It is getting tougher to be a small-time landlord

32 Replies

I see the day coming when you can't afford to manage a small portfolio of rental properties.

The tough part for me has been getting maintenance done for little stuff. I have had so many handymen over the years, some licensed, most not. You keep hearing about what a threat it is to use non-licensed $20 an hour guys who might come and repair a wall a tenant's kid knocked a hole in. The sheetrock professional can't afford to come out for a job worth $25. It is not like the GC's of the world are getting robbed because of the unlicensed handyman. The guys (sorry ladies not come across any Jill of all trades ladies) I talk to won't bother with a small job. Just had a licensed guy say I couldn't afford to pay him what he wanted for a little project I proposed; he, and rightly so, needs a good profit to show up and the little stuff doesn't have that potential.

Having several places is ideal for people that want to have additional retirement resources but don't plan on having rentals be their business... but lots of PM's in my area won't touch single family and don't want small portfolios. My experience with property managers was one that would quickly put the small guy out of business.

I spend a considerable amount of time and money staying educated because the tenant/ landlord laws are a land mine for unsuspecting and uninformed small landlords. The most dangerous situation is the landlord that owns 1 property.

If you are midway between residential and commercial (5 properties) the insurance companies start considering you a risk and will only cover you with more expensive commercial policies that require you to go to LLC's while LLC's might not be appropriate for someone getting new mortgages and has existing mortgages.

What is the saying-go big or go home? Don't want either but...

Sounds like you have identified a problem in your area that you could make money filling.  You could be the single family property manager. If no one else wants to do it, sound to me you can charge a premium to do it for others.

RE is a numbers game. Economies of scale are incredibly important. The smaller the portfolio, the less likelt an investor will be able to weather storms.

yea whatta shame OR licenses handyman to charge up to $5,000 per job!

here in CA there's no such thing as a 'licensed' handyman, and 

handymen are limited to $500 total coast per project - INCLUDING materials.

not $5,000!

nationally, the typical construction worker earns $20/hour

for CA small landlords with small repairs needed, DIY & handymen are quite affordable.

sorry OR licensure ordinances don't address the need for affordable small repairs the way at least CA's do.

Well, in regard to the repairs and such, I'd simply forfeit the idea that you need to make repairs such as a hole kicked in a wall by your tenant's kid for $25, and realize that whatever it takes to repair it, it doesn't matter since you would be passing the cost on to your tenant. I'd get out of the $25 mindset and realize it will be $300 and bill the tenant. Might make them manage their kids a bit closer once they get tired of paying for their tantrums. The reality of the market rates are the reality and your tenant should be the one lamenting the high cost of repair labor not you.

I agree... my experience is when i had less then 10 properties the handymen looked at me (and charged me) basically as a homeowner that only called every so often.  Volumes of scale makes a difference. 

When i got my portfolio past 10 properties life got a lot easier... better systems for management, had enough maintenance work to find 1-2 reliable guys, and wasnt so concerned when 1 would go vacant as i still had 9 others cash flowing. 

I lived and operated my REI business in portland for a number of years and am now based in Charlotte, NC.

I have a contact there who does property management and is hands on and a good communicator.   Send me PM and i would be happy to share. 

When I started, I knew nothing about handi-work. I have been where you are @Jeff S.  High costs of tradesman have forced me to learn quickly.  Plumbers, electricians and HVAC guys are all about $100/hr.  It will always be difficult to get a quality drywall guy to come 'fix' a single hole in the wall.  They won't have the paint to match anyway.  They have to come back multiple times as the mud dries.  I would suggests you leave it, tell the tenant to put a poster over it, and tell them you need them to add a bit to their security deposit to cover it at move-out. If it's from a doorknob, buy one of those self-stick plastic circles, These days you can youtube about any little repair for advice. I wasn't so fortunate 12 years ago.  As you practice these DIYs and learn the LL business, it will get better.  But I agree, there isn't such thing as a 'passive' small landlord, normally. Hang in there!  

