either manage your tenants... or you can manage your Property Manager. A quick search here will show you what happens when you simply turn a blind eye to your property manager. Expect to speak with them every 2 weeks or so. If you aren't squeaking, they will likely get complacent.
For me, it frustrates me that I have to do that much screening to find a good PM given the amount I would be paying, even at my small level. Until the work load becomes some overwhelming that it takes over other parts of my life, I'll continue to do it myself.
Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
14y
Good Stuff Nathan -
I am not looking to be 100% passive. I understand the business needs to be managed.
I just dont want to be as hands on in day to day stuff - knocking doors for late rents, screening tenants, 2am phone calls for repairs.
My time if much more valuable to me - putting more time into my eCommerce business means more money, so that business is first and foremost.
With that said, I still have a huge passion and am willing to devote some serious time to finding properties and dealing with people to manage them.
I guess I should be asking "If you were in my shoes" - I understand the answer is going to be different coming from someone who relies on the rental cash flow to live.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
My wife and I make close to $200k, I have 3 kids... I don't believe your shoes to be that much different than mine.
The only day to day stuff I really do is show vacancies when I have them. I am seriously considering outsourcing that to a realtor in the future as I have found my time to be more valuable given the 2 hrs of driving to my rentals.
Screen tenants well and late payments shouldn't be a huge concern. Again, I'm not going up there on the 2nd. I get email/telephone numbers for my tenants. If they are late (5th) I will call. If they don't respond in a day you can drop the fix or quit in the mail.
Screening tenants takes less than 5 minutes. Enter a bit of data about them online and wait for the report to come back. It's not rocket science and you'll only do it when you have vacancies. Assuming a 5% vacancy rate, even with 20 units, you'd be trying to fill 1 a month. Not a huge amount of work.
2am calls? Why is your phone off at 2am? If it needs handled at 2am they need to be calling 911 for the Fire or Police Department or a 24 hr plumber (give them a number), not you. Anything you're going to handle can wait until 8am.
I have 6 tenants now, not a lot. A PM would cost me about $400 a month. If I spend less than 8 - 10 hrs a month worrying about my rentals, I have a pretty solid paying 2nd job. To date, I've spent about 20 minutes on 1 trying to get a plumber to fix a drip under the sink. Beyond that it's calls to tell me the rent was mailed (no, I don't pick it up, it's due in my P.O. box by COB on the 4th).
Manage your tenants or they manage you. If you screen well, maintain your properties well, and train your tenants... really, there isn't a whole lot to do.
Again, at some point I will go to a PM, simply due to scale. I don't mind a second job of 8 to 10 hrs a month with my 6 units. Multiply by 10 when I have 60 units? I really don't want an 80 to 100 hr a month second job, even if it does compensate me at $100 an hour. I value my family time. To me the decision will be more about the impact to my lifestyle then the cash. I treat this like a business/investment. I am definitely willing to pay to make my life easier and more enjoyable. I'm not looking for a 2nd job, seeking to buy at 40% of FMV, looking to eke every penny of return out I can by doing repairs myself and shopping Craigs list for 2nd hand but great shape Ovens I can store for a future need. I'm simply looking for a solid return on my investment given a certain time commitment I'm willing to make.
Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
14y
Again thank you - very informative.
But I want to invest out of state and isint a property manager a local market expert - and that's part of what your paying for? They have local market knowledge, know maximum rents, economies of scale for repairs, legal knowledge ect, experienced with tenant screening...ect
I am thinking about what these properties are going to do for me 10-15 years down the road. I am 23 years old and I have a long time to "let equity happen".
Ahh well - I dont think my mind is changed but I am sure to figure it out as I go.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y
Adam it all depends on your plan.
Just like taxes the road through real estate can take many different turns for each individual.
For you there is a wealth of income.For others they have to do flips just to build enough cash to live on and grow the business.
There is nothing wrong with property managers.I like apartments.You have a broker/agent doing ONE THING (property management) to the best of their ability. These are certified property managers which are highly skilled.
