Never Landlorded, What makes you do it over paying a PM

51 Replies

Hello All, 

I am going through growing phases in learning how to properly invest in real estate. For the last 12+ years i purchased properties and turned them into rentals as i switched duty stations in the military. Over the years i have never land lorded any of my own properties, but i did house hack for about 3 years of that. Currently i have 5 rentals and in 5 different states, so im forced to have 5 different PM's and 5 additional states i have to file taxes in. I am currently contemplating selling some of these properties since they are near peak in each area and would net me enough in equity profit to purchase new properties in my local area here in Florida and make more cash flow if i 1031 exchanged, which i have never done before. 

So, i am on the fence about doing the property managing myself, currently i am a Registered Nurse who works 3 days a week (Night Shift), so i have a good portion of the week im free to things and im pretty handy with things from learning over the years fixing my own primary residences, my last rental property i bought it was a fixer upper and did all the work myself outside of dry finishing. I did the painting, replaced the roof, hung the drywall, replaced the kitchen cabinets, layed new tile in all 3 bathrooms, put wood engineered flooring in house and replaced the water heater myself. So i have gained experience in many of the common repair areas in housing, so its been a thought to take over the management until i become larger. 

Reasoning im thinking of doing self landlording:

1) I have gained a lot of experience with home repairs over the years, im not a professional, but i feel like im pretty handy. 

2) I am currently paying nearly $900/month in PM fees on 5 properties, so i feel like that would be a huge savings if i did the management myself. 

3) $900/month could pay for another rental property....

@William Huston well Your giving away 11 grand a year of profit to them. That’s enough incentive for me to do it myself . Obviously that would require you to be faIrly local though . Pms offer a valuable service If they are good .i would say Landlording is a savage business If your timid big hearted or anxious/ nervous type then it will be hard for you to be a landlord and self manage . Being your in the military I’d bet you’d do well and have the fortitude and self discipline required in stressful situations .if you invest in a b class neighborhood it won’t be too bad . C and d class get really frustrating I won’t lie .
@William Huston Dont be afraid...cancel your PM and take control...you will learn quick. All these investors talking about "my time is worth more"...that's because they cant multitask. I manage 40 SFR , work a full time job...and have plenty of time to buy more properties and grow my investments...because I didnt listen to the "noise" and I created a system. You can do the same...

It's not just the money, it's the control. By showing my own units I can make my own judgement of the prospective tenant, and by managing my own maintenance I know exactly what's going on, and can make a more informed call about how to deal with problems. Also, with my relatively high rents, over $200k for 12 units, that's a lot of money out the door per unit. I might feel differently if I had 40 doors for the same rent.

@William Huston

5 properties in 5 different states, five property managers taking their cuts, in full knowledge you're not in a position to increase your holdings in their areas. Mr. Money Mustache, the modern godfather of the financial independence movement, has this very simple calculation that was quite helpful for me in understanding the real costs of property management: take any fixed monthly expense you have and multiply it by 173. That's how much that monthly expense compounded over 10 years is going to cost you instead of putting that money in index funds. Every single dollar you shell out on average to property management every month or put aside as cash reserves in low-interest accounts to be drawn down whenever your property manager wants to bleed you s'more could be making you $173 after ten years in index funds at 7% a year. 7%. If you're making more than 7% net annually with your current real estate investing systems and processes, more power to you. But if we made only 7% net profit a year on our rental estate holdings and acquisitions my wife would probably leave me.

This is a great time to sell almost everywhere, and as all good times to sell are, it is therefore a bad time to buy.

Yet bad luck strikes outside the business cycle, and there are always off-market opportunities to learn about and take advantage of. If I were you, I would move to Florida, develop your pipelines in the local market to generate quality off-market deals, and sell strategically out-of-state at lowish prices to 1031 locally. There are plenty of people on this site that can help you learn more about how to do that. I would also invest in a future live-in flip first as a 1031 rental property if you're married. Every live-in flip a married couple pulls off can funnel half-a-million gloriously tax-free dollars into their pockets. BP's own @Mindy Jensen is one of our local experts on that real estate strategy.

