Real Estate Investor · Detroit, MI · Member since 2011 · 5 posts · 0 votes
Me and my partner are currently starting our first real estate investment company and as you might have guessed, we have questions.
One of the main questions we have right now is exactly how much will a property manager do for us? We know that he will collect rent, take care of repairs, etc.
What we are wondering is this:
Since me and my partner are both in the military and both currently staioned in Japan we are having to do this 100% rremotely. So if we found a house that interested us but it needed, say, $8000 in repairs/remodeling, would we be able to go through our property manager to get that done? Here is an example:
We find a house for $20k in a an area that all the house's are worth $50k. We realise the reason it is so cheap is because it needs work but we wonder if putting $10k into it making our total investment $30k on a $50k house worth it. Can we callup our property manager and say something along the lines of:
"We want you to hire an inspector, have him find out everything that needs to be replaced. Then we want you to send that inspection to a contractor and find out how much it is going to cost to get everything fixed. Then I want you to submit that estimate to an appraiser and get an after repaired value of the house. After all of this we want you to let us know the after repaired value and if its a good deal we will buy it. Once bought, we want you to go ahead and make all of this happen. We want you to check up on progress and let us know how everything is going. Once finished we want you to find a tenant and start renting out the house."
Obviously we would pay for all the inpections etc.
OK, lets get started on the right foot :-). You've lost your minds if you think you can do all this remotely.
No, a property manager will not do what you're describing. A property manager deals with tenants. Most months they collect the rent and send 90% of it to you. When you have a vacancy, they find a new tenant. That will typically costs you half to a full month's rent. When the tenant has a problem, they call the PM, who then sends their own handyman out (if they're a large enough company) or hire someone (if they're smaller or the job is specialized.) Some include that in the 10% they keep. Other's will charge you, either directly or by marking up the charges from the person doing the work.
That's it.
I'm not entirely sure exactly who you would hire to get a house inspected and ready to rent. A project manager, perhaps.
There's a non-zero chance if you off the deal you describe to someone you have effectively just said "here's a blank check, write it for whatever amount you want." If you're lucky, you'll randomly stumble into someone totally honest who will look out just for your interest. Even then, you're going to pay a steep price for their services.
Seriously, if you really want to do this you MUST, MUST, MUST go to wherever you're thinking of investing. You MUST learn the area. You MUST meet people face to face. You MUST have at least two independent people who can look out for your interest. I suspect that it will be difficult for you to travel and find the time to do this. You will be much better off to spend you time studying and learning this business and saving your cash. Then you will understand what you're getting into and be in a strong position to invest. What you're proposing here is a recipe for disaster.
The short answer is that yes, some will do this, with a few strings attached. I assume you're looking to build a buy-and-hold portfolio, not flip. You mention the equity gain after the rehab, so wanted to make sure.
1. The property manager (who is also an agent in almost every state) will likely want to write the contracts for you, as many earn commissions buying/selling for their owners. I have no problem with this. I want my PM company to be active in the market, savvy, and always looking for deals. The only negative there is that you sometimes will do better and see pre-MLS deals if you have a relationship directly with top REO agents, so I end up doing some of both, depending on circumstances.
2. The PM, if they're of any size, will likely do house rehabbing with their in-house crews, can expand their rehab crews as needed, and also have great contractor contacts. You need to ensure that their upcharge is minimal (0-10% depending on what they do). You absolutely need to have a good idea of what various things cost, much of which can be found in posts on BP.
3. You don't want to just send an inspection report to a contractor. You want the PM to determine what needs to be done to make the unit optimally rent-ready. Successful PM's know exactly what is appropriate for the area you're investing in, including durability of materials to survive multiple turns of the property, and they usually have great contacts in place to get things done at very good prices. Big watch out: some are absolutely sharks trying to upcharge as much as they can, and will screw out of area investors every time. Checking multiple references are critical.
4. You're asking the PM to run a "turn key" process for you, without sharing any of the equity gains with them. The expectation of getting a stream of PM fees when the property is ultimately rented is inadequate compensation for all their work. (The contract would only be for a year, for example, then you could move your account somewhere else.). Earning a $1,000 commission on a $20k REO is helpful, but consider the amount of work you're asking them to coordinate.
5. You need someone in the local area that you trust to help you if possible, to check in on everything. You need to check references on the PM and contractors used VERY carefully. Try to find a few investors in that area and ask who they use.
6. I have a PM that works with quite a few out-of-area investors. One of the owners spends a couple of days a week looking at houses and multis for their owners. Most of these tend to be REOs adn short sales. They give a rehab estimate, a recommendation for beginning and max price to offer, estimated market rents, and ARV. They do not upcharge on anything, all expenses are transparent and documented. They write the contracts, earning commissions, rehab it, place the tenant, and handle 100% of activity related to that property. I do walk through all properties prior to purchase, and check on crime stats, schools, etc. for the neighborhood.
Send me a message if you'd be interested in working with my PM, unless you're wedded to investing in the Detroit area. (This market area is southwestern Ohio.) These are cash deals, mthly rent returns of 2.5-3.5% in stable neighborhoods. Since you're on the other side of the world doing your part, I'll be happy to help.
Jon is right. It's better to be close to your investments, especially when just starting out. I lived in Wash, DC and had a property in Baltimore (approx 1hr away) and it was hard managing from that distance. Now I live in Guam and have a property in DC. We have a PM and it's still difficult because of the timezone alone. Fortunately I have a relative who helps me out. If I have any issues with my PM, I call my relative to follow up. If you don't want to invest in Japanese RE and can not wait until you come back to the States then have someone you trust on the ground.
As for your question, it sounds like you would want a project manager or an agent that works with RE investors rather than a PM. That's a lot of upfront work for a PM.
We as military members are not allowied to own any Japanese property so unfortunately that isn't an option. We both have 2 years or more left here so we definately don't want to wait. Looks like we will be trying to find a reliable "agent" as you guys have said.
Ok that sounds good. One bit of advice...make sure you and your partner form an Operating Plan. That way if you aquire any properties together, your plan will disclose how any profit/expenses will be handled. I assume when you both leave Japan you may go to different places. Your Operating Plan will help protect your RE company as well as your friendship. I've heard horror stories when things weren't accounted for properly. The devil is in the details and by having a plan, both of you will agree to some basic scenarios in case you have to dissolve the company after Japan.
Jackie "when the boss is away the workers will play".
The greatest risk is handing over cash to a semi-known entity that you can't manage from afar.
Why not simply invest in tax liens where in some states you can hit 15% annually in returns??
If you buy wrong then your money doesn't grow it will get smaller.Then when a real deal comes along you will be stuck.Finding a PM to do all that for a management fee is unrealistic.
Property management I don't care what anyone says is hard work even with systems in place.I just think jumping in from afar is just too much of a risk.
@ Damien : Thank you for you advice. Very helpful!
@Joel Owens: I agree with your statement. We thought about bringing in another partner that was local due to problems that could arise. I agree you always want someone in your best interest present. I will research more on tax liens and see if this an option for us. Thank you for your advice and response.
I understand where you're coming from Jackie. Like everyone said, you need feet on ground and learn the area. Network with people in that target area, there are a few investors that frequent here on BP that can give you loads of info on Detroit. When I was stationed in Cali, I would fly to my target area (Indy) to look at the houses with my carpenter over the weekend before making offers. Now Japan is further, but that $1200 R/T ticket will be worth it for you to go to Detroit and look at 20+ houses. I now my market so well now, I'm in deployed to Afghan and buying sight unseen cause I have built up a good team. good luck and thanks for serving. It will work out great for you as it did for me.