The problem with houses especially out of state is you get a broker/agent who does regular sales and then occasionally takes on a rental.When the headache gets to big for the return they start losing interest in managing your property or when a big sale gives them a nice check.
The broker/investor has to know that you as an investor are committed to them for a book of business.If you are using them for one off deals the property manager might not feel the commitment is there from your side.
"The fact is, you don't eat gross income. You can't feed your family on gross income."
I am single 23 year - My expenses are dirt low, all I do is save money - I did about 15K month in 2011 and will be closer to 20K/month in 2012.
The only reason I bring up my current income to make my point - $1000/month of lost cash flow for 10 properties (100/property) makes no difference to me - and I dont consider it lost cash flow, its paying an expert for service, like an accountant.
My time = more business income. The free time and less stress by finding a good manager still seems well worth it.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
Then why are we having this discussion, you have your answer. PMs have a value proposition they present to people. Everyone values their offering differently. For some, it's worth it... for others, it's not...
Same can be said about just about anything. There's no right, no wrong.. simply different perspectives, backgrounds, and situations.
If you were looking to be enlightened about why people don't like PMs, I think you have been. You are set in your way and sounds like for good enough reasons. If your goal is to get everyone to agree that a PM is right for them, or even right for you... good luck in that effort.
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
14y
Adam -
An over-whelming majority of participants on this forum are "active" investors and their is ridiculously good information and knowledge on this site. I think most would agree that if your best opportunity to get started investing is remote investing, then be very careful, do great due-diligence and always stay involved with your investments. They are not negative on PM (for the most part) just negative on the consequence of hiring a poor manager or not being hyper-diligent about watching the details of your property.
I can tell you that there are great property management companies out there, you simply have to be patient and be CRYSTAL CLEAR from the beginning on how you expect them to handle your property.
As far as costs, I think a company that charges 12-16% (that is ALL charges added in and annualized) is probably a company seeking to operate like a proper business. When management companies try to attract you as a client by promising really low charges (all of this is relative to the rent range) more than likely they are not going to provide great service. They simply will not have the revenue to hire enough staff or invest in quality systems for tracking, communication and reporting. I believe that higher quality is going to cost a little more and you get exactly what you pay for in the end.
Real Estate Investor · Virginia/North Carolina · Member since 2011 · 25 posts · 6 votes
14y
Adam,
I think there are many variables to consider....they are: how much time you have to adequately manage the properties yourself, the quality of the PM you use, the type of properties and tenants you are attracting and how much margin you have to work with. For me, I am fortunate to have 2 very good PM companies. But I 'manage' them as well with pro-active calls to 'check in' and let them know I am interested in being involved and helping. If they sense you don't care then I think that attitude would resonate with the way they manage. They also know I'm constantly on the hunt to buy more properties and see me as one of their partners and an ability to expand their income.
I work full time and earn high income, it's well worth it to me. think of it this way-if you have a monthly rent roll of $10,000 and pay a PM 10% to manage the day-to-day, then for me I couldn't hire a person to do this exclusively for me at that price and my time is worth more than that. Perhaps it's a luxury, but again, consider the key factors I mention above.
lastly, many books are recommended on this excellent site, one I believe in strongly and not mentioned before is "Broken Windows".
Investor · Southlake, TX · Member since 2009 · 950 posts · 338 votes
14y
There are in fact many stories here on BP of bad results with PMs. All of which are intended for us to learn from and make us better/more profitable investors. That being said, a quality PM can be an important member of your team. After all, REI is a team sport!
The company I am with created its own management group with the intention to manage our own commercial investments, as only we could. We became very good at this. So much so, that we have now started managing other non-owned properties owned by several of our partners, as well as a few third party properties. Now we are an important team member of other property owners.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
Adam I hate to break it to you, but the vast majority of owners I know that have property management companies are dissatisfied with the service they receive. This is especially true for SFRs where the management company thinks your rental is there to support THEIR business. I have managed dozens of property managers and have been severely disappointed.
