Is there any profit left

24 Replies

I guess this is mostly a philosophical question, but it's also objective. I notice many landlords of SFH do things like hire property managers, contractors to do even basic work, and when they renovate they put in top of the line granite countertops etc. Do those of you who do these kind of things actually make a profit?

I do most of my renovations and repairs myself.  I buy my appliances and other building materials at Habitat for Humanity. I have rent checks sent to a PO box and I follow up with deadbeat tenants on my own. I personally do all my accounting on QuickBooks. I do my own evictions. I show all my vacant properties myself. I interview all my prospective tenants personally.

Most of my SFH are in blue collar neighborhoods with one that is on the higher end. The high end house does have comprable high end things. Even the used stuff I buy is nice, but not perfect.

I have been critisize here for my methods, but I save money and all my houses cashflow positvly. One main thing I hear is that landlords spend their time "doing deals". Are you all really that busy getting new houses or is that just a cliche? If you are, great I'll admit I have been doing it wrong and hire out more work. But are those of you who spend all your time doing deals instead of working on your houses really making money?  Thanks, just opening up a discussion.

For those that have a robust business doing low cost work can cost them money.

Example; I run a $45 million portfolio with a staff of 60+. Any time I spent on things such as painting or sanding would be a huge loss of income as the income I generate in an hour running the business, managing my staff & marketing is much more than the cost of paying a painter per hour.

All of that said the vast majority of folks here on BP are in a very similar boat to you. There are not that many folks running $45 million portfolios. Many are simply running mom & pop operations like you.

Looks like you have a great side business in my opinion. Keep doing what you are doing. When / if you ever get to the point of needing to scale your business by hiring staff you will know.

I'm still at the mom & pop level - only have 3 properties (1 of which is under contract). I'm buying a live-in flip/house hack right now so on that property I'll be doing what you do (as much as I can DIY). I'm only going to do that until I move into a new property however and then rent that one out via a property manager.

My other two properties were bought sight unseen just based on the numbers and figured I'd use the inspection as a $400 option on the property. My 3-unit apt building I've never even visited - property manager handles everything including dealing with a contractor coming in Monday for some repairs. Both are cashflowing, the triplex is a 30% cash on cash return 3 months in. ($30k into it, 1k/mo cashflow incl property mgr).

I only want to put my own time into a properties that I'll be living in myself (for some period of time) and will have some fun figuring out how to fix everything up myself. I don't even want to visit any true "investment properties" which I buy out of state - this forces me to build a team & processes to manage everything for me while baking those costs into any deal I do.

My goal is to buy 2 buy & hold properties per year, that strategy won't scale if I need to be fixing everything myself. At any one point I want to have 1 property I'm messing with personally, and every other property whether that's 2 or 20 should be fully managed by others.

@Mark Forest Why would someone criticize your work as a self employed Property Investor / owner.. What you do to make your investment work is what's required, your ability to do what you can ,would and should, leave some of the others speechless or mute on BP..  The ability to know how your property stacks up for rent against similar spots in the same area is key to keeping full.. 

Half or more than  half of the people it seems, on this site probably haven't even read their own leases.. they plop down money for a house or duplex and say WOW I'm a landlord I"M gonna make a bundle... they hire everybody to do their jobs and sit back and complain here on BP how it's ?? not happening .. how do I do this .. or even better is WHY is my PM that I hired ripping me off.. They have no clue.

You have the game board in my opinion right on track and I  say FABULOUS JOB.. for the level of investment and business you are in.  My parents ran a very profitable rental business for over 40 years,, they were meat and potato style apartments that were always full, they did all their own work, mowing, shoveling, painting, court filing, rent collecting and bookkeeping.. They took pride in using the profits from their rentals in being able to GIVE to their charities.. But they ran a business and believe me if someone was behind on rent they kept after them till they paid,, My dad always felt that tenant that didn't come to him first to ask for grace in being late with rent was like a thief.. but for those that said,, I'm trying to catch up if you could only work with me for a bit .. My dad would write up payment plans,, and for the most part those tenants made good on what they owed and if not the agreement said,, dad could come in and change the locks and they agreed to be out by noon.. 

