What is everyone's obsession with hiring PMs!?!
Investor · Mission, TX · Member since 2017 · 220 posts · 135 votes
No. What we can agree on is if you can't afford a PM, you shouldn't buy the property. The PM is critical if you plan on owning a number of deals. What the PM does, a good one, is allow you to be a RREI...not a property babysitter. Your time is more valuable than anything. You can always recover lost money, but you can never get your time back...and in REI, time is truly money.
With my current portfolio I am on track to pay property managers just over $64,000 this year, and that doesn't include the deal I'm closing on next month. That will take it to over $70k for 2017 and over $80k for all years following.
I see those numbers and smile. I think about how great it is that that is all is costs me for them to deal with 139 units worth of showings, work orders, and rent collection of over $1mil per year. All this while I'm sitting outside, sipping my morning coffee, and deciding what I want to do for the day.
I self-managed in the beginning, but there will come a point where you won't have enough time for your day job, self managing, and still be finding/making new deals. Of those I chose to let the management go first because it definitely wasn't anywhere near a full salary. Plus I had done it enough to know I did not want to be doing that for the rest of my life!
At some point everyone will have to make that decision anyways. If they're having lots of issues, often times the answer is to hire a PM a little earlier than waiting on another few properties before making that leap.
With my current portfolio I am on track to pay property managers just over $64,000 this year, and that doesn't include the deal I'm closing on next month. That will take it to over $70k for 2017 and over $80k for all years following.
I see those numbers and smile. I think about how great it is that that is all is costs me for them to deal with 139 units worth of showings, work orders, and rent collection of over $1mil per year. All this while I'm sitting outside, sipping my morning coffee, and deciding what I want to do for the day.
I self-managed in the beginning, but there will come a point where you won't have enough time for your day job, self managing, and still be finding/making new deals. Of those I chose to let the management go first because it definitely wasn't anywhere near a full salary. Plus I had done it enough to know I did not want to be doing that for the rest of my life!
At some point everyone will have to make that decision anyways. If they're having lots of issues, often times the answer is to hire a PM a little earlier than waiting on another few properties before making that leap.
Since this has evolved into a 'when you should hire a PM' thread, I'll add one last thing.
Austin, you make good points here, but I really doubt you have your annual costs nailed down so well if your PM uses the gross % + fees business model that most do. If they are getting 1 month's rent per turnover (for unknown & varying # of turnovers) plus upcharges as they call the Maytag man for every little fix (unknown # per year) there are a lot of variable costs. But I am glad it works well for you and congrats on being free!
I wish there was a middle ground for the repairs. I take care of so many service calls over the phone in a minute or 2 that you all are paying through the nose to have a tradesman come out for. I can not get over that. Even if the $100 doesn't matter, I'm just not built to take it, knowing I could have taken care of it over the phone or in 2 minutes myself. In the amount of time it takes to lick and stick a paper check in the mail, I would have fixed it (and connected with my tenants, which I like) while doing it.
I saved myself $1200 the other day before lunch. A PM would have had 2 plumbers and a water heater that only needed a lower element t-stat I replaced in 4 minutes. They would have also had an electrician and an HVAC guy out there. Oh and it would have taken 2 weeks and I would have had to come back to check the work anyway. Just one example.
Charging 1 month's rent to place a tenant is a complete rip-off. Are you kidding me? That's over 8% right there out the window. Now you have to earn 12% (to account for taxes) to pay for a simple I hardly notice. Like they have to put a full page ad in the NY Times or something. At least spread the fee out over the tenancy, standing behind your placement choice.
I choose which 'jobs' I do and which I don't. Years of self-managing allows me to afford tradesmen and service people if I want to use them. Years of tenant screening has earned me a house full of non-whining, flexible and tolerant low-maintenance tenants that respect my properties and auto-pay their rent. For the little stuff I do end up putting up with, a PM just isn't worth it for me.
When I sell out of my frothy market and buy large apt bldgs in a more affordable market I will have a PM for sure. For now - the things you noted, Austin: showings, work orders and rent collection - are the easies that save me the most money, easily the $80k/yr you quoted. I would love a 'turnover manager'. That's where I get stuck doing menial the most and this reminded me to get a system in place. Thanks for letting me share, everybody!
With my current portfolio I am on track to pay property managers just over $64,000 this year, and that doesn't include the deal I'm closing on next month. That will take it to over $70k for 2017 and over $80k for all years following.
I see those numbers and smile. I think about how great it is that that is all is costs me for them to deal with 139 units worth of showings, work orders, and rent collection of over $1mil per year. All this while I'm sitting outside, sipping my morning coffee, and deciding what I want to do for the day.
I self-managed in the beginning, but there will come a point where you won't have enough time for your day job, self managing, and still be finding/making new deals. Of those I chose to let the management go first because it definitely wasn't anywhere near a full salary. Plus I had done it enough to know I did not want to be doing that for the rest of my life!
