I have 3 fantastic 4plexes, when I purchased them the ROI was well above the normal 1% rule, and they still make decent money today. I am thinking of selling them because I haven't focused on finding good property managers and staying on top of them. So the property managers don't seem to be putting good tenants in and then the turnover is higher, repairs are higher, their placement fees are higher, etc. I am sure if I spent more time focusing on them I could do better, but if I spent that same time on another venture I am sure it would pay more in the long run.
I was thinking I could just sell and stop worrying about them, and invest the money in something else. But I don't have a better idea to invest in, other than just "the stock market". I was really into it when I first bought them and thought I would keep buying more, but now I lost the interest.
I chose 4plexes because of volumes of scale (1 tenant turnover doesn't mean I am losing money that month), mortgage implications (easier to just get a personal mortgage, with 5unit and up you need commercial mortgage), and I thought it would be easier to manage.
2 of the 4plexes are in Indiana and 1 is in Pennsylvania. I am near Boston.
What would you do?
If you used the 1% (roughly) rule, and have poor tenants in place and not that great managers, you're probably not making much money on your investment if any at all.
If you don't want to do the work to make them profitable, why not just sell and stick the money into an REIT or other mutual fund that is hands off? You could also try partnering with somebody or investing in notes or some other form of REI that may fit your investing style a bit better.
There was a very fitting quote from another posting on here - "Would you buy these properties today if somebody was selling them for what you can sell them for?"
If the answer is yes - keep em. If it's no, liquidate and put your money to work in a different way.
I didn't mean they only pay 1%, they pay more like 3-4%. One building was 50% ROI the first year!
Yes I would buy them, if I was looking to buy properties. I would buy and change property management! But I like the REIT idea, I may go that way.
If your heart is not in it it is better to sell. you really need to have a passion for it and be turning a profit to make it worth the hassle and worry it is causing you.
What is the Cap rate on the 4plexes today, even with the poor management? As @Michael Seeker suggests, you could sell at retail and then use the proceeds to fund first position liens for investors in the Boston area - I'm guessing you could make returns of at least 8% and more like 12% pretty safely - and most every investor is looking for funding of deals. I would stay away from the stock market myself., but I am not a financial planner. The great part about investing in Notes is, you get the benefit of the collateral, and a set return on your investment with little risk (if you do homework and know/trust the Note holder), without the headaches of managing tenants, toilets and trash.
The worst performing one is just under 2% now I believe.
For buy and hold management is absolutely key.
And even more so for multis. Even small multis like 4-plex.
The vast majority of "professional" managers I have run into are bad. REALLY bad.
The one thing you cannot do is maintain status quo. You either need to find really good managers and then manager the managers. Or you need to sell.
That is really a lifestyle/personal decision, not an investment decision.
It sounds like management is the vast majority of the problem. If it were me, I would fix that problem.
The other thing to keep in mind is that even with small multis, cash flow does matter in terms of valuation. So with all your management problems, you may not get top dollar if you sell without fixing that.
@Steve Smithy I'd be glad to take at look at the Indy props to see if I can move them for you or, buy myself.
Like @Mark Whittlesey said, it's all about the management and it sounds like you are experiencing the typically run around of a poor PM. Next to contractors, they are the hardest to find & I've fired dozens of both...
keep them and make them the most profitable you can. you'd be proud of your achievement.
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"++ I have 3 fantastic 4plexes,
-- because I haven't focused on finding good property managers and staying on top of them. So the property managers don't seem to be putting good tenants in and then the turnover is higher, repairs are higher, their placement fees are higher, etc.
++I am sure if I spent more time focusing on them I could do better, but if I spent that same time on another venture I am sure it would pay more in the long run.
What would you do?"
I'd man up, pick up a can o' whoop *** and visit my property managers! Mike
PS If you've got a Tenant that's a 7 on the toughness scale, you don't have be 97 but you better be at least an 8! ;-)
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Where about in PA? Also, yeah sounds like you could use better managers. If those properties are really making you good money, it is probably best you fix the problem at the source.
Glen: The one in PA is a suburb north of Pittsburgh.
Mike: The problem is the time, it isn't worth my time right now to go out there just to yell at the property managers, hence why I think I should sell. If I spent that time instead focusing on my primary business I would make more!
@Steve Smithy - let me know if you decide to sell the one north of Pittsburgh. I live in that region and looking to pick up a multi family if the price, ROI, and amount of repairs aren't too extensive.
@Steve Salvatore see Steve, you're already competing with me!
@Steve Smithy if you decide to sell your Pittsburgh property I too would be interested as that is my area as well, particularly Multis.
That said if you decide to hold PM me and I can send you my PRop mgr. they have been decent though not perfect. I also agree with the others about investing in notes. Not really hands on at all (especially if you have a servicer) and backed by a solid product. Much better than the stock market in my opinion.
Either way - good luck with your decision and weigh all the options carefully as REI can be one of the most profitable investments over time, if you are OK with dealing with some headaches.
As far as your comment about not sure what to invest in besides the stock market. I've got an idea for you to think about buy working interest in oil wells.
-It has a huge return on capital.
-About as risky as the stock market, if you do your research.
-You can do a 1031 exchange, avoid some taxes.
-One major disadvantage is that you can not easily liquidate your interest as you could with a stock.
Not saying this is good for everyone or even you. Just saying there are more options than the stock market, and I'm sure you can find something that interest you.
Bad property management is a killer and unfortunately, not uncommon. We set up our own management company so we could control everything and do it right (we only manage our own stuff). If you're really going for buy and hold and have enough units to make it make sense, that may be something you want to consider.
@Ian M. - Sorry Ian!
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