Is this really the reality of property management?

109 Replies

I recently had my first call to interview a potential property manager for my first long-distance investment property and it left me a bit discouraged to learn of the reality of the costs involved.

  • 3-5 weeks to rent a property (1 month's rent lost)
  • 1 full months rent to lease it
  • 10% of the monthly rent to "manage" it... essentially collect the rent

By my calculations this means that 3 months have to go by before the property owner ever sees any of the rent.

So let's do the math for a 1-year breakdown on a fictional property that rents for $750/m and would bring in $300/m in cash flow before property management.

Costs:

$750 (no rent while vacant)
$750 (cost to lease)
$750 (10% management fee for remaining 10 months)

$2,250

+ $3,600 (Annual Cash Flow Before PM)

- $    750 (Lost Rent While Vacant)

- $1,500 (Paid to Property Manager)      

 $1,350 (Actual Annual Cash Flow)


... and this is only if the Property Manager never does anything except for collect the rent!

Is this really the reality... that the Property Management Company makes more than the property owner?

@Skye Anderson Exactly why I self manage .. look at any horrIfIc posts on here by frustrated landlords wIth nightmare tenants that show a place trashed out and full of bed bugs and roaches .. 9 times out if 10 they had a professional property manager that never inspected the property ! I’m sure there are some good ones but if I only get say 20% in profits I’m not splitting that with a guy who sImply makes some calls , collects my rent ,and puts up paper notices on a door !
Originally posted by @Dennis M. :
@Skye Anderson

Exactly why I self manage .. look at any horrIfIc posts on here by frustrated landlords wIth nightmare tenants that show a place trashed out and full of bed bugs and roaches .. 9 times out if 10 they had a professional property manager that never inspected the property ! I’m sure there are some good ones but if I only get say 20% in profits I’m not splitting that with a guy who sImply makes some calls , collects my rent ,and puts up paper notices on a door !

I hear you! And... I can't exactly self-manage when I live in a different state. Or can I?

Originally posted by @Skye Anderson :
Originally posted by @Dennis M.:
@Skye Anderson

Exactly why I self manage .. look at any horrIfIc posts on here by frustrated landlords wIth nightmare tenants that show a place trashed out and full of bed bugs and roaches .. 9 times out if 10 they had a professional property manager that never inspected the property ! I’m sure there are some good ones but if I only get say 20% in profits I’m not splitting that with a guy who sImply makes some calls , collects my rent ,and puts up paper notices on a door !

I hear you! And... I can't exactly self-manage when I live in a different state. Or can I?

Yep that’s an unfortunate part of out of state investing . I’d post up a thread in your investing  “ farm” area and find out some good property managers there that have good reviews and reasonable fees 

@Skye Anderson things that bother me about using property managers is that their goals are different than mine. They make more if a tenant doesnt renew, because they get another "placement fee" usually the monthly fee is not based on collected rent, but on the rental price, and they keep the late fee, so where is the incentive to collect on time?? If I bring someone on my team, our goals need to be in alignment, it costs me more money than it should

@Skye Anderson

Hi, Skye, I can't pretend I know anything about long-distance self-managing, as I've never tried it. But I don't think I ever will, living where I live and knowing what I know about local self-managing, and I highly doubt I could be effective doing it for one or two $750/month rental properties.

Originally posted by @Jason DiClemente :
@Skye Anderson things that bother me about using property managers is that their goals are different than mine. They make more if a tenant doesnt renew, because they get another "placement fee" usually the monthly fee is not based on collected rent, but on the rental price, and they keep the late fee, so where is the incentive to collect on time?? If I bring someone on my team, our goals need to be in alignment, it costs me more money than it should

Good point, Jason! I never thought of it in terms of each persons goals yet that is really what it comes down to - alignment of goals. Some food for thought... thanks!