And oh, yeah, that's the best piece of free advice I can give you. GET MARRIED. 95% of the millionaire households in this country are either married couples, widows, or widowers. Do you know how much that statistic has changed since 1991, when all the incredible social transformation into a new liberated order we keep talking and talking about is all said and done? In 1991, it was 97%. GET MARRIED. I don't care if you're gay as a daffodil or straight as an arrow, or anywhere in between. I mightily suspect that when the long-term stats come out on that, the whole country's going to have a belly laugh at how little the American dollar will care about the waterworks of who you love and build your fortune with.

This is my 666th post. To the Devil I go!!!

@Jim K. Say hi to the devil for me. Interesting stat about the marriage and wealth thing. Makes sense to me. All the well off people I know are married. Also to add to what you said, if you get married stay married. Divorce wrecks wealth. @William Huston . I would sell the houses and 1031 exchange and then see if you want To self manage or not. You do give up profit but for someone like me, I like the ease of it. The PMs I use get better pricing then I’d get just doing it myself (for materials). So I think it evens out in a lot of ways.

@Jim K. "I would also invest in a future live-in flip first as a 1031 rental property if you're married. Every live-in flip a married couple pulls off can funnel half-a-million gloriously tax-free dollars into their pockets. BP's own @Mindy Jensen is one of our local experts on that real estate strategy."

Could you please go into more details on this process, i am not sure if i understand what you are saying correctly. The way im reading it, it sounds like your telling me to go out and buy a property as a primary residence that needs to be flipped/fixed, then 1031 exchange it into another property as a rental? If your are saying this im not following, i thought 1031 exchange only applied to properties that are deemed rentals and can only be exchanged into another property deemed a rental, not sure how you would live in it legally. I may be wrong on this, just going off what i have read recently on 1031 exchange.

Originally posted by @Dennis M. :
@William Huston

well Your giving away 11 grand a year of profit to them. That’s enough incentive for me to do it myself . Obviously that would require you to be faIrly local though . Pms offer a valuable service If they are good .i would say Landlording is a savage business If your timid big hearted or anxious/ nervous type then it will be hard for you to be a landlord and self manage . Being your in the military I’d bet you’d do well and have the fortitude and self discipline required in stressful situations .if you invest in a b class neighborhood it won’t be too bad . C and d class get really frustrating I won’t lie .

 That is kinda what i am thinking, i have never managed them myself, but i feel i could do it, just need to figure out all the steps associated with it first, like the correct way to find renters and screen them correctly, to generating a correct contract for the renter to sign, to generating a list of people who can perform some of the repairs as i manage the properties.

@William Huston Hello William, I say do it your self. It’s ok to be nervous because is something you haven’t done before. I have two properties I rent out, and I manage them my self. When I first started I had no clue how to do a contract, how to screen tenants, or how to advertise the properties. It was a learning process for me, but I did it. I learned a lot from BP. Just ask questions and somebody always has the answer. I also did a lot of research about the things I didn’t know. I have a real state lawyer who created the rental lease for me, and gave every copy of all the legal documents I needed to have with my lease. She also gave copies of all the housing laws and regulations of my state. To screen my tenants I use COZY, is super easy and simple and the tenant pays for it. Do your research, ask questions and you I’ll be fine. I would NOT pay a PM if I can do it my self.

If you're handy and they will be local to you, I say go for it.  Are you fairly, but not too, layed back?  Can't fly off the handle or take personally every little thing.

One of my worst mistakes was letting a slow/no payer go too long.  Wish I had  PM on that house that time!  Walk softly but don't be afraid to wield the stick!

I've paid off apt buildings with the savings from doing it myself.  I also enjoy it for the most part and don't want to get too bored.  The real costs of a PM are apathy (slow turns and not securing the property when vacant- ya, sorry the pipes burst on you again) , placement fees and high repair costs.   

Our goals are not aligned.  The higher the repair bill, the more they make.  Placed a crappy tenant?  Oh well. Late fees they keep, an eviction (with admin fees and overrides) then another slow turn with costly subs and more overrides and ....another placement fee!  I can turn in 3 days what takes a PM 60.  What's up with that?

@William Huston

I'm telling you to have a long chat with a live-in flip specialist, a 1031 exchange specialist, your CPA, and your spouse about the tax ramifications of buying a rather expensively-located but unsightly, rundown single-family Florida house with 1031 exchange cash derived from selling all or some of your current rentals.