So good job, shopping Habitat and finding deals.. doing your own court work.. and managing your own business. Some  wish they knew how.. 

I have 10 SFH all within one hour drive so my weekends are spent driving to the houses and, of coarse, to Home Depot. I really want to get into multi family, so when I do I wonder if I will keep up with my current methods. I think I will probably always be doing the bookkeeping/ accounting.

I'm in the same boat as you Mark and I like it that way..

Mark,

Are you putting money in the bank? If I was a betting man i would bet that you are putting a lot more in the bank than the majority of the posters on here that have one agenda and that is to stroke their ego's.

I could not agree more with Deanna's response above. Keep working what works for you.

I buy all used appliances when I need to replace one in any of my units. What is the difference in buying a used fridge and placing it for $100.00 or buying it new for $800 in five years? The only difference will be $700.00 in cash flow tied up in a five year old fridge that looks just like the $100.00 one down the street at habitat for humanity.

I buy used commodes and pressure wash them and then install them. Used vanities and cabinets. Medicine cabinets, building materials. 

And you know what......my tenants have never complained and actually love their landlord. Not because I have cheap rent or I am a pushover, but because if they called me right now saying their fridge is not cooling I would be pulling up within the hour in my 2003 Pontiac Montana van and trailer with a spare used fridge from Habitat Humanity or some yard sale that I bought last spring and have kept in storage for when a fridge went down. When they have a clean working fridge within the hour and none of their food is lost they are never asking me why I am so cheap to put in a used fridge.

I also cut my own grass, for one because it saves a little money but it also gives me a great opportunity to gauge what is going on with each tenant and property on a weekly basis. There is little chance of moving in a roommate or sister with her two kids when your landlord/owner also cuts the grass, changes the furnace filters, checks the fire alarms, re caulks the tubs etc......on a regular basis.

I know there are millionaires on here that can and would never do it this way. However, I also know there are millionaires that started out with nothing but a dream and a prayer just like us and ended up millionaires but are probably to busy to post here because they are currently caulking a tub or getting their hands dirty with some task that others would turn their nose up at.

@Michael Jones , Great points.. Good job,, 

Couldn't agree more. 

My dad never pulled up in a new car at property sites,  he drove the beater van to the properties, he didn't advertise or sport his wealth. He respected his tenants and they respected him also for showing up and fixing stuff ASAP.. although he tended to draw the line at clogs and had a great plumbing snake company for those and the occasional sink..but he knew his strengths and wasn't afraid to say he was the owner. 

OMG I find it interesting on BP where property owners actually are afraid of letting tenants know they own the property,, when you think that if Donald Trump can put his name on Trump Towers why should a landlord balk at letting a tenant know he owns and runs the property ...

haha! @Deanna McCormick I remember stumbling across a thread on here where people were saying they are afraid to tell tenants they are the owners! I couldn't believe it!

We are at the buildings every weekend. I am guilty of putting in granite on a remodel, but I do it because it ups my price point. My rents increase by at least $500 a month on remodel.

With that said- I love being a hands on landlord. I do not work for deals, I love reading about it but I will take the supplemental income and stability that comes from my 2 multi families. I am often reminded of the story about the CEO who goes on vacation and meets the fisherman.

When I finish with my 4plex it will produce almost 90% more income then the day I bought it. And I am supposed to award a management company with 10% of my gross, are you kidding? On a brandinew building which will have zero headaches??? Insane. 

And let's get something straight- no one will run our properties as well as us. 

@Patrick M.   "And let's get something straight- no one will run our properties as well as us. "

That is SO true. There have been so many times where I was working on one project I discovered a deeper and bigger problem.  A contractor who I hired to do his specialty would probably never tell me about the other problem because he just wants his money for that job. I care about the big picture. 

Thanks for all the great comments above, but I am surprised no one disagrees with us.  I DO want to make big money, but I think the idea of the hotshot landlord spending all his time "doing deals" may be a myth.  