Hello @Skye Anderson .  There are a lot of points to discuss on this thread.  As a property manager for over 20 years, I have faced these arguments from investors many times.  Hopefully I can help shed some light.  Firstly, the initial vacancy is hard to avoid whether you have a professional management company or not.  When you turn over a vacant property to a PM, they have to (hopefully) inspect the unit to make sure it is up to standards, market, show, screen prospects, qualify applications and generate the paperwork to move them in.  Many tenant prospects are looking for something in advance.  They don't want to move in the day they see and apply.  Many prospects want to move within 1-3 weeks after application approval.  Of course there are those who need something right away, but most responsible tenants will be proactive and try to set something up in advance of when they need to move from their current property.  There are some PM's who will begin marketing and even showing units prior to the vacancy if all the planets align.  Most PM's today do not do this because it brings up a lot of potential issues.  Will your current tenant move when they say they will?  How much work will be needed to get it in "rent ready" condition?  If you sign a lease for the new tenant and things stall, who pays for the holdover rent for the new tenant to stay where they are?  There are a lot of potential problems.   My point is, the PM does not benefit from this vacancy.  Most companies will not charge the management fee until they place the first tenant.  Maybe they get a marketing fee.  

One month's leasing commission and 10% is fairly normal in my area.  However, if you shop around and get some referrals, you may be able to find something less expensive.  For example, we are now offering 30% leasing commission and 5% management fees.  Less than half of what you were quoted.  Shop around to find a better deal.  

The initial vacancy is simply a cost of doing business, and you should factor this in to your budget, as well as future vacancies.  @Jason DiClemente suggested PM's want the tenants to not renew, so they can charge another "placement fee".  Perhaps some do, but it creates a lot more work that I don't feel is worth the hassle.  Most PM's charge a minimum fee when it is vacant, but is not equal to the management fee while occupied, so they lose that amount.  I would rather keep a good tenant happy , which in turns keeps the investor happy, and things run efficiently and without a lot of unnecessary work.  

I feel PM's often get a bad rep.  Yes, sometimes we get a beautiful property that runs so smoothly.  We rarely ever hear from the tenant or the investor.  Tenant pays every month, there are minimal repairs, and tenant has been in place for many years with reasonable yearly increases.  However, these are few and far between.  Many PM's have to deal with wacky tenants who call excessively about nothing, demanding owners who look to micromanage every move, constant collections efforts, no show prospects, incompetent vendors, tedious marketing efforts, software glitches, accounting nightmares, etc.  It can be extremely time consuming.  

A lot of problems could be resolved if there was a meeting of the minds regarding expectations of the owner and the property manager.  Some owners expect PM's to inspect their property for no cost every month or so, or to at least drive by.  We typically perform inspections every six months or so(for a small fee).  This inspection can only be a snapshot of how they are maintaining your unit.  Sometimes it looks good, then three months later when they move out the place is completely trashed and bug infested, as @Dennis M. noted.  If a PM company has good screening criteria, and an applicant meets those criteria, they must approve the application.  I'm sure there are plenty of families with 800 credit scores that have bed bugs and live in filth.  Sometimes someone is approved but lose their job right after they move in. Life happens.  Owner's should not blame the PM for renting to a dead beat tenant, provided they did everything they were required/should do when placing them.  There are many tricks of the trade that can benefit the PM , but that's a story for another time.   Hopefully this is not the first time they were dead beat tenants and the screening showed previous issues so they were not approved to move in your unit. 

Finally I feel a good PM helps protect you legally.  There may be a lot of legalities you are not aware of that the company practices daily.  I've seen many Landlords get their rear handed to them in eviction court because they had non legal leases, etc.  In some cases, the Landlord was stuck because the tenant did not have to move or pay until the Landlord was able to correct some infraction.  Nightmares.  They can also help protect you from Federal Fair Housing claims.  Of course, there are plenty of PM's who get caught for violations.  This is another reason to do your homework and find a company you feel comfortable with and is willing to work with you.  Oftentimes that means a smaller company.  I know that if I start to work with someone who ends up feeling I'm not meeting their expectations for some reason, I will let them out of the contract even if I did nothing wrong.  I feel it's better to leave on decent terms than have them hold a grudge or stick them with an early termination penalty.  It promotes good will.  Best of luck with your search.  

Look for a better deal with a better return. If you only have one property then your numbers definitely aren't going to look very good. You're not looking far enough ahead. If the numbers don't work, find a different property or picture down the line when you have a portfolio of 30 units generating passive income. You're not going to get rich off of one SF Rental. Where are you looking to invest? Syracuse has some incredibly cheap properties right now, I have a friend that has a few anywhere from under $20k to $1.5mil available. You can PM me and I'll give you his information if you're interested in exploring options in Syracuse. 

Skye on the rental the property manager is not getting property tax depreciation, any rental increases, any mortgage interest deduction, principal paydown on a mortgage, any equity growth through appreciation value of the property etc.

They are simply getting a return for a service they provide.