If the chat goes well, with any luck, you will find a family in deep financial distress who have made silly personal finance decisions needing to sell their aforementioned not-so-nice single-family house as quickly as possible. You will stack glowing green stacks of US cheddar in front of them until it overwhelms their unprepared minds and they fall sobbing upon it, begging you to just take their house and leave them the Bliss of Franklin.

You will then rent out that property for at least a year while you live somewhere else.

Then you will get rid of your tenant in that property and move in your family, and then spend at least the next two years pimping it up to sell as your primary residence for a gain of less than or equal to $500,000.

AND THEN YOU WILL GET PAID.

I am not an expert on any part of this except perhaps a few aspects of handling the actual work of the live-in flip.

Originally posted by @Maria Luna :
@William Huston Hello William, I say do it your self. It’s ok to be nervous because is something you haven’t done before. I have two properties I rent out, and I manage them my self. When I first started I had no clue how to do a contract, how to screen tenants, or how to advertise the properties. It was a learning process for me, but I did it. I learned a lot from BP. Just ask questions and somebody always has the answer. I also did a lot of research about the things I didn’t know. I have a real state lawyer who created the rental lease for me, and gave every copy of all the legal documents I needed to have with my lease. She also gave copies of all the housing laws and regulations of my state. To screen my tenants I use COZY, is super easy and simple and the tenant pays for it. Do your research, ask questions and you I’ll be fine. I would NOT pay a PM if I can do it my self.

What type of properties are you renting out?

Originally posted by @Jim K. :

@William Huston

I'm telling you to have a long chat with a live-in flip specialist, a 1031 exchange specialist, your CPA, and your spouse about the tax ramifications of buying a rather expensively-located but unsightly, rundown single-family Florida house with 1031 exchange cash derived from selling all or some of your current rentals.

If the chat goes well, with any luck, you will find a family in deep financial distress who have made silly personal finance decisions needing to sell their aforementioned not-so-nice single-family house as quickly as possible. You will stack glowing green stacks of US cheddar in front of them until it overwhelms their unprepared minds and they fall sobbing upon it, begging you to just take their house and leave them the Bliss of Franklin.

You will then rent out that property for at least a year while you live somewhere else.

Then you will get rid of your tenant in that property and move in your family, and then spend at least the next two years pimping it up to sell as your primary residence for a gain of less than or equal to $500,000.

AND THEN YOU WILL GET PAID.

I am not an expert on any part of this except perhaps a few aspects of handling the actual work of the live-in flip.

That is interesting, recently i came across an investor at a local REIA that mentioned he didnt buy properties for cash flow or low price, but he was an equity investor. Mentioned that the 300-600k price range here in Florida has a lot of room to generate equity and that he found it very easy to get atleast 10-20% equity instantly out of the deal. He said he would buy like a 500k property for 400-450k that barely needed any work, then he would rent it out just expecting to brake even at least on cashflow, but preferred a little cashflow. Then he would hold the property for 2-3yrs and then refinance it back to the 80% loan value, but typically in 2-3yrs he could pull out the 150-200k that was payed down on the loan via the renters and pocket the money for living income or use to pay for another property. At the time i spoke to him, he said he was averaging around 230k/yr in equity paid down by the renters on his properties.

I self-manage for a couple reasons. I'm close by, I can save a lot of money doing it myself, and I'm fully responsible for whatever goes right or wrong. Sometimes I'm a little too laid back and nice, but I have really good tenants right now so that isn't an issue. Being a LL isn't really that difficult once you learn the process. Give it a try and if you don't like it/can't handle it, you can always find another PM.

@Steve Vaughan Has a lot of good points. But just be aware that not all PMs are like he describes. Just the bad ones. Barring a lot of work that needs to be done it should take 3-5 days to turn a property/unit. My favorite PM (I use two) assigns bonuses to the property manager (the day to day guy) for keeping tenants long term. Meaning when a tenant resigns, he gets a bonus. This aligns his interests with mine. They also do 18 month leases and tenants usually resign once on average. This all plays in my favor. If you go the PM route this is the sort of thing you want. Unless you’re buying large apartments be leery of the 12 month lease model. I like 13 month minimum then you’re only paying the placement fee once per year.