Having said that I continue to use them for the very reason you stated. I am quite busy and can't goof with all of this stuff on my own. If you can find one that is willing to tie their compensation to the profitability of your building you will have aligned incentives and will probably have a better experience.
The property management business suffers from many of the same problems that the business of buying and selling properties suffers from. The agents and the principals don't really have aligned incentives and thus problems are inevitable.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
14y
I think @mpjzuber is a great example of successfully using property managers.
Obviously, I manage my own properties because I think I am best at it. As I grow I will hire my own infrastructure for the property management tasks. My partner and I manage over 50 single family homes with no help, plus run a decent sized buy-sell operation. It's not that much work.
I would really suggest you invest locally, or if your business is eCommerce move somewhere you think is more lucrative.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
14y
Nobody will ever care as much as the owner does.To expect the property manager to in my opinion is unrealistic.
If they are making checks off of sales or other residuals then yes the pot has been sweetened.
If you have a newer or updated property that has an ideal tenant and the rent is high and in a nice area then yes management is not that hard.
Many investors however want to buy these little dumper houses in suspect areas that cash flow well.These properties usually have deferred maintenance,a bunch of drama,and high turnover.
These types of tenants income is usually erradic working multiple jobs or pooling with other people with jobs combined to pay the rent.
These are not usually professionals with salaried positions.You can still land a bad tenant in upper end properties but the odds of it happening are less with that type of product.
The management can be very intensive with the little dumper properties.Imagine getting 500 a month in rent and the manager gets 10 percent. Your talking a whopping 600 bucks if the tenant stays and pays all year long before expenses. The manager has to drive to the property to assess repairs,coordinate contractors to do repairs,track expenses,send reports to the seller,give eviction notice,attend court hearings,take tenant calls,help get the unit ready to rent again etc.
Even if a tenant was properly screened and they do not pay it might take a few months to get them out.Now that 600 management fee is now 500 based off of the rent collected.
The management company has to carry E and O insurance and pay a ton of other expenses cell phone,car,computer,gas etc.
I don't see any worthwhile money in it.The way the current structure is set up I am surprised many will even do property management.
If a property manager is getting 50 to 60 bucks a month and then the investor is cash flowing and having a bunch of built in equity then WHY would a property manager be excited about that??
I just think we are being unrealistic in what is asked of some property managers for what they get paid.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
Joel, I think you point out one of the flaws in the system.
You're right, Section 8 type tenants will require more work... yet they often rent for less so a PM would receive less. Seems silly that a PM will get less for managing that than they would for the $2,000 a month Single Family home doesn't it?
I look to rent to drama free people in low drama areas. I stay out of areas I'm not comfortable in and stay at a rent point that's pretty easy to achieve. I have found a solid balance between high cash flow and a pure appreciation play to where I'm comfortable. If PMs were compensated more on that balance, I think justifying their salary would be easier.
Personally, I hope to just hire someone some day versus outsource this. I could pay a college student $10 or 15 bucks an hour and get everything I need out of them as a PM. At that rate, they'd be spending 10 to 15 hrs a month on each property and still be cheaper than a typical PM rate.
Investor · Cleveland, OH · Member since 2011 · 603 posts · 130 votes
14y
I guess some of my resistance to manage my own properties comes from my own rental experience.
I was renting 1 room in a 3 unit house in Cleveland Heights for a couple of years- Not a complete ghetto but defiantly not your A+ tenants. The house is old and needed a ton of upkeep in my short amount of time. The woman above me didnt pay her gas bill for 2 months which caused the gas dryer in the basement to become useless.
For one 3 unit house, it seemed like a lot of work for something that was never going to appreciate much.
I plan on buying is more desirable areas and I will be starting local so I will defiantly be managing on my own in the beginning. Maybe I will come to find its not so bad.
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
14y
I just closed on a rental property yesterday. The owner lives in Florida (KY property) and he literally said "You're getting such a good deal because I can't stand these property managers". He had used 2 or 3 different local companies and was just sick of the hassle.