Originally posted by @Mark Forest :

@Patrick M.   "And let's get something straight- no one will run our properties as well as us. "

That is SO true. There have been so many times where I was working on one project I discovered a deeper and bigger problem.  A contractor who I hired to do his specialty would probably never tell me about the other problem because he just wants his money for that job. I care about the big picture. 

Thanks for all the great comments above, but I am surprised no one disagrees with us.  I DO want to make big money, but I think the idea of the hotshot landlord spending all his time "doing deals" may be a myth.  

At some point you just can't do it all yourself. It's the same as owning/managing a business or being the head of a department. Sure you could do all their jobs better than they could, but you simply can't do all their jobs. If your standard is to run and treat them as you would... to do the job as well as you would... and you will just do it yourself since you can't meet that standard... then you will cap out your growth pretty quickly, just as you couldn't scale any business with that standard. A good rule thumb is 80% in business. If you can find someone that will perform tasks at 80%+ that's acceptable. 

I think it's great at the beginning to do things yourself in order to make additional money to move quicker and have the knowledge to implement better systems. But if you're never willing to hand it off, you'll either cap your growth, or just replace your day job with being a property manager. 

I spent a TON of time early doing everything myself, learning, implementing systems, and even starting and selling a property management company. At this point I have 156 rental units. To maintain those I average one hour per week, and that includes the additional time at the end of the year prepping stuff for the accountant. I don't need any more properties, but I love the deal making side of things. So I spend a lot of time finding and creating deals....    -your mythical hotshot landlord

@Austin Fruechting   I am certainly interested in hearing from anyone that successfully runs 156 units!  When you go after deals what are you doing?  Are you working with a broker and analyzing the financials?    When you get to your point (which I want to do) it would be impossible to work on that many leaky sinks etc.  So how did you do it? At what point did you hand off the work and only go after deals?  I would like to see what you do on a typical day.  Thanks for any pointers.

Originally posted by @Mark Forest :

@Austin Fruechting  I am certainly interested in hearing from anyone that successfully runs 156 units!  When you go after deals what are you doing?  Are you working with a broker and analyzing the financials?    When you get to your point (which I want to do) it would be impossible to work on that many leaky sinks etc.  So how did you do it? At what point did you hand off the work and only go after deals?  I would like to see what you do on a typical day.  Thanks for any pointers.

I handed off the work when I sold the property management business at year 2.5 of 7.5. I still had my day job then, which I left at year 5. Then at year 7 my wife put in her notice. 

Honestly most days I don't do anything related to my real estate business. I have some contacts and automatic alerts that send me potential deals. When I get those I'll take a quick look at them and if they're of interest, I'll dig in further. The mathematical analysis doesn't take much time at all now. I know what expense ratios to apply based on the asset. I'll spend time looking up the owners, see if they own other stuff and if a larger package deal is available and try to strategize a way to make that happen. 

For an example I just got a 22-unit portfolio that made me 1/2 million on signing. It took a lot of time in strategizing negotiations, strategizing financing, and some other complications to get that to the finish line. That post is titled "$474,725.00 Wealthier Today..." but it won't let me link it

@Austin Fruechting   How did you finance your first big multi family?  It seems to me a bank or other financial institution won't look at anyone who does not already have some buildings, but you can't get buildings before you get the money.

Originally posted by @Mark Forest :

@Austin Fruechting  How did you finance your first big multi family?  It seems to me a bank or other financial institution won't look at anyone who does not already have some buildings, but you can't get buildings before you get the money.

I've used lines of credit, credit card advances, credit cards for materials, personal loans, big seller credits, and combinations thereof.... and equity partners when the deals were too big for the other methods. I started with smaller properties. When I got to larger package deals I had to bring in equity partners because it was too much cash for me to get from my short term sources.  

I've used the same portfolio lender since the beginning. So long as the DSCR was above the threshold they consider it self sustaining. They didn't ask questions of where the money was coming from because everything always went as planned (or close enough). I always had the money needed, always did what I said I was going to do, got everything done and everyone paid.

