Investor · Dallas, TX · Member since 2016 · 39 posts · 8 votes
I'm currently interviewing a few local (Dallas / DFW) property managers. Some have been very helpful with providing feedback on certain neighborhoods / areas. However, I can't help but wonder if they are slightly biased towards more expensive (stable) properties, since they are presumably less maintainance (ie a $150K SFR in Plano, TX vs $45K in Irving, TX). I've thrown out a few areas around Dallas, but I'm finding that all of them are coming back as 'bad investments'. I have to think the people investing in these areas are still generating cash-flow though.
I have a trmendous respect for property managers out there...I have no doubt that these property managers have way more experience with these areas. I'm just trying to figure out how seriously I should take the advice on a 'less than stable' (but higher cash-flow) neighborhood. Has anyone had any experience with this?
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
10y
@Jason Haynes I actually charge a sliding scale for property management. The percentage goes down as the rent goes up. I'm not going to charge the $1400 rental the same percentage as the $800 rental because the $800 rental requires more work.
Most of my SFR rentals are in the $1400-$2000 range. I do have a couple of sub-$1000 doors, and I've been seriously considering adopting a policy of turning that business down in the future because they require more work than the income is worth.
On the sales side, I represent out-of-state investors looking for properties in Houston. When I recommend or warn them off a property, my monthly management fee is the last thing on my mind. I want to sell them a property that will be a good investment for them, period. And, by the way, I've also steered them away from higher end properties, which would have been a nice commission check for me, because the potential rental income wouldn't justify the sales price.
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
10y
@Jason Haynes I would say you both are right. Of course a nice asset in a nice area is going to typically be less maintenance, vacancy, headaches, and will typically hold value or appreciate better than the alternative. In terms of what you plug into the BP calculator for Cash on Cash Returns the lower priced will probably show more Cash Flow on paper, but you just need to make sure you write to IRR (as in what is your total return if you decide to sell in 20 years).
Investor · Dallas, TX · Member since 2016 · 39 posts · 8 votes
10y
@Zach Quick - That's a great point (the IRR). I'll have to be sure that's part of the process.
@Charles Morgan - Indeed. I have found some property managers that also offer flat rates, which seems to hedge against pushing higher rent properties. I'm not sure I understand why so many are at percentages. It seems most properties ($50 - $250K) would require similar attention, if not more for the cheap ones where they are paid less. Why would the rates (percentages) they charge not be higher for the problem investments...?
Investor · Woodbridge, VA · Member since 2015 · 476 posts · 197 votes
10y
some property management companies will not manage your rental unless you pull $X per month in rent, or only if you agree to a flat fee. This is typically how they protect themselves against lower class PITA rentals.
Investor · Dallas, TX · Member since 2016 · 39 posts · 8 votes
10y
@Kevin Harrison - Yeah, that makes sense. Still though, it seems odd that they might collect the same amount on managing 5 $50K homes as 1 $250K home. I suppose that's why some try to talk you up on your investment strategy.
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
10y
@Jason Haynes I actually charge a sliding scale for property management. The percentage goes down as the rent goes up. I'm not going to charge the $1400 rental the same percentage as the $800 rental because the $800 rental requires more work.
Most of my SFR rentals are in the $1400-$2000 range. I do have a couple of sub-$1000 doors, and I've been seriously considering adopting a policy of turning that business down in the future because they require more work than the income is worth.
On the sales side, I represent out-of-state investors looking for properties in Houston. When I recommend or warn them off a property, my monthly management fee is the last thing on my mind. I want to sell them a property that will be a good investment for them, period. And, by the way, I've also steered them away from higher end properties, which would have been a nice commission check for me, because the potential rental income wouldn't justify the sales price.
Real Estate Agent · Houston, TX · Member since 2016 · 53 posts · 19 votes
10y
I lived in Dallas about 18 years. There are some good & not so good areas of both Irving and Plano. Property managers are mostly focused on stable renters/low turnover/less collection issues. I would recommend using a realtor to look at rental properties for the past 6 months to get an accurate view - all based on MLS data.
Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
10y
I manage properties. I typically am alright with most neighborhoods. I understand that the really nice neighborhoods dont cash flow as well as some of the not quite as nice ones. Thus I understand I cant expect every rental to be a mansion. Because I screen and market so hard i feel I can go into a C neighborhood and get an A tenant. That is why I have never had to go through the whole eviction process with someone.
That being said there are some neighborhoods so bad and unsafe with drugs and crime that no reasonable person would want to live there. If you are going into these F and D neighborhoods just because the price is low there is a reason. If you go there and see prostitues and drug dealers working the corner next to the property at all hours of the day ask yourself what sorts of people would actually live there. Maybe if there is a college close enough some kids but thats about it. Pawning off these areas will lead to dealing with a quality of tenant that will lead to headaches not only for the property manager but also yourself. To give you an idea of what I consider bad I live in the Baltimore DC area. For DC which is a nicer big city there are only a few neighborhoods I would consider this bad. Baltimore is a different story. It has the second highest murder rate in the country amongst big cities. There are a few more neighborhoods in Baltimore to potentially avoid. I would still say most of Baltimore City is not that bad and almost all of Baltimore County which is the suburbs off Baltimore City. Im pretty sure Dallas is not as bas as Baltimore though Im sure it has its rough spots. The neighborhoods can turn from good to bad block to block so you can find some great deals on the right block though those good blocks can turn bad quick.
Don't get unreasonable with price. Make sure the property manager can market it hard and get a good selection. In a bad area your going to need it. Ask them how they screen. Everyone needs a hard screener especially someone gojng into neighborhoods C and below.
The other thing is make sure whomever you choose has experience in fair housing and section 8. In some neighborhoods section 8 makes sense sometimes. If they are section 8 they need to be screened extremely thoroughly.
Dont settle for tenants because you are getting an extra 50 a month over getting a better tenant for that little bit less.
On the brightside for you Texas from what I hear is much more landlord friendly than DC Maryland where I am so eviction is a much faster process.
Rental Property Investor · Irving, TX · Member since 2016 · 24 posts · 3 votes
10y
I've lived in Irving for 34 years and have 5 SFR rentals all in the 100k range that cash flow well. Like most cities there are bad areas and good areas. I like something in the middle. Middle class neighborhood with decent rents. I can see how a property manager wouldn't want the headache of a low commission property in a bad area though. That doesn't mean I wouldn't consider an investment in Irving, I would just learn the neighborhood where you are considering investing. Reach out to me if you have some questions about a certain area.