You did not mention the price point for this property all in and if you are paying all cash or some with a mortgage. The age of the property, area, and tenant base can be a huge factor to potential success or losing everything.

Why not buy in Austin? Austin for a secondary market in many reports is rated top 5 in the nation for current and future investment trends. Do not be lured in by low price points in other states such as 50k houses versus say 200k maybe where you live.

Example you buy an old house for 60k. Everything goes perfect and you cash flow 1,350 a year. The property 3 years later is worth 15k more.

With rental increase let's say rent averaged 1,400 over 3 years time.

1,400 X 3 years = 4,200 cash flow + 15k appreciation for 19,200 in 3 years

Now if a roof, plumbing, electrical goes out on an older house the cost could be a little less or the same as a larger property with higher rents to repair or replace.

If you have one tenant go out and turn and some big ticket items to replace that could be a swing of 10k to 15k outlay over 3 years leaving you with a nominal cash flow return.

Example 2:

You buy in Austin for 250k putting 50k down in a new subdivision. You buy in stage zero of development with just pipes and dirt in the ground from a national builder. Rent is much higher at 2,000 a month. Cash flow is less but in 2 to 3 years when subdivision is finished out the remaining few houses left are selling for the low 300's in price. Now you have almost a brand new house, stronger rent growth market, and items to repair or replace should be few and far between in first ten years.

In this example your return could be 50k to 75k equity plus cash flow versus the old house that is a big money pit.   

     

I will keep telling people over and over that property management is almost a money loser for these companies. There is just hardly any money in it at all.

On my commercial side of real estate it is one of the lowest return activities out there and I do not do it.

Example: Commercial returns lowest to highest typically.

1. 3 million dollar retail center with 200k rents at 4% management fee is 8,000 for managing a center for the whole year. Not worth it.

2. Signing a lease such as Starbucks as a tenant to a 10 year lease and making 25,000 as a tenant rep broker. Not bad.

3. Being a commercial real estate principal broker where my client buys the retail center and I get to keep it all. If another listing broker to share I get about 60k and if I double end it 120k.  I like this option for me.

4. Syndicator - Where I am the sponsor and people invest with me passively. I get commission or fee going in, fee going out, asset management fee to watch over the property and property management company ( notice I do not do property management but watch over them as the sponsor), and equity percentage in the deal. So in this way I can make way more than option number 3.

So I focus on option 3 and 4 and forget option 1 and 2. Some run PM companies just to keep their workers working and another reason is when an owner might sell off market they get notice early and might buy the property as they already know how it operates.  

If a new subdivision is not an option you might want to look at buying a house needing work locally to you but in a great location and then fixing it up to get RENT READY. In this way you could possibly have built in equity day one and your rent to sales price ratio is better than buying a ready to go property in your market. Just remember do not over improve the property when you buy to get rent ready. Rent ready and sale ready are very different.

The big money isn't so much in cash flow but EQUITY GROWTH over time with paydown and appreciation of the property. Cash flow is just icing on the cake. 

    

 

That’s why you have to account for vacancy and management fee when running numbers on a property. It sounds like you undercut your operating expenses when buying the property. 

@Skye Anderson I see you live in Austin. If you don’t invest long distance, what are you going to do? Buy a 300-400k rental in Austin? Good luck with those property taxes and insurance. (I lived in central and north Texas for 5 years). As far as what to you outlined about property manager costs yes that seems pretty accurate in my experience so far. Here’s what you’re missing. 1. I don’t expect turnover every year, hence no leasing commission. If this happens every year you’re doing something wrong. 2. My PM gets discounted materials and on things like furnaces, water heaters etc. this cost is often 50-60 percent of retail. Hence the savings and costs even out some. 3. A good PM incentivizes their staff to keep tenants long term, at least mine does. If they don’t, find a new PM. I don’t recommend managing or doing big rehabs long distance. Also f you go out of state you need to stack rentals or units. Don’t look at it as a 1 rental deal. Imagine 20 or more rentals.

@Skye Anderson You could always get other opinions. Talk to a few other property managers who manage in the area. See what they have to say. Good luck! 

Then add the average real cost for PM is 14%  after all the ups and extras. 10% is starting point if everything goes perfect. 

@Skye Anderson until you have enough units to make it interesting for a PM I would recommend managing it yourself.

I've managed rentals and rehab projects from out of state with no issues.

