Almost A Year in... Need feedback

14 Replies

So the end of the summer will make it a year since I've bought my first property. I'm feeling pretty anxious about it lately, mostly because of a potential issue with my PM.

I specifically looked for small MFR, that already had tenants in place. I figured this would be the easiest way to start out. I'd be able to hit the ground running and build up some initial cushion money for maint/cap ex. All of the numbers looked good when I bought the place. I took out a 15 year home equity loan, set up an LLC, bought the property with cash and threw it to the LLC.

So after I closed, I immediately had some issues with PMs. I had contacted several beforehand and then they backed out, and had to get several referrals before I found one to actually take it (due to location). 

Also one of the tenants didn't pay, and wasn't having any contact with the PM. They ended up bailing basically the next month after I took over (both sides were won m2m). 

The PM seems busy, but often takes a few days to get back to me. 

So here's where I am today. My 2nd unit still has not been rented (vacant 7 months). Basically I'm breaking even. Taxes and insurance are paid for the year, and I still have over a year's worth of loan payments in the draw account.

Recently I had a discussion with the PM that he thought it would be a great section 8 property, and wouldn't need much done (potentially windows). I'd asked him about landscaping but he didn't mention that. He also said about the rented unit needing a new stove, and the tenants were complaining of bugs. I okayed him to take care of both. I also noticed through buildem that the water hasn't been paid since April (bills go to the PM), and I asked him about why that was. He said he was going to look into it. 

I recently got a notice that my yard was out of ordinance, and would be fined next week if it's not cut. 


So basically after this past month I kind of feel like I'm in over my head, because of a somewhat overextended PM? I'm not sure if it's just anxiety or of I should try and bail on the property. If he would get a tenant in that other side there wouldn't be an issue, but I was  making far less than I was expecting. The other tenants lease is up in september and I'm kind of feeling some pressure now. If both sides go section 8 it would definitely be extremely profitable. At the same time I feel light I might just need to get rid of that property and get one closer to the city where I have a few more PM options.

Thoughts?

do what you can to get 2 section 8s in there then sell..  low end rentals are always like this.. 

@Justin Matesic

Here's my two cents. Any place that a PM would refuse to service and another PM would consider "a great Section 8 property" is C or D-class housing. You are better off not investing in C or D-class SFR or small multifamily (2-4 units) from a distance. I consider my entire portfolio to be in this kind of housing, much closer to D than C, although I occasionally tell myself the same soothing lies every D-class rental investor does. All of my portfolio is local.

So if you are local to this place, fire your PM and take over management yourself. I devote five hours a month or less to a unit's property management. Get the units in order, do inspections every three months under the guise of changing the furnace filters, replacing the batteries in the carbon monoxide and fire alarms. Learn how to do basic home maintenance and pest control.

This thing with the yard, no, no, no. Nobody seems to understand this who is not actively managing properties. You write that you got an anonymous notice that your yard needs to be taken care of. You probably got it from the municipality the property is in. WHY did you get it? Because someone noticed that your yard is an eyesore. That someone works for code enforcement. That someone is probably the same person that claps eyes on your lawn every week. CODE ENFORCEMENT NOTICES ARE NEVER REALLY ANONYMOUS. You need to get into compliance quickly, and make a strong effort to make the appearance that you are doing everything you can get to get into compliance. You need to track down the person that sent the notice, apologize for the current condition of the lawn, promise that person it's never going to happen again, AND MAKE GOOD ON YOUR PROMISE. For a local investor in the lower property class, code enforcement can be either your stoutest friend or the enemy with the best shot of breaking you. Get on the right side of code enforcement, make it personal with the code enforcement officials, make it count.

If you have dreams of passive investment in C/D-class properties, you are only really going to get to them through mastering how to manage them personally and then figuring out how to delegate responsibilities effectively to the right people, probably only people you train yourself.

If you're not local, Justin, this ain't the way. Sell.

@Jay Hinrichs - If I get it section 8, the cash flow based on FMR would be extremely profitable. So if I put work into getting it up to that standard, wouldn't it be worth it to just hold onto it?

@Jim K. I'm actually in Pittsburgh too. The property is in Washington Co. and the distance from most of the city PMs seems to be why I had trouble with it. There's actually some threads here about people having difficulty in finding Mon Valley PMs. One of the reasons I went with a PM was to be as hands off as possible. I still work 8-4, so would have trouble being able to juggle maintenance calls, showings, and all of that (I imagine). I'm about 20-30 minutes away. 

If I do decide to sell, I should be able to put a little rehab work into it to make a profit and turn it into basically a small flip right?

Or should I take it and attempt to get out from under it "as is"?  If I go that route should I be aiming to just essentially make back my loan and break even?

Edit: Grass was taken care of today (I got in touch with a buy and got it taken care of). I wasn't fined, the borough gave me until 7/22 to get it taken care of. 