I think @Steve Vaughan  hit the nail on the head in terms of your drywall issue.  With SFRs you just can't fix every single little thing on the drop of a dime.  I would submit this is the case even if you are sufficiently scaled to have a full time handyman. That's just the nature of the asset class. I always just make it clear to my tenants that they will have to batch repairs, and that renting a home is not like renting an apartment.  (It's spelled out very clearly in my policies and procedures.)

@Jeff S. 

I am surprised in a city the size of Portland you would have trouble finding a reasonable property manager. I think many PMs prefer SFR to apartments since if they are billing a percent of rent they make more per month often with better tenants. A PM will usually be able to cover the maintenance at a reasonable cost due to volume. I suspect if you network and look further you can find a PM that meets your needs.

@Ed Neuhaus  I have thought of that a lot lately. There is a company here where the guy used to be a PM and he dumped the management part and just does maintenance for larger condo associations and apartments etc. $45 an hour minimum plus a show up fee. 

Starting a business like that requires lots of insurance. Handyman workers are very independent types that don't do one thing in one area for long.

Agree @James Wise  . On the one hand managing 5  or 6 properties is the sweet spot for being able to qualify for all things residential and is easily doable for a busy person; on the other hand it is becoming tougher because you don't have the benefits of scale where the income becomes more significant and helps you through a vacancy or 2. Things are a little different here though because it can take a lot of years to build a large portfolio and having 5 or 6 quality properties can be a decent portfolio. A guy in SF with 5 or 6 properties is doing pretty well assuming his debt is under control.

Account Closed that was a made up example. Could be a water leak in the basement; a blown down section of fence; a water leak under the sink, etc. Had a handyman, actually he was a licensed contractor too, that my tenants knew and would email if something went wrong. Tenant emails handyman, handyman checks out problem, handyman emails me, handyman does job, handyman emails me a bill. Handyman got a full time job.

@Sky Mikesell  have noticed that. If you have enough work to keep 1 or 2 guys busy you must have quite a few units. That is a great position to be in. 

You operated in Portland, OR? Interesting, we should compare notes sometime. Cashing in here to go to NC a good move financially it seems.

@Steve Vaughan  I have noticed you are handy and I think that is the best of all worlds. Having a portfolio and having the ability to do the work is very cool IMO. Unfortunately, I am usually doing the grunt work, running for materials, cleaning up garbage, and generally just keeping workers company (supervision). I am not handy and have learned it is better to let guys that have talent do the work. It does cause me problems though (not being handy that is.) I have done so much painting  and do pretty good, but at some point that gets old too.

Agree @John Chapman  . Usually let needed repairs season a little so tenants don't think that every time they want something piddly done you are there Johnny on the spot. I don't make my properties perfect and let tenants know that maintenance is an ongoing thing' and that older properties have certain characteristics and weaknesses that newer properties don't have. In other words my tenants appreciate a funky older type place because that is who they are. My tenants are pretty responsible types so not real dependent. Hole in the wall was a bad example. A leaking pipe in the basement a good example...needs to be dealt with and best if you don't need to call a plumber. Handyman I had $30.

@David Jay I could find a PM if I wanted too. You wouldn't know it from my post I actually enjoy managing my properties. My tenants are great. If I wanted to go the PM route I would sell SFR and buy units. In fact when, and it looks like the day is coming, we can no longer discriminate because of bad credit (some say poor credit and minorities go hand in hand and if you don't rent to poor credit people you are discriminating against minorities) will be when I move into low cost section 8 rentals and will no longer deal with nicer properties. When you lose control of who you rent to this business will go to hell. For me good credit removes all people that love to bring their drama into your life. Life is too short for that IMO.

@Jeff S. 

 One of my old borrower back in Indy started a company for these things.