Its possible to set up your purchases and management to favor you as a landlord and your particular skills and interests. For instance, buy a bunch of properties in close proximity in a place not far from where you live. Buy distressed properties at auctions or from wholesalers and fix them yourself. Get your places looking really pretty, then be patient and you can get the tenants you want - nice people that can afford the place. Its a lot easier to self manage that way. Good Luck!

Originally posted by @Gordon Starr :

Its possible to set up your purchases and management to favor you as a landlord and your particular skills and interests. For instance, buy a bunch of properties in close proximity in a place not far from where you live. Buy distressed properties at auctions or from wholesalers and fix them yourself. Get your places looking really pretty, then be patient and you can get the tenants you want - nice people that can afford the place. Its a lot easier to self manage that way. Good Luck!

I need to do more homework on the auction homes, i have some cash that i think i could pay cash at auction for a house in my area, but when i go to the sites and see all the data they list, i am unsure of all the troubles i could get into, how to protect myself during the buying process along with what happens to these debt numbers they list on the propertys. Example i went on auction.com and some of the properties list debt amounts, or say they are occupied and come with people living in them.. things like that. I just dont know enough about them to really feel comfortable bidding on one. I see ones in my area go for really cheap prices... 50/60/70% of the ARV, just dont know if its free and clear when you bid on them and win or what..

Originally posted by @William Huston :
Originally posted by @Gordon Starr:

Its possible to set up your purchases and management to favor you as a landlord and your particular skills and interests. For instance, buy a bunch of properties in close proximity in a place not far from where you live. Buy distressed properties at auctions or from wholesalers and fix them yourself. Get your places looking really pretty, then be patient and you can get the tenants you want - nice people that can afford the place. Its a lot easier to self manage that way. Good Luck!

I need to do more homework on the auction homes, i have some cash that i think i could pay cash at auction for a house in my area, but when i go to the sites and see all the data they list, i am unsure of all the troubles i could get into, how to protect myself during the buying process along with what happens to these debt numbers they list on the propertys. Example i went on auction.com and some of the properties list debt amounts, or say they are occupied and come with people living in them.. things like that. I just dont know enough about them to really feel comfortable bidding on one. I see ones in my area go for really cheap prices... 50/60/70% of the ARV, just dont know if its free and clear when you bid on them and win or what..

be careful doing this.  You can have title issues and lots of other issues if you don’t know what you’re doing.

I know of an investor who does this but uses a company to do it for them.  They’re high volume though, buy around 4 a month 

If you are uncomfortable, you are probably not ready for the auction. But it is something you can learn if you want to get steals on distressed property. Each county has a foreclosure process and how good a job they do with it has a lot to do with how confident you can be buying foreclosed property wherever you get it - at auction, on mls, or from a private source. I always check places out beforehand and make sure they are vacant and decent. The county treasurer, county recorder, BP, google - usually lots of info available on a given property or a given type of auction. In my area foreclosed titles are squeaky clean. The county will buy them back if debt is attached to them.

I manage 2 sfh in Florida I've owned for 15 years. Now 1 condo near where we live in Brooklyn. So the two in Florida I've managed long distance for 10 years. I have a handyman, pest control, plumber, painter, carpet installer that I have developed relationships with. I call them and they call the tenants. I like managing them myself. The turnovers are painful and expensive. But it's worth not paying 2400 a year to a property manager plus all their extra fees. Good luck 

@Caleb Heimsoth

First, I've hired two property managment companies.  Each time, they cost me all my profits on the buildings I owned that I allowed them to manage.  I've fired both, and manage all 8 units myself.  It would be nice if there was one good one, but when the PM is spending your money, I find they don't give a hoot.

@William Huston

Your are asking more than one question.  My contribution is on PM's.  Do it yourself.  I handle all my tenants through texts alone.  No phone calls.  Everyone has adapted.  I also fix up all my rental to the point where I'd live in them.  This takes care of most maintenance.  And when something needs fixing, I hire a pro.  They do great work and get it done right the first time.

@Jim K.

As a born again Christian, I can tell from your posts you must have been raised in the Church.  Fear not...posting 666 times does not make you the antichrist.  And you crack me up man!!