I think for investing out of your local market, you almost have to have a PM, but don't expect them to take all of the headaches out of your life, and don't expect your property to appreciate as quickly as if you were in the area monitoring the improvements you needed. They just don't care about appreciation.
Commercial Real Estate Broker · Memphis, TN · Member since 2010 · 151 posts · 82 votes
14y
This is a topic that comes up quite a bit and PM's do get bashed to an extent, but also to an extent rightfully so. BP has a number of professional real estate investors, those are ones who either don't need a retail PM or do it themselves. PM's can provide a benefit to those who aren't real estate experts and/or investors and are willing to pay for the service. If you are a RE pro it doesnt make sense to pay $50 to $75 a month for someone to collect rent and deposit it, handle vacancies, and service issues. For someone who may be a business professional, lawyer, doctor, etc. they may be looking to invest in RE but dont know the ins and outs of it and are willing to pay someone to do that for them. I have many clients who pay us that $75 to $100 per month to manage and because its a good property we may do nothing more than collect rent, send a check, make sure the resident is happy, and renew a lease. $1,000 a year sounds like alot for that amount of work, and frankly just for that work it is. However, for those people who may have families, limited amount of non-work time, love to travel etc. paying that fee to not have to deal with any of the problems is worth it to them. They wont have to miss a kids baseball game to show a house, leave dinner to talk to a tenant about a flood, and for the peace of mind they are willing to give up some of their profit to take that off their plate.
I will say this too if you look over BP and see PM bashing a lot of it comes from experiences of being hosed by a PM over repairs, bogus expenses, etc. Those are the ones that give PM's a bad name and unfortunately this is an industry that many operate in unregulated and unlicensed and do screw over owners making it harder for those on the up and up to keep a good name.
Commercial Real Estate Broker · Memphis, TN · Member since 2010 · 151 posts · 82 votes
14y
Originally posted by Nathan Emmert:
2am calls? Why is your phone off at 2am? If it needs handled at 2am they need to be calling 911 for the Fire or Police Department or a 24 hr plumber (give them a number), not you. Anything you're going to handle can wait until 8am.
Nathan,
I would have to disagree with this point. Any situation that arises after hours is one that could potentially be damaging to the property and/or expensive. Is it your thought that you would rather a resident not call you until 8am for a situation of fire, burglary, hot water tank burst, pipes burst. I have handled my share of 2am calls and most were ones that if a quick response were not given the damage would have grown significantly the more time elapsed. As the owner would be the one handling the expense are you comfortable placing the responsibility on the resident to see that the problem is resolved. There are plenty of calls you get at 2am that don't need to be addressed until the next day as they aren't emergencies, just curious as to whether your thought indicated that its not necessary to handle anything after hours and are placing it all in the residents hands.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
14y
I think I agree with Brandon there. A water disaster in particular, I think I want to know about right away, and not leave it entirely in the hands of my caring wonderful tenant to handle this in the most effective way as to minimize damage. Who knows how long it'll take a plumber to even respond? Who's giving the order to pull out appliances, washer/dryers, cabinets, or whatever, to avoid their being destroyed? I'll bet not the plumber. At any rate, I don't get up at 2am either, but I do pay a prop mgr that will get over there and safeguard my asset.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
For water issues, it depends on the type of unit and the type of water problem.
For example, in SFR, there is only one tenant and that tenant is instructed by me as to the location of the main water shut-off. If they call about that, they are told to shut-off the water to the house. In a multi-unit, none of the tenants might be able to access the main shut-off, so that's the landlord's (or property manager's) job.
If it is a roof leaking, then there is no water valve to shut-off - and you might be inclined as David suggested, to do what is necessary to preserve things and minimize damage.
Of course, that all assumes that you were receptive to getting a call at odd hours ...
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
14y
Remember a similiar discussion where Mike M, who has quite a few properties scattered across several states, said he recomends using a PM who manages at least 1000 units. Makes sense since they would most likely have workable systems in place and quite a few satisfied customers.