Originally posted by @Jim K. :

@Justin Matesic

Here's my two cents. Any place that a PM would refuse to service and another PM would consider "a great Section 8 property" is C or D-class housing. You are better off not investing in C or D-class SFR or small multifamily (2-4 units) from a distance. I consider my entire portfolio to be in this kind of housing, much closer to D than C, although I occasionally tell myself the same soothing lies every D-class rental investor does. All of my portfolio is local.

So if you are local to this place, fire your PM and take over management yourself. I devote five hours a month or less to a unit's property management. Get the units in order, do inspections every three months under the guise of changing the furnace filters, replacing the batteries in the carbon monoxide and fire alarms. Learn how to do basic home maintenance and pest control.

This thing with the yard, no, no, no. Nobody seems to understand this who is not actively managing properties. You write that you got an anonymous notice that your yard needs to be taken care of. You probably got it from the municipality the property is in. WHY did you get it? Because someone noticed that your yard is an eyesore. That someone works for code enforcement. That someone is probably the same person that claps eyes on your lawn every week. CODE ENFORCEMENT NOTICES ARE NEVER REALLY ANONYMOUS. You need to get into compliance quickly, and make a strong effort to make the appearance that you are doing everything you can get to get into compliance. You need to track down the person that sent the notice, apologize for the current condition of the lawn, promise that person it's never going to happen again, AND MAKE GOOD ON YOUR PROMISE. For a local investor in the lower property class, code enforcement can be either your stoutest friend or the enemy with the best shot of breaking you. Get on the right side of code enforcement, make it personal with the code enforcement officials, make it count.

If you have dreams of passive investment in C/D-class properties, you are only really going to get to them through mastering how to manage them personally and then figuring out how to delegate responsibilities effectively to the right people, probably only people you train yourself.

If you're not local, Justin, this ain't the way. Sell.

great point about code enforcement.    most hoarder houses I buy ( just want the lot underneath for new construction) come with 10 to 100k in code violation fines.. one house in Portland the berries vines completely over took it.. just a little path to the front door..  once I demo'd it and took care of it  that one was 65k in fines I got them knocked down to 10k..   another one in Lake Oswego.. was just off the charts .. over 250 thousand pounds went to the dump.. on a 100X 120 lot.. its was so bad once I demo'd it county waved fee 100% just released it.. now in some markets not that easy.. but that's our experience in the Oregon area.. and extreme hoarder houses. 

Originally posted by @Justin Matesic :

@Jay Hinrichs - If I get it section 8, the cash flow based on FMR would be extremely profitable. So if I put work into getting it up to that standard, wouldn't it be worth it to just hold onto it?

@Jim K.I'm actually in Pittsburgh too. The property is in Washington Co. and the distance from most of the city PMs seems to be why I had trouble with it. There's actually some threads here about people having difficulty in finding Mon Valley PMs. One of the reasons I went with a PM was to be as hands off as possible. I still work 8-4, so would have trouble being able to juggle maintenance calls, showings, and all of that (I imagine). I'm about 20-30 minutes away. 

If I do decide to sell, I should be able to put a little rehab work into it to make a profit and turn it into basically a small flip right?

Or should I take it and attempt to get out from under it "as is"?  If I go that route should I be aiming to just essentially make back my loan and break even?

Edit: Grass was taken care of today (I got in touch with a buy and got it taken care of). I wasn't fined, the borough gave me until 7/22 to get it taken care of. 

That's wonderful about the grass, Justin.

If you go the rehab route, you're going to be running a rehab long-distance. That is even less fun than running a rental long-distance, especially in our area. If I were you, I would take off work for a week, go down there to clean and paint with anyone you manage to drum up from Craigslist for $15/hr, then sell as-is. Not for the first time I am reminded of how wonderful the flexibility I have in my own W2 is for this business.

@Justin Matesic . You are only a half hour away. I would take over the management of the property yourself. Perhaps you could hire an agent to find a tenant for you and then you manage it after selecting the tenant. That would require a one time fee to the agent only.

@Justin Matesic . You are only a half hour away. I would take over the management of the property yourself. Perhaps you could hire an agent to find a tenant for you and then you manage it after selecting the tenant. That would require a one time fee to the agent only.

I would somewhat agree with Amy in that having a house 20-30 minutes distance is probably standard for anyone self managing that has a decent size portfolio and very doable. As Jim stated the management side is/should not be a full time job and the fact that you have had vacancy for 7 months is just absurd in my mind (i.e. are you overpriced for the market, is the market flooded with rentals, how is PM advertising, what is driving lack of interest). Related to the grass was this something you were having one of the tenants take care of?

Are you in like Charleroi or Donora area? Although small as of right now my market is as well counties surrounding Allegheny and mostly "C" class neighborhoods. We have no trouble placing tenants as long as the rent is set or slightly below market rents and we don't do anything elaborate as we are just using Facebook Marketplace to advertise. We just closed on a duplex last Friday and had 10+ people within 2 days come look at it with (2) families selected for August 1st lease which was more on our part since we had not even really had anytime to get in and address some of the problems. 