Originally posted by @Bob Floss II :

That’s why you have to account for vacancy and management fee when running numbers on a property. It sounds like you undercut your operating expenses when buying the property. 

I did included 10% for PM when I ran my numbers. What I failed to account for is the leasing fee and the fact that it would take a month or more to lease the property.

@Skye Anderson I have several out of state properties and don't pay 10% on any of them, the 10% is standard but not the rule. I tell new PM's that 8% is my ceiling and if they manage well I'll use them on future properties, they always take the 8% since 8% is better than 0% and they know someone else will take the 8% if they dont. Another strategy is I always place the first tenant saving that initial placement fee. Lastly, I don't know what property class or what areas your properties are located in but that can make a difference as well over the long-term Buy-and-Hold strategy. My business model only invest in major metropolitan areas, middle to upper middle class income earners, it's much easier to place highly qualified tenants and much less turnover.
Originally posted by @Steve Maginnis :

Hello @Skye Anderson.  There are a lot of points to discuss on this thread.  As a property manager for over 20 years, I have faced these arguments from investors many times.  Hopefully I can help shed some light.  Firstly, the initial vacancy is hard to avoid whether you have a professional management company or not.  When you turn over a vacant property to a PM, they have to (hopefully) inspect the unit to make sure it is up to standards, market, show, screen prospects, qualify applications and generate the paperwork to move them in.  Many tenant prospects are looking for something in advance.  They don't want to move in the day they see and apply.  Many prospects want to move within 1-3 weeks after application approval.  Of course there are those who need something right away, but most responsible tenants will be proactive and try to set something up in advance of when they need to move from their current property.  There are some PM's who will begin marketing and even showing units prior to the vacancy if all the planets align.  Most PM's today do not do this because it brings up a lot of potential issues.  Will your current tenant move when they say they will?  How much work will be needed to get it in "rent ready" condition?  If you sign a lease for the new tenant and things stall, who pays for the holdover rent for the new tenant to stay where they are?  There are a lot of potential problems.   My point is, the PM does not benefit from this vacancy.  Most companies will not charge the management fee until they place the first tenant.  Maybe they get a marketing fee.  

One month's leasing commission and 10% is fairly normal in my area.  However, if you shop around and get some referrals, you may be able to find something less expensive.  For example, we are now offering 30% leasing commission and 5% management fees.  Less than half of what you were quoted.  Shop around to find a better deal.  

The initial vacancy is simply a cost of doing business, and you should factor this in to your budget, as well as future vacancies.  @Jason DiClemente suggested PM's want the tenants to not renew, so they can charge another "placement fee".  Perhaps some do, but it creates a lot more work that I don't feel is worth the hassle.  Most PM's charge a minimum fee when it is vacant, but is not equal to the management fee while occupied, so they lose that amount.  I would rather keep a good tenant happy , which in turns keeps the investor happy, and things run efficiently and without a lot of unnecessary work.  

I feel PM's often get a bad rep.  Yes, sometimes we get a beautiful property that runs so smoothly.  We rarely ever hear from the tenant or the investor.  Tenant pays every month, there are minimal repairs, and tenant has been in place for many years with reasonable yearly increases.  However, these are few and far between.  Many PM's have to deal with wacky tenants who call excessively about nothing, demanding owners who look to micromanage every move, constant collections efforts, no show prospects, incompetent vendors, tedious marketing efforts, software glitches, accounting nightmares, etc.  It can be extremely time consuming.  

A lot of problems could be resolved if there was a meeting of the minds regarding expectations of the owner and the property manager.  Some owners expect PM's to inspect their property for no cost every month or so, or to at least drive by.  We typically perform inspections every six months or so(for a small fee).  This inspection can only be a snapshot of how they are maintaining your unit.  Sometimes it looks good, then three months later when they move out the place is completely trashed and bug infested, as @Dennis M. noted.  If a PM company has good screening criteria, and an applicant meets those criteria, they must approve the application.  I'm sure there are plenty of families with 800 credit scores that have bed bugs and live in filth.  Sometimes someone is approved but lose their job right after they move in. Life happens.  Owner's should not blame the PM for renting to a dead beat tenant, provided they did everything they were required/should do when placing them.  There are many tricks of the trade that can benefit the PM , but that's a story for another time.   Hopefully this is not the first time they were dead beat tenants and the screening showed previous issues so they were not approved to move in your unit. 

