Hello BP! I'm starting out and would like to house hack a small multi family home (duplex, tri, or quad) in the Denver area. I'm curious how other house hacker have handled the management of the property. After listening to several podcasts, I firmly believe that a good PM company is the success to scaling a buy and hold portfolio but is this a route that people go on their first property while living on site? Any input is appreciated!
You should absolutely try your hand at property management first. We are house hacking a duplex right now and I have probably invested maybe 30 hours into the entire process so far. If you pay yourself a generous $50/ hour I have "spent" $1500 on managing our property. I'm not sure how this would stack up against property management costs, but i'm guessing they are close. Plus, I get the added benefit of learning the process.
I think it is crucial to understand the process of managing tenants if you want to be a land lord. No better way to do it than get your hands dirty.
If you accept your premise that a "good PM company" is the success to scaling, how will you know what a good PM is if you don't have the information to ask the right questions.
Maybe your experience would be different when you get into tri's and quad's, but I seriously doubt there would be much more time invested. Good luck.
It is a good idea to learn about being a LL if owning rentals is your goal, and what better way than living on the same property. It will also help you down the road when you look at choosing a PM.
@Mitch Ottoson I live in Denver, House-Hack and manage the property myself. I firmly believe that it is clearly more economical for me to manage the property myself than to hire a property manager.
When the tenants need a minor repair, I can go ahead and do that myself in about 10 minutes when I get back from work or make the phone call to the handyman myself.
The sum total of my work with the tenants has been this:
Advertise the property, show the property, accept applications (and fees), screen the applicants, sign the lease (5 hours or so upfront).
The tenants called once about a leak in the drain under the sink. I took a look when I got off work, and called the plumber (10 minutes). By the way, most property managers would bill you for the plumbing fee or have the plumber bill you directly - they would make the phone call for you though ;).
The tenants have called me twice in the past year. Once was for that leak. The other was for a problem with the grading outside the property - water was pooling next to the foundation - thankfully they brought that to my attention (it's next to their porch), or I might have missed it for a few weeks. Otherwise, I bill them automatically on the first.
I also reach out to the tenants periodically to ask them if they are happy and need anything. At my own initiative, I bought an AC unit for their side of the property in June (15 minutes to order it + installation) and at their response to one of my inquiries, they suggested a weather strip on their kitchen door to keep the snow out. I installed that just last month (10 minute installation, 45 minute trip to home Depot).
This has, in the last year, been about 8 hours of property management work. In exchange, I've not had to pay a property manager over $1,000. Now, I've done a lot of other work on the property, unrelated to the tenants, and the investment hasn't been easy, but the property management piece (which, by the way, does NOT generally include the fees for the plumber, the weather strip installation, or the AC purchase) has been really easy.
Why is it easy?
Because I live right next door. It costs me seconds to check out the property, vs minutes or hours for a property manager with many properties. I believe that I would be giving up hundreds of dollars per hour, every month, by hiring a property manager. I'm not worth that much... yet.
Will this scale? Nope.
But when I get to the point that my time is so valuable that I would rather pay someone else $300 per hour, I will surely hire out things like property management and easy repairs.
I think that day is a long way off for me though.
You should note that property management further will not include services for "basically maintaining a livable home" like mowing grass, shoveling snow, and keeping the landscaping reasonable. If a regular homeowner would have to do it themselves or hire it out, that is generally not included in property management fees.
Just to clarify - the property manager will coordinate these types of repairs and maintenance... then bill you for the fees for the third party contractors. Just know what it is that the property manager actually does, and understand exactly what you are paying for when it comes to property management fees. I believe that when you understand that, it becomes more apparant just how much the house-hacker sacrifices value-wise when it comes to property managment fees.
I'll go the other direction. It really depends on your comfort level. My first property was a triplex that I lived in with tenants at the ripe age of 26. I found some difficulty in managing the property because you are always available in their eyes. Walking to your car, taking out the trash, etc. I am sure someone will post about setting boundaries with tenants, to which I say good luck. You will learn a lot about yourself the 1st time you are posting an eviction notice on the neighbors door. The only thing I learned was that I will never do that again. Of course now that I am a little more seasoned and have learned how to better work with tenants it might not be as big of a deal.
I own and self manage 11 rentals now. I find it much easier to do from afar. Of course if you are buying in a good part of town and will have really nice, well qualified, timely paying tenants, who completely respect your time there wont be any issues at all.
Easier to go from a PM to self managed than the other direction.
Best of luck in what you decide!
@Mitch Ottoson I live and landlord in Denver (although I never house-hacked, I have lived in my rental). I would echo the great advice here and try your hand at managing it yourself. You will learn a lot about the property and build relationships with plumbers, carpenters, etc that will be helpful in the future.
Here's a little tip that's been valuable in managing my rentals. When you buy your property, make digital copies of the really nice Real Estate photos the seller used to list the property. You can use these in your ads to find tenants. That way you've always got them on hand for marketing and you always have photos of your property looking great. Good luck!
@Mitch Ottoson - It's much easier to hire a property manager (if you need one) than to get rid of one (breaking relationships can be difficult).
I recommend doing your own management and using online tools and resources (BP is one of them) to mitigate risk. If the management becomes too much, then you can outsource to a firm. Remember, the most costly expense is a bad tenant ... so make sure to not settle for the first applicant --> get a qualified tenant who is not going to give you trouble.
@Mitch Ottoson I grabbed lunch with the investor that teaches the "Investing in Real Estate" course at the local community college. The advice he gave me regarding PM is the following:
"Be a landlord for 1 year so you have an idea of how things are done. After a year, find a PM to manage all of your properties. Try to find someone that is relatively new and isn't managing a lot of properties"
I liked his advice because:
- If you have never been a landlord before, how can you expect to manage one? You won't have an idea of what constitutes a "good PM" if you have never experienced it yourself
- I house hacked my first property (2 units) and it really isn't that much work. So you will more than likely be paying someone to do very minimal work, so keep the money for yourself
- Finding a newer property manager has it's advantages. If you have large PM company manage your property, one that has hundreds of properties, it probably won't get the attention you are wanting. Whereas, someone who only manages a handful of properties will be able to give you a lot more attention. And you can even mold them into the perfect manager and hire them to manage your HUGE future portfolio
Another tip I received was reach out to local real estate agents to see if they would be willing to manage your property. In Ohio, you have to have a license to manage other peoples properties. Newer agents have a lot of free time on their hands, so if you offer them a solid deal, they should be more than willing to help you out!
@Mitch Ottoson I would echo the comments regarding starting out by managing the property yourself.
That said, still include property management as an expense in your analysis!
Eventually you will want to be able to pay someone to manage your property for you. By accounting for that expense from the beginning you can always hire someone whenever you would like and the whole problem becomes a non-issue.
Hey guys, thanks for all of your great advice! It makes sense to be a land lord on a small scale to build up knowledge to work with PMs down the road. For those of you who have house hacked before, and suggestions on how to establish boundaries with your tenants?