Does having a property manager make RE investment truly passive?

Question

Hey all

Wondering if the passive investment everyone aspires for is really that passive. What are your experiences in terms of really having the passive experience and did having a PM contribute largely to that?

Account Closed · Answer

Even with a manager you are still managing them. You have to have oversight and then approval of repairs and everything else.  You just aren’t as hands on.

There’s a podcast talking about this very thing. That it’s a sliding scale of passive versus completely involved.

Notes

Syndicatations as an investor

Hard money loans

Private loans

Rentals

Rehabs

Developer

Etc

That isn’t even in the exact order. But rentals with it without management is sorta in the middle.  Higher returns (typically) than say a note (whole package deal) versus a rehab flipper who is doing it hands on and basically has a job.

Mike Dymski · Answer

Properly sourcing investment opportunities involves a lot of work and is far from passive.  With current market conditions, it involves putting hundreds of opportunities through the funnel, often through direct to owner marketing or extensive broker relationships.

3rd party PM is less about ACTIVE vs PASSIVE than it is about PROFITABLE vs UNPROFITABLE.  Passive unprofitable is very achievable.  And this notion of managing the manager is overblown, particularly as you scale.  3rd party PMs may accommodate things like communication requests but they are largely not going to change how they manage vacancy and maintenance (the two largest costs of 3rd party PM) on an investors' handful of units differently than the other hundred of properties in their portfolio.  IF you can find a PM that can manage those two costs well, you can go passive.

Cody L. · Answer

No.

Sandeep Pai · Answer

@Mike Dymski. Good insights.. I guess if I am not happy with the way a PM is managing those two costs I would just switch the PM. Good pointers to include during PM research though.

Matthew McNeil · Answer

I always put down 30% minimum then I recast between years 2-3.  I've never experienced a negative CF.  My CF on 3 SFHs is $2700.  Getting ready to buy another one.  Now before another BP member replies that I'm buying my CF; don't.  Cheers!

Sandeep Pai · Answer

@Matthew McNeil thanks for the response.. it’s awesome to see you made positive cash flow from SFH A class.. Were most of your properties cash flow positive at purchase or did you buy at negative CF and had to wait few years for rent appreciation? Still learning the different strategies out there and yours seems quite interesting..

Sandeep Pai · Answer

@Trenton Miller thanks for the response. Yes I do realize I still need to manage all the non PM parts and those are actually the aspects I enjoy more.. just wondering what renter interaction will I need to do as a landlord, even after shelling out for PM. Any tips on how to thoroughly vet PMs? Right now I am thinking of just picking a company based on web reviews .. is that a good idea?

Matthew McNeil · Answer

Yes, "truly" passive.  However, I buy newer and higher priced SFHs with minimal maintenance needs.  And, if a maintenance issue is presented my PM does all the research and advises me what my options are in order to proceed.  I merely advise them regarding my preference and they take care of everything.  My PM contributes to my investments being truly passive.

Trenton Miller · Answer

As stated above, it will not be entirely hands off, nor should it be.  You want to have control of your investment ensuring it is as profitable as can be.

However, one could look at rental income as passive income, even though you pay a percentage to a property manager, but these types of investors are typically much larger with diversified portfolios.  Even then it is not entirely hands off.

Make sure to thoroughly vet any property managers you are prospecting to use...

Does having a property manager make RE investment truly passive?

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