His target was Realtors who needed to get the repair addendums addressed on new purchases  You know when the home inspector comes through and has a laundry list of little items.. in the buyers market of course buyer would come back with a repair addendum fix 100% of the items.. well now that the market has shifted the seller say take it or leave it.. I know I get items on new construction and we have our subs come back and fix for free part of the job.. but we are not paying 25 dollar for anything.

I remember paying a good handyman 50 a hour with 2 hour minmum way back in the 80's in CA... it helps if you can do a few of these things your self.

Like me I can replace a filter and a light bulb No problem whatsoever!!

Yes @Jay Hinrichs  , is this guy that started the company handy? Think that would be a good business model. Should hook up with another investor and form something for rentals, maybe getting closer to economies of scale.

Had a GC that was a great handyman. He would go and do little jobs for cheap. It was awesome but everyone once in a while he would really stick it to me. Never trust a contractor, present company excluded of course.

@Jeff S. 

  I am sure they do PM work as well... but one thing that is tough when your listing homes as a Realtor is punching out the squawk list.. So I think they have done well..

@Jay Hinrichs  What do you think the split is between materials and labor. In other words if all repairs average $200 a month per building, would you think 1/2 materials 1/2 labor or something different? 

@Jeff S. 50/50 is a good estimate I think, but it kind of depends.  If replacing carpet, install may only be 20% or less of total.  Tile or construction I lean more towards 60% labor.  

For small stuff, it helps to have friends that will do small jobs or to know people that aren't licensed, but like to do handyman work on the side. I use a friend to do appliance repairs and other things. The only time I need to hire a licensed person is when upgrading to a breaker box or doing structural work like adding a new floor beam.

@Steve Vaughan  just thinking how much I pay for labor and it would be about $500 a month plus that again for materials. That isn't enough to interest many to be a regular. It is kind of interesting that if you have lots of less expensive properties it can be easier because you have more going on but still it seems like more work with more doors when the price point is lower. Only problem is lower price point allows for better growth where in my area it takes a lifetime to get to size. If I wanted to could take on units but think this is a train wreck waiting to happen with caps for A properties yielding 3-5%. You know rates will go to 7% and when they do those 4% caps on units will become a new buying opportunity for people with cash.

@Wilson Churchill  totally my MO too. Don't know what it is though because my friends who are handy become flakier as time goes on. They will come and work if they don't have anything better to do. That is no way to run a fish house.

Hi @Jeff S.

Great topic, by the way.  Although when we started investing, we did all the work ourselves, as soon as we had 3 properties under our belts, we began hiring out the work.  First was HVAC, then plumbing and electric--I do not leave those items to a handyman.  I use the very same plumber and electrician for every single project--big or small.  They've gotten to know me and how I like things done (right, the first time, and to code, please!).  Maybe I pay a little more, but the peace of mind in knowing the job is done right is worth it to me.  Plumbing, and AC comprise the majority of the trade-specific repair calls I get (until, of course, my trades get in there and fix everything right--then the phone is quiet).

As for the little piddly stuff, it is not easy to find a jack-of-all trades. My suggestion is to be involved in your local REIA--ask around. Be specific. Beg for the name and number of everyone's favorite handyman. That's how I found the guy I use. Most of the time, I can simply call him up and tell him what to fix. He sends me pictures of the before and after, and calls if there are any surprises. I've been working with him for nearly 6 years, so it's a smooth process. I'm probably going to lose him soon, as I've given his name out to so many people, he is now often too busy!

So, I have learned to 'batch' projects for him.  I'll tell tenants if a repair is not urgent in my opinion, and that my repairman will be around to fix things next time he's in the area.  When my handyman is available, I make sure I can keep him busy for at least a half day, but a full day if possible.  I've learned to give him a heads-up, that I have a few things here and there that need attention.  He works out his schedule and squeezes me in.