LIFE INSURANCE: Another thing to think about for the self managers: I would absolutely look into getting a larger life insurance policy that pays off the debt of your investments. What happens if you die? If the success of your investments is based on your work and efforts, do you want to saddle your family with that same work load? Would they have the skills to continue it? If you have life insurance to cover those debts they could either sell and make that lump sum or afford to hire 3rd party management and still make good money.  

I think it depends on your individual business and how you conduct business.  I have property managers and couldn't do it without them.  My closest rental has about $100 per trip overhead just in mileage (not including time) based on current IRS rates because of it's location as compared to where I conduct operations.  Despite what many folks here will tell you, I am of the philosophy that if you leverage yourself to the point where "other's people money" is making the other people richer than you are, then it isn't good business.  I say if what you are doing works for you, then let it keep working.  If it doesn't, then change things so it works.

@Austin Fruechting very interesting and great info.

As someone who loves his fulfilling  W-2 and benefits I am 100% for capped growth. I may have another building in my future but right now I am extremely content with 2 multifamilies. But I also must say- for me it is a load of fun to manage my properties. 

@Austin Fruechting I agree 100% Austin. I'm not near the size you are but I'm headed that way. You limit your potential and cap your growth trying to do everything yourself. Also I have have trouble when people say they are an investor when they are trying to do everything themselves or their success depends on their personal involvement. I don't see the difference between working every spare minute on a rental and being self employed at any other job. Instead I manage my pm's, my money, my leverage, deal with banks, my lender, my lawyer and my book keeper and CPA. I am currently smoothing out the rough places in a storage facility I recently bought. (It's 3000 miles away). All physical work is done locally by others. I put together the business systems and just Handel the money once it gets in the bank. All properties are out of state, and are self supporting. I look for deals as well. I have purchased 4 properties in the last 20 months. All below market, none off the MLS. All cash flow. the storage facility has a 22% ROI. I can't make that much working on the properties. Thanks to my rentals I take vacations in Thailand and own a second home in another state. I use 2 lenders, a lower level of leverage than many others and also have used credit cards for materials refinanced my car to buy a duplex and have used private money as well. RR

It comes down to the old adage, what's your time worth.  I do some things and hire out others.  At some point I will probably hire out everything, but not there yet!

@Ralph R. Your talking of extremes- "every spare minute" really? If that is where you were coming from then I can certainly understand your take. If I did not have a rewarding career which paid well and provided my family and myself the best benefits available I would go further in.

I can certainly understand and appreciate the benefits and adventure of it, I find it surprising that others can't see the benefits of other avenues of investing... but what can I do.

@Patrick M.  I believe a little bit like Robert Kiyosaki. Wealth is measured in time not dollars.  The question becomes not how much money do you have but how long can you maintain your current life style without working. The average American hovers 30 to 90 days  from bankruptcy. In other words if he looses his job or gets hurt and can't work he faces severe financial difficulties in a few short months.  Lotta risk involved with that approach. I am looking for a life style that allows me to enjoy life's freedoms. Spend time with family, travel a bit, and so forth.  In other words I'm building wealth in terms of time or freedom. In order to achieve that type of wealth your money needs to work for you. I don't see a career or owning properties that need my personal involvement providing that.  Every minute in this case does become a "spare minute". RR

There are two profit centers within a rental property (1) the investment returns and (2) the management returns.  Some self-manage and others outsource it.  Some enjoy management, others do not.  Some investors' time is better spent managing, others is not.  Some investors buy low management properties, others do not.  The answer will depend on your personal preference, goals, and investment strategy.

I couldn't agree more @Mike Dymski . Mark me down as having far too much fun managing and repositioning.

Just like you we started small and did our own work.  I now have 3 employees that work on our 105 rentals (apartments, duplexes, single family homes, office building, and 1 mobile home).  I work with my staff, controlling the assigned tasks, and during the purchasing.  My wife shows the properties, and manages the paperwork.  Works well for us.

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