Finally I feel a good PM helps protect you legally.  There may be a lot of legalities you are not aware of that the company practices daily.  I've seen many Landlords get their rear handed to them in eviction court because they had non legal leases, etc.  In some cases, the Landlord was stuck because the tenant did not have to move or pay until the Landlord was able to correct some infraction.  Nightmares.  They can also help protect you from Federal Fair Housing claims.  Of course, there are plenty of PM's who get caught for violations.  This is another reason to do your homework and find a company you feel comfortable with and is willing to work with you.  Oftentimes that means a smaller company.  I know that if I start to work with someone who ends up feeling I'm not meeting their expectations for some reason, I will let them out of the contract even if I did nothing wrong.  I feel it's better to leave on decent terms than have them hold a grudge or stick them with an early termination penalty.  It promotes good will.  Best of luck with your search.  

Thank you for all of this great insight! It's nice to see things from a PM's point of view. 

I certainly agree that there are a lot of benefits to having someone who specializes in knowing the laws and such. 

Your post has given me some added info that I will use when interviewing the next company. Thank you!

@Skye Anderson It take less than a month to rent it out if you are self-manage. The property manager just taking their time to do everything. They would not worry about your vacancy cost. They would not get several quotes to help you save your maintenance/repair fee etc. They don‘t want any trouble but just to collect the property management fee. That’s why I sold my out-of-state properties and buy properties at my backyard only, so I can self-manage and keep all the cost to be low.
Originally posted by @Joel Owens :

Skye on the rental the property manager is not getting property tax depreciation, any rental increases, any mortgage interest deduction, principal paydown on a mortgage, any equity growth through appreciation value of the property etc.

They are simply getting a return for a service they provide.

You did not mention the price point for this property all in and if you are paying all cash or some with a mortgage. The age of the property, area, and tenant base can be a huge factor to potential success or losing everything.

Why not buy in Austin? Austin for a secondary market in many reports is rated top 5 in the nation for current and future investment trends. Do not be lured in by low price points in other states such as 50k houses versus say 200k maybe where you live.

Example you buy an old house for 60k. Everything goes perfect and you cash flow 1,350 a year. The property 3 years later is worth 15k more.

With rental increase let's say rent averaged 1,400 over 3 years time.

1,400 X 3 years = 4,200 cash flow + 15k appreciation for 19,200 in 3 years

Now if a roof, plumbing, electrical goes out on an older house the cost could be a little less or the same as a larger property with higher rents to repair or replace.

If you have one tenant go out and turn and some big ticket items to replace that could be a swing of 10k to 15k outlay over 3 years leaving you with a nominal cash flow return.

Example 2:

You buy in Austin for 250k putting 50k down in a new subdivision. You buy in stage zero of development with just pipes and dirt in the ground from a national builder. Rent is much higher at 2,000 a month. Cash flow is less but in 2 to 3 years when subdivision is finished out the remaining few houses left are selling for the low 300's in price. Now you have almost a brand new house, stronger rent growth market, and items to repair or replace should be few and far between in first ten years.

In this example your return could be 50k to 75k equity plus cash flow versus the old house that is a big money pit.   

     

I will keep telling people over and over that property management is almost a money loser for these companies. There is just hardly any money in it at all.

On my commercial side of real estate it is one of the lowest return activities out there and I do not do it.

Example: Commercial returns lowest to highest typically.

1. 3 million dollar retail center with 200k rents at 4% management fee is 8,000 for managing a center for the whole year. Not worth it.

2. Signing a lease such as Starbucks as a tenant to a 10 year lease and making 25,000 as a tenant rep broker. Not bad.

3. Being a commercial real estate principal broker where my client buys the retail center and I get to keep it all. If another listing broker to share I get about 60k and if I double end it 120k.  I like this option for me.

4. Syndicator - Where I am the sponsor and people invest with me passively. I get commission or fee going in, fee going out, asset management fee to watch over the property and property management company ( notice I do not do property management but watch over them as the sponsor), and equity percentage in the deal. So in this way I can make way more than option number 3.

So I focus on option 3 and 4 and forget option 1 and 2. Some run PM companies just to keep their workers working and another reason is when an owner might sell off market they get notice early and might buy the property as they already know how it operates.  

If a new subdivision is not an option you might want to look at buying a house needing work locally to you but in a great location and then fixing it up to get RENT READY. In this way you could possibly have built in equity day one and your rent to sales price ratio is better than buying a ready to go property in your market. Just remember do not over improve the property when you buy to get rent ready. Rent ready and sale ready are very different.