This past year, I just began something new, that I think is going to work out great. I asked all my tenants to email me a list of any repairs or concerns that needed my attention.  I had my handyman go with me to each of our properties (at the time, 14), and we inspected everything together. He made most repairs right on the spot; others, we scheduled them to be fixed at a different time, when we had the materials or such.  If something needed a different trade, I scheduled that right there in front of the tenant.  Tenants loved this!  And I managed to keep my handyman busy for two full days.  I paid him more than the $375/day he usually charges, because he is such a thorough and fast worker.  He's worth his weight in gold.  I think I'll keep doing this, probably twice yearly; though now we have 18 properties, so it'll take three days probably.  I mentioned this because it might help you with your situation.  If you're pro-active with repairs, you can keep ahead of them and schedule them when it's more convenient for you.  Of course, we can't catch everything--in those cases, try to batch the repairs to make it worth a good handyman's time.

BTW, even with 18 rentals, I can't keep a handyman busy anywhere near full-time.  If I don't have a rehab project going on, I use him, on average, 2-3 times monthly.

Wow.  Sorry for the lengthy comment. Hope it helps.  :)

Great response @Terri Pour-Rastegar . I am surprised with that many properties your handyman isn't busier. Your properties must be in pretty good shape.

I like your suggestion about asking around at a REIA meeting for handymen. It would be good to have a few to call. Using Labor Ready (rent a drunk) has been both positive and negative. Most are in transition waiting to get their licenses back. Had never used Craigslist until the last 2 and it was bad.

Paying $375 a day isn't something I'd considered although if someone gives a bid it will be up there for sure.

You must have a great market to make that number of places work and be able to keep accumulating.

Do they license handymen where you are? Insurance? Getting flak from insurance people here about unlicensed handymen. My agent says covered, agents here on BP say workman comp claim  not covered. Seems like so much bull. More scare tactics?

Another place to try is go to Home Depot's parking lot.  It is full of workers.   There will be a learning curb in learning how to pick the right ones.  Of course, you could get lucky.  

My Home Depot is packed at 6 a.m. and most of the ambitious gone by 7. Will keep that in mind though-thanks for another great idea @Joe Moore .

@Jeff S., When I get my hands on a house, I repair everything necessary up front.  I always get a professional home inspection.  Then my plumber, electrician and AC tech go through the house with a fine-tooth comb and repair/replace whatever is going to cause me problems in the future.  I upgrade to 200 amp, insulate, replace dated light and plumbing fixtures, replace the roof if necessary (or budget to replace it if it has a few more years on it--I just don't wait until it starts leaking), fix any drainage issues, replace windows (maybe 75% of the time), make sure doors/hardware work properly (I install hinge-stops and/or those round plastic bumpers that affix to the wall so I never have wall/door damage), limb up or remove trees, and of course give it a thorough cosmetic upgrade so it attracts good tenants. Those last two words are key also.  Good tenants will let me know if something isn't working quite right, which usually heads off most emergency repairs.  Good tenants are also less destructive and care better for the property.  Plus, they stay awhile, which saves me money in the long haul.

The Charlotte market has been good to us so far, even in the recession (especially in the recession!), and I guess we've been buying right, too.  My husband still works, so we have always turned our rent into capital to buy the next properties.  Only this past year did we begin draw dividends--we are beginning to put his income into the savings account and transition to living on the business income so that he can retire. 

$375/day is nearly $50/hour, but a really good handyman--one who doesn't need his hand held and can pick up/pay for incidental materials--is worth it.  I'm not sure about finding people from Home Depot or Craigslist, but word of mouth has always been good to me.

I'm embarrassed to say I don't know if handymen are supposed to be licensed around here.  Really, he is the only worker I use who is not licensed or insured or whatnot.  My handyman is also a roofer (started out that way), so when he does roofing for me, he gets an insurance policy with me on it for that project. Of course, my insurance broker is probably freaking out about this.  LOL.

with just a little practise,some tools, you tube videos,you can do many repairs,from drywall,outlets,fixtures,blinds,etc saving hundreds of handyman calls

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