I've got 3 options...

18 Replies

I currently have a duplex in the north Dallas area and am being re-positioned for work down to Austin, Tx. My current property would be about 4 hours away from my future living area. The property is in a working class neighborhood with low crime and not too many headaches yet as far as collecting rent or maintenance issues.

From my perspective I have 3 options.

1. Manage the property from a distance: use my network of contractors and handymen if their are any repairs needed. I may even hire a Realtor if I need to re-rent the place. I can drive up 4 times a year to do inspections.

Cons: I have never done this before so not sure if it would even work out. It could be stressful if there is some type of emergency. What if a tenant just moves out?

2. Hire a property manager: pretty straightforward hand everything off and let them handle it all.

Cons: that % cut every month. Also we are in a more rural area so not many choices as far as property managers. I have heard a lot of horror stories about PMs.

3. Sell the house: I could sell the property but it may take some time to do that.

Cons: I don't think I have enough equity or appreciation in the house to break even on all the closing costs and Realtor fees needed.

Thoughts?

What about a master lease option with another investor?

What would rental income look like?  What would you currently be out of pocket to sell now?  Do you think you will end up back in the Dallas area?

@Joseph Weisenbloom  Great question. I dont think anyone is going to be able to provide the answer for you - only you know what your comfortable with. In this business, you make money at the purchase, and cost-effectively managing the product. Sounds like you may not have made out on the purchase (depending on financing) and you cant do the latter by hiring a prop mgr for one unit and make the numbers work as good as they could be if you managed it yourself. This, of course, is just my opinion - maybe the market is different down there and PM's are better than in Chicago. Why dont you try this, offer some seller financing and earn some cash flow without tying your hands to their every complaint. You must speak with a REALTOR in your area who understand this kind of transaction so dont just hire anyone. Really have someone explain it to you backwards and forewards and make sure it works for you. You could earn maybe 2-4% a year on top of your current mortgage for the next 10-30 years (maybe sooner if the market gets hot and they can refi you out) without having to maintain the unit. Good luck

@Cody Steck  I have never even heard about a master lease option?

@Jesse T.  Current rents are $1300. Not sure what my out of pocket expense would be because it would depend what I could sell it for. It was an owner occupied house so got in with $3700 down another $5k in closing costs and put about $5k of work into it. I don't anticipate it being worth a whole lot more than what I bought it for.

I don't think I'm going to be headed back to Dallas but I will be in Texas forever.

@Christopher Leon  The numbers on the property are good for cashflow but its not a high appreciation property. I factored in property management from the beginning so it would still cashflow with 10% gross rents gone.

I didn't consider owner financing is that something I can legally do while having a mortgage on the house?

I think option 2 is probably the best option.  What was your purchase price?  

The big risk with option 2(and probably more so with 1) is having a downturn in the price make your underwater situation even worse and adding some carrying costs looking for a renter/buyer to that.

I would probably list for sale and rent - offer a 3% buyers agent coop with an asking price that would get your down-payment back - and treat the closing and repairs as sunk costs.

Is that 1300 a unit? Depending on your numbers will determine weither or not you can afford a PM. If you have any investor friends, or a handy man you use maybe you can work a deal with them to keep an eye on it. Manage from a distance.

@Jesse T.  The property is not underwater at all. It is cashflowing $250 a month even with factoring in a property manager. I guess from a selling it perspective I would need to wait for it to accrue enough interest to break even from selling it. So yes I wouldnt be able to get my closing costs back if I sold it now.

@James L.  Its 1300 total. If PM runs 10% of rents Ii can definitly afford it. i the question is can I manage it myself without throwing away the 10%

Originally posted by @Joseph Weisenbloom :

@Christopher Leon The numbers on the property are good for cashflow but its not a high appreciation property. I factored in property management from the beginning so it would still cashflow with 10% gross rents gone.

I didn't consider owner financing is that something I can legally do while having a mortgage on the house?

 That you would have to answer yourself by looking at the mortgage, speak to your attorney, etc. I am just suggesting something you may have not thought of that could work depending on the aforementioned. I have heard of people doing it, knowing they couldn't, and the bank didn't say anything since they were getting they're payments. I am sure there is a proper way to do it - or certain circumstances render a success more than others.

 Let me ask you this, is the 10% of gross rents worth your time and potential liability if it goes vacant and your coming out of pocket, headaches, etc? I guess, I pose the question for you to answer, I don't care whether or not it does. It's nice to control assets, but I do believe in them serving a purpose and as along as it meets your comfortability, req's, keep it and keep her rented. Otherwise, maybe relieving yourself of a potential curse is the best thing for your life. I prefer to own property I can drive to within 30 mins - that's my comfort zone. Maybe yours is bigger? Nevertheless, I wish you luck amigo! Hopefully this has helped you in some manner. See you at the top!

@Joseph Weisenbloom  

If you do consider doing option #3 I know someone that would be able to buy it from you and pay closing cost and no commissions fees. Of course it just depends on numbers, send me a PM me to discuss some details if interested.

Good Luck, 

@Christopher Leon  Thanks for the response! Yea its sounding like it depends on what I am comfortable with. I have heard of people managing long distance but its one of those things where you cant tell if will work unless you try.

If it were me, I would manage it myself for 6-12 months and then evaluate how well it is working.  You know the area and have handyman/tradesmen relationships in place, and can make a trip now and then if needed.  I have rentals local to me (I manage) that I haven't visited in months.  

My properties are at a huge distance (in another country, 24 hours to fly there). I do a combination of #1 and #2. I have a PM who handles month to month rent collection. As a back up, my mom is my eyes and ears. If there are major repairs, if the PM needs a quick decision on something. This works really well. Sure, I pay 10% every month but the properties are paying for themselves and I don't need the income I get from them for living expenses. What I do want to be sure of is that I have a quality product (to attract the best tenants) and that the properties get managed well over time so when it does come to selling one day, I have assets that are worth more than I paid for them. 

I have a friend in dfw, he worked out a deal with his rental neighbor to keep an eye on it and do handyman stuff. He just goes by every 6 months. And does all the management him self when needed.

BTW, I have Austin rentals where I happily pay 10% for management, so the truth is, I do both.

I would do exactly as Jon Klause said above.  Be your own property manager first, try it out, if it doesnt work out, get a PM. 

Another option is a partnership. Someone locally could buy in and get a management fee for taking care of things. You lose more of the passive income but you could get some money out, potentially re-invest elsewhere, still retain a % of the property and have someone that has a vested interest in the property.  

Partnerships are not something anyone should rush into though.

@Jon Klaus  Jon thanks for the advice. This was where I was leaning towards. I haven't had any maintenance calls or communication with my tenants for 3 months. They pay the rent on time through an automated online platform. For the maintenance calls I do get I just call up my handyman and send him over. No need for me to drive over there. I would feel stupid for throwing away 10% for that. On the other hand there is the unknown of what would happen if things weren't as running as smoothly.

I think I've decided I'm going to try to manage it myself for a while to try it out. 

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