Why BP so negative on property management?

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Why BP so negative on property management?

Adam Craig
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...

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Nathan Emmert
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.

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  • Dennis Tierney
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
    14y

    Adam:
    I am in a similar situation and have no intention of leaving my day job and consequently use PM for my properties. I invest strictly in multifamily, which makes PM more cost efficient. Most authors I've read say you really can't effectively support PM until you get to 20 units or greater in scale and I've stuck to that with successful results. I disagree with your emphasis on investment return however and would put tax free /advantaged cash flow first in the order as without the cash flow the rest falls apart. It takes some effort to get good PM but it can be found as is worth it for me so I can concentrate on more acquistions and my day job.

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  • Melissa W
    Syracuse, NY · Member since 2011 · 53 posts · 47 votes
    14y

    Property managers are like tenants - there are a lot of bad ones, a lot of mediocre ones, and some real gems. You have to screen them well and keep an eye on them.

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  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    14y
    Originally posted by Adam Craig:
    Originally posted by Steve Babiak:
    Adam,

    There is some good reading in the "Related Discussions" at the bottom of this page - the first link:
    http://www.biggerpockets.com/forums/52/topics/70325-dont-miss-this-blog-just-say-no-to-property-management

    Good articular -

    Here is where I dont feel I apply

    "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.

    I'm curious about a couple things.

    The first thing I am curious about is why are you stuck on investing out of state? Surely there are some areas near you that are growing while others are shrinking. If you look at a consensus map, you can find several counties even in Texas and the other areas you named that are shrinking while others in the same state are growing. Don't be too quick to make assumptions about economic/population growth when presented for a state as a whole are true for all parts of a state.

    The second thing I am curious about is in regards to your statements above. If your time is money and you do so well with your business, why not just dedicate more time to what you are good at (your business) and make more money that way? It sounds like you will get more $$ for your time doing your business than investing in real estate for cash flow.

    Have you considered investing in land for diversification. Now that is something that won't require much of your time or a PM. You could lease land to ranchers or farmers. The cash flow wouldn't be that high, but it would be nearly passive. Plus, rural land is highly likely to appreciate. Later you could subdivide and develop. The hard thing about land is that it takes a lot of time (in the sense of many years for appreciation, not your daily time) and money (cash) to make it worth your while. Two things of which it sounds like you have plenty of.

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  • Joe Delia
    Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
    14y

    People are negative about PMs for the same reason people are negative about real estate investing. People don't do the leg work they are supposed to and get burned. Because of that, they then bad mouth PMs. It's like anything in life, one person makes millions, the next states that it's a scam, or you can't make money doing it.

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  • Ahalyaa M.
    Ballwin, MO · Member since 2011 · 8 posts · 0 votes
    14y

    Adam,

    I am active out of state investor (MO)and do use PM. My initial PM sucked big time but i learnt a lot through them as well as BP forum. Now i have a great PM companies who are pretty hands on but finding them is the key. We are collaborative in finding deals and leasing them.Though we have some in other state, now very active in North DFW area and know the area well. Finding properties, inspecting them, rehabbing them, leasing and everything is done thru PM and very reasonable. I make final call on leasing after looking at tenant application & credit file. My PM"s are very flexible and ready to hear and change the Contracts if anything seems reasonable with changing market. All my homes have Home warranty. Tenants pay the service calls and items not covered by Home warranty, Tenants split 50% cost with landlord, working every well.

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    14y

    If you don't incur much debt your ROE is probably very poor.

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