I have avoided some of the "D" class neighborhoods as I suspect that issues such as yours are more prevalent but I still struggle to think that a 7 month vacancy is normal and can't be corrected by better advertising or adjusting rent price.

@Jim K. That was a great reply. Knowledgeable and assertive. The kind of thing I am looking for in these forums in order to learn. Thanks!

@Justin Matesic . I have to be honest, you’re not going to be able to to be “hands off” with that type of inventory.

I own some C class stuff and honestly it’s pretty passive so far, as I have good tenants. That being said, I still drive by it every few weeks to make sure everything is fine (from the outside).

This time of year mowing lawn is a very typical reason to do that. I have a PM. They pretty much collect rent, take maintenance calls (tenants don’t call for much), and file eviction if need be.

Long story short, you need to be more hands on or sell. I too work a full-time job. The key is finding people, who you can coordinate stuff with via text. You find people like that, and you can essentially run your entire business from your phone. Doesn’t happen overnight though.

@Amy Beth I didn't know that was an option, thanks!

@Jared McCullough It is in Charleroi, and I suspect you may be right. According to what I can find he does have it listed at about what the comps are for the area (he did increase it after that first tenant vacated, to what it's at now). I'm not sure the extent that he's advertising, but it's up on his website. He said he's done a few showings but no takers on it. As far as I know the previous owners maintained the lawn (not the tenants). 

@Caleb Heimsoth Lawn care and snow removal are part of what he's supposed to do as stipulated in the PMA. That's one of the primary reasons I went with him in the first place. Is that stuff that most PMs don't actually handle, or is it more that most don't handle that aspect very well?

If I were in your shoes, I would determine what the cash flow is when all units are rented. I would check craigslist for similar units to make sure rent rates in your units are competitive. If your units need rehab to get those rate then you may be asking too much. I would inquire how your pm company is going about getting new tenants. If they arent advertising in multiple areas/ways they are doing you a disservice. If I had a property that wasnt rented, I would be on top of my PM company every 2 weeks  to see where it had been listed/ how often if its craigslist and investigate to see if the information they give is accurate. If it is and the unit still isnt being rented, lower the price or figure out a way to spruce the place up for as little as possible. I would only sell the place if your existing tenants weren't paying for the mortgage and provide enough to cover for PM and other expenses. Maybe look for a new PM through craigslist local.

Originally posted by @Justin Matesic :

@Amy Beth I didn't know that was an option, thanks!

@Jared McCullough It is in Charleroi, and I suspect you may be right. According to what I can find he does have it listed at about what the comps are for the area (he did increase it after that first tenant vacated, to what it's at now). I'm not sure the extent that he's advertising, but it's up on his website. He said he's done a few showings but no takers on it. As far as I know the previous owners maintained the lawn (not the tenants). 

@Caleb Heimsoth Lawn care and snow removal are part of what he's supposed to do as stipulated in the PMA. That's one of the primary reasons I went with him in the first place. Is that stuff that most PMs don't actually handle, or is it more that most don't handle that aspect very well?

You will find a lot of this in real estate.  Just because it’s in your lease or in your PM agreement, doesn’t mean things always happen as they’re outlined there.  Most PMs will take care of snow removal and lawmcare.  

A lot of times you can probably do it faster and cheaper yourself.  I tried like 3 separate times to get the lawn guy at my PM to just give me a price. They couldn’t get a hold of him, so I just used mine.  Way faster.  We don’t get snow here really, but I bet you’ll want that faster than the Pm will provide when you get a lot of snow.

 

Since your close, do the PM yourself. Here is what I would do:

0) Treat this like a business, not a hobby. As a business, there is no fussing around with inadequate performance of your partners and contractors including the PM. 1) Read the tenant-landlord code for your area, so you know your rights and responsibilities. 2) Fire your PM, the amount you will save per month will be the compensation for your time. 2) Use Cozy.co for screening and rent collection. 3) Find a handyman in area that has great reviews and use them for hands-off repairs. Maybe find 2 in case the primary one gets super busy and can't get back to you asap. Have your contractors take pictures and give feedback through your cell, and then you can authorize based on problems at hand immediately. Or do the work yourself. 4) Hire a local service to cut the grass, and trim back every 2 weeks or so, if tenants seem unwilling, etc. Don't complicate it, just look for a service to do a mow and blow, or a seasonal cleanup, and wack everything back. 5) Find a attorney that works with landlords and get some professional advice, and for and future eviction process if needed. Personal attention to the problem will help everyone, including your personal frame of mind and anxiety level. I have a FT W-2 position as well, NOT as a Realtor. I make calls during my lunches and breaks. Most months I spend maybe 1-2 hours communicating with tenants, making calls, or arranging maintenance.

The most agonizing piece will be doing the showings to future tenants. Sometimes a waste of time when people don't show, though it is the best way to get feedback about the property. I show in evenings and on weekends. I also make friends with the neighbors and encourage them to call me if there is anything out of the ordinary.

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