The Self-Managing Nightmare<\/h2>\n
Self-managing rental houses introduces a set of complications that could turn into a personal nightmare\u2014at least for nice guys like me. (And I know that most all of you are nice guys and gals.)<\/p>\n
I only have one single family rental left in my portfolio. Even this one home causes me a good deal of hassle because the tenants (of a decade-plus) consider me their friend. And I do consider them friends\u2014but they aren\u2019t the type of friends I usually hang around with. (No offense to these dear people.)<\/p>\n
My other friends don\u2019t leave me multiple four-minute voicemails in rapid succession.<\/p>\n
My other friends don\u2019t text me when they need money for their cable bill.<\/p>\n
My other friends don\u2019t call to report details on their car problems and ask me if I know a good mechanic who will work for (almost) free.<\/p>\n
My other friends don\u2019t have indoor furniture on their front porch.<\/p>\n
And there are a whole host of other reasons that self-managing is difficult. Whether you choose single family homes, small multifamily<\/a>, or commercial multifamily<\/a>, if you\u2019re serious about growing your wealth, find a professional property manager.<\/p>\n In addition to third\u00a0party management, I love the economies of scale offered by commercial real estate. As a friend and fellow investor said the other day, managing an apartment complex with 200 units is a walk in the park compared to managing 200 single family residential homes with 200 separate roofs, 200 tax bills, 200 closing statements, and capital raises and management contracts. Perhaps this is why, in my nearly two decades in real estate investing, I\u2019ve noticed a trend. Many investors start out flipping houses<\/a>, then graduate to rental homes. But after a certain frustration level is reached, I see many of these investors selling off their entire SFR portfolio to jump into multifamily investing.<\/p>\n My mentors at 37th<\/sup> Parallel<\/a> did this. So did Rod Khleif<\/a>. And Kevin Bupp<\/a>. And many others.<\/p>\n A dear friend and brilliant financial planner, Micah Spruill, once described a perfect investment. He said that planners and investors are always looking to invest in assets that go up during good times\u2014and don\u2019t go down during bad times.<\/p>\n When I showed him how multifamily rents rose relative while incomes fell during the recession, he was impressed.<\/p>\n I was impressed too, and I was even more impressed when I looked at this data over a half century. Check it out:<\/p>\n Look how the lines diverge during the recession. This is partially because multifamily housing experienced a buffering effect during that time. When people were losing their homes and banks were tightening restrictions, many turned to renting, buoying up multifamily rents and occupancy.<\/p>\n Check out this graph showing serious loan delinquencies in the recession and now. Multifamily was 90% lower than single family. And it\u2019s now about 98% lower!<\/p>\n Note that this includes states like Florida, Nevada, Arizona, and California, all with high delinquencies. And it includes poorly run assets that dragged down the numbers.<\/p>\n In a previous article<\/a>, I mentioned that Rod\u2019s single family portfolio crashed and burned in the Great Recession, while his multifamily assets continued to perform well.<\/p>\n There was some healthy debate and questions in the comments about why that happened. After pondering this, I didn\u2019t really have a great answer. After all, if single family rentals tanked, why wouldn\u2019t multifamily rentals spiral down the proverbial drain as well?<\/p>\n I recently asked Kevin Bupp about this. Like Rod Khleif, his single family rental home portfolio tanked badly in the Great Recession. But he said his multifamily portfolio did fine. Why?<\/p>\n He explained that, in his case at least, his single family home renters chose other options during the downturn. But his apartment dwellers didn\u2019t\u2014at least to the same degree.<\/p>\n Kevin\u2019s portfolio was in Florida. We\u2019ve all heard about the devastating effects of the downturn on home prices there. Check out these graphs from Zillow:<\/p>\n Kevin explained what happened. Apparently, nice, new single family homes were being built by the thousands all over Florida. When the market turned, which happened overnight, these new homes that had been previously selling like hotcakes were now left empty. The builders or investors who owned them couldn\u2019t find buyers anywhere. And many buyers would no longer qualify anyway. So what did they do?<\/p>\n They rented them out, but not necessarily for a profit. They just wanted to stay afloat in the crisis and were often willing to rent these beautiful new homes out for breakeven\u2014or less. Kevin was initially unaware of what was happening. All he knew was that he was starting to get a lot of notices from his tenants who would not be renewing their leases.<\/p>\n
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\nRelated:<\/strong> Single Family Homes vs. Multi-Unit Apartments: Which Investment is Right for You?<\/a><\/em><\/p>\nWhat Happened During the Great Recession?<\/h2>\n
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