At some point everyone will have to make that decision anyways. If they're having lots of issues, often times the answer is to hire a PM a little earlier than waiting on another few properties before making that leap.
Since this has evolved into a 'when you should hire a PM' thread, I'll add one last thing.
Austin, you make good points here, but I really doubt you have your annual costs nailed down so well if your PM uses the gross % + fees business model that most do. If they are getting 1 month's rent per turnover (for unknown & varying # of turnovers) plus upcharges as they call the Maytag man for every little fix (unknown # per year) there are a lot of variable costs. But I am glad it works well for you and congrats on being free!
I wish there was a middle ground for the repairs. I take care of so many service calls over the phone in a minute or 2 that you all are paying through the nose to have a tradesman come out for. I can not get over that. Even if the $100 doesn't matter, I'm just not built to take it, knowing I could have taken care of it over the phone or in 2 minutes myself. In the amount of time it takes to lick and stick a paper check in the mail, I would have fixed it (and connected with my tenants, which I like) while doing it.
I saved myself $1200 the other day before lunch. A PM would have had 2 plumbers and a water heater that only needed a lower element t-stat I replaced in 4 minutes. They would have also had an electrician and an HVAC guy out there. Oh and it would have taken 2 weeks and I would have had to come back to check the work anyway. Just one example.
Charging 1 month's rent to place a tenant is a complete rip-off. Are you kidding me? That's over 8% right there out the window. Now you have to earn 12% (to account for taxes) to pay for a simple I hardly notice. Like they have to put a full page ad in the NY Times or something. At least spread the fee out over the tenancy, standing behind your placement choice.
I choose which 'jobs' I do and which I don't. Years of self-managing allows me to afford tradesmen and service people if I want to use them. Years of tenant screening has earned me a house full of non-whining, flexible and tolerant low-maintenance tenants that respect my properties and auto-pay their rent. For the little stuff I do end up putting up with, a PM just isn't worth it for me.
When I sell out of my frothy market and buy large apt bldgs in a more affordable market I will have a PM for sure. For now - the things you noted, Austin: showings, work orders and rent collection - are the easies that save me the most money, easily the $80k/yr you quoted. I would love a 'turnover manager'. That's where I get stuck doing menial the most and this reminded me to get a system in place. Thanks for letting me share, everybody!
I have all my numbers nailed down and that quote spot on. Yes, my total management costs are flat 8%, no placement fee.
Not all PM's rip you off on labor and just call tradesmen out that charge $100-150 service call for everything. Both management companies I work with are large enough they have in house handymen that handle the majority of the work orders with a very reasonable fee. My repair work would not be any cheaper if I called a handyman to do the little stuff.
Yes it could be cheaper if I did the work... but that 2 minute fix can easily take an hour or two by the time you coordinate with a tenant, drive 20-40 min to the property, realize you need another part, drive 15 min to home depot, spend 15 min in home depot, drive 15 min back to the property, fix the issue in 2 minutes, then drive 20-40 min back home.
That's awesome for you, Austin. Wish I had a PM like yours in my area and would totally hire them if I did!
Sadly, yours isn't the norm which I'm sure you know. The market I exchange into will be heavily weighted towards an awesome PM, then the economic and demographic metrics of the area. A good PM is that important.
No. What we can agree on is if you can't afford a PM, you shouldn't buy the property. The PM is critical if you plan on owning a number of deals. What the PM does, a good one, is allow you to be a RREI...not a property babysitter. Your time is more valuable than anything. You can always recover lost money, but you can never get your time back...and in REI, time is truly money.
Joe, I respectfully disagree with your comment. Your comment is a blanket statement and does not apply to all strategies and property types. I self manage nationwide and this very takes little time and boosts our returns significantly. It depends on the location, property quality you're buying, and you're ability to attract high quality, low maintenance tenants.
We've self managed for over 13 years across 4 states and have experienced just one eviction throughout this time.
My husband and I do not have a PM. We do it all ourselves. Honestly I feel like we learned a lot more not hiring a PM. For one, it definitely taught me how to communicate more effectively with all people. It taught me to be more patient but also to stand my ground when dealing with tenants who try to get over. It allowed me to make some great connections with contractors that we now have a great rapport with. My husband is learning how to do simple rehab and repair work. Plus we end up learning about more deals when working with contractors and handymen we deal with directly. We just hired my cousin as an assistant that we are also mentoring who will also be learning the same things we learned. We are definitely not ruling out a PM and will definitely use one in the future if it makes sense. I enjoy being a landlord. I've met some interesting tenants. A PM does not allow me to have that rapport with my tenants that I prefer to have.
While I only have 15 rentals and two flips, I have been a remodeler for 27 years and don't mind doing "everything" myself. My town does not have great PMs available, so I doubt I will ever let go of it all completely. I have amazing tenants, many of whom have told me they never want to move.
The thing is, I am not really looking to get the apartments and 50-100 SFRs, so 25 paid for units by the time I'm 65 is more than enough. I agree that those looking to scale scale scale should build a system with team members and PMs. Rock on!