The big money isn't so much in cash flow but EQUITY GROWTH over time with paydown and appreciation of the property. Cash flow is just icing on the cake. 

    

Love all of this, Joel!

I am definitely considering Austin... and that's where I originally started looking... yet I felt like I couldn't compete. It felt very overwhelming.

The team who sold my home here in Austin recently has a team in St. Louis and there were so many opportunities there that I decided to start there. It somehow felt less intimidating.

I haven't closed on my first deal yet (I have two under contract), but I've already learned a ton that I could have never learned from any book, seminar, etc. I now feel much more prepared. And I imagine by the time I close on these two properties I will feel even more confident. At which point I will be pursing opportunities in Austin. :-)

Thank you for all of the info to consider and for helping me feel encouraged! :-)

Kindly,

Skye

Love all that you shared @Joel Owens !

I am definitely considering Austin... and that's where I originally started looking... yet I felt like I couldn't compete. It felt very overwhelming.

The team who sold my home here in Austin recently has a team in St. Louis and there were so many opportunities there that I decided to start there. It somehow felt less intimidating.

I haven't closed on my first deal yet (I have two under contract), but I've already learned a ton that I could have never learned from any book, seminar, etc. I now feel much more prepared. And I imagine by the time I close on these two properties I will feel even more confident. At which point I will be pursing opportunities in Austin. :-)

Thank you for all of the info to consider and for helping me feel encouraged! :-)

Kindly,

Skye

Originally posted by @Ray Johnson :
@Skye Anderson I have several out of state properties and don't pay 10% on any of them, the 10% is standard but not the rule. I tell new PM's that 8% is my ceiling and if they manage well I'll use them on future properties, they always take the 8% since 8% is better than 0% and they know someone else will take the 8% if they dont. Another strategy is I always place the first tenant saving that initial placement fee.

Lastly, I don't know what property class or what areas your properties are located in but that can make a difference as well over the long-term Buy-and-Hold strategy. My business model only invest in major metropolitan areas, middle to upper middle class income earners, it's much easier to place highly qualified tenants and much less turnover.

 Thanks for the info, Ray! Love that strategy. I'm going to try it. :-)

This is an age old debate that can go either way. I have had a PM from day one. At first you are blown away by the costs, then after say 10 or 12 doors you don't seem to mind anymore. You just fall into a routine. Our cash flow is several times what I spend on living expenses. So my PM gets 2K a month. What would I do with it really? If I need to buy another home, I just refinance some equity out of another. I quit my day job that paid many times that amount and I am not about to take on Land lording for 2K/month!

A little secret, Keep your INCOME below 250K or so and tax time is a breeze. You don't get taxed on all that  equity, it just takes a little longer to get it into your bank account when needed so plan accordingly. Refinance in series (regularly) so You have the cash on hand when the deal springs up. 

Tonight we pack, tomorrow we head deep into the Glacier National Forest in Montana. We will not be taking any calls from stinky tenants, We will not be working on any toilets. My lap top stays here on this desk.

Make sure to key in on a term they might say (newly rehabbed). Quantify what does that mean?

Does it mean some carpet and paint with maybe a few new kitchen handles OR does it mean new roof, electrical, plumbing, heating and air, water heater, etc. Did they take ongoing pictures of the rehab where repairs or replacements were completed?

In the lower end houses 50k to 60k the answer is likely NO that they did not do a full rehab. Most put lipstick on it and claim (newly renovated) and then sell off a dog of a property to an out of town investor. If you keep having capex after capex that can take away all your expected cash flow and actually into the negative.

You need to compare Austin to St. Louis for landlord/tenant laws. You need to plan for the worst that could happen and see how long it would take to get the non-paying tenant out, rehab for rent ready again, and then get cash flow coming back in again.

Also do not diversify for the sake of diversifying. Some people think they have 60k cash so buy 3 low end houses and how could they not lose. They all could turn out to be money pits and take them under.

Conversely 1 to 2 higher priced properties maybe 100k or higher might have a C+ to B- area and tenant and in that price point the seller might have been able to do a  full renovation. 

  

$750 rent....expect your cash flow to be much lower with non-paying tenant costs, eviction costs, and the vacancy in between the next tenant.  Thats going to be a fact of life at this rental price point.

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