6-10% SAVINGS- Self Management in the Townhome Market

4 Replies

I work with many investors from out of state, and aside from their returns, their most important concerns are with the management of their Condo/Towhome.   The point of this post to help share ideas on how to self manage your Townhome unit and increase your returns in the Kansas City marketplace.  

By self management, an investor can usually increase their cash on cash returns 6-10%.  Saving on monthly management fees, overpriced maintenance, and the stress caused by trying to understand if your property manager is actually working for you, or the guy next door.  

Step 1: Buy a townhome in a community where their is a strong HOA

*Many of my townhouse are in Hunt Midwest Communities, and HOA fees are usually $115-$129/month.

                *HOAs usually cover lawn care, sprinklers, lawn watering, siding and exterior care, insurance, and more

                *This covers most of the exterior line items that you would otherwise have to address in a single family home. Townhomes can appear in a pro forma to show a lower return, but holding long term returns are much higher than a single family home. 

Step 2:  RENT IT -   When you go under contract for a townhome, its smart to immediately get it on a rental website, I use Zillow and Craigslist exclusively.  Ask your agent to fix a lockbox on the front of your door, so that you can then give the key code out to potential renters after closing.  NOTE: I always make renters send me their drivers license prior to giving them the key code. 

            *When deciding on a rental range, its relatively easy to choose your rents as townhome communities are all the same.  A brief review of zillow will show you at what price to rent as the neighbors will be a good comp for you.  I always show a lower rent than anybody in the neighborhood to make sure my listing gets visibility first.  Then I kindly explain to the potential renter that the rent stated is only a promotion for the first month.  

            *Handling your own leads is wild effective over a property manager! You can get people into your units in minutes or hours by giving them the key code.  Some property managers have other units they need to fill first.  And sometimes only show 1 or 2 days a week.  You offer yourself a strategic advantage by allowing your clients to get in your unit NOW! 

By the time your unit is rented, you have now saved a lease up fee due to your property manager of likely $600-$800.  This would have covered paint and cleaning that you may or may not have needed.  Moreover, saving 6% each month allows your tenants to get their units cheaper, sometimes they can't afford to leave so they will stay in your unit years as the neighbors units are markedly more expensive.  

A quick example:  I have many units in KC and my units in Benson Place have never had more than 7 days of vacancy.  All of my units have been the same renters for 4 years or more. I rent my units $110 a month cheaper than the competition and can easily afford to as I self manage.  In 4 years I have projected that my strategy has saved me $13-$15K in vacancy and lease up fees.   When someone does move out, I deal with it, calling only local contractors from the BBB in the my area.  I allow them entry into my unit with that same key box I mentioned above. 

In short, self management in KC is the way to go.  Focus on lowering rents to keep vacancy down! 

Good Luck! 

@Andy Mackey   This is good info for just about any market that someone is investing in townhomes, although I have a good PM and since I am OOS I leave it to them. 

I actually prefer townhomes to SFR's as rentals for a few of the points you had made in your post. Although I do distinguish between condos and townhomes.... condos I am not a big fan of because of more common walls and potential problems and expenses.

One thing I am curious about, you said:

Townhomes can appear in a pro forma to show a lower return, but holding long term returns are much higher than a single family home. 

Is this a fact that townhomes outperform SFR's over the long term? Most would point to HOA fees as lowering the returns.

Hi John, 

I am of the opinion that those HOA fees more than cover the cost of maintenance with a SFH that you would otherwise pay for. Fence repair, yard repair and mowing when its empty, siding and all exterior coverage, and it includes your insurance. The fact that the HOA governs what tenants can and can't do keeps the property looking uniform and consistent, quite different than a SFH. And one bad tenant can destroy a yard/curb appeal. Not to mention the amount of damage a dog does to the inside of the house. When people are in a townhome, they feel like its theirs. But I have to tell you, the townhome renter is much more caring and responsible than the folks that rent a SFH by far.

Andy

Originally posted by @Andy Mackey :

Hi John, 

I am of the opinion that those HOA fees more than cover the cost of maintenance with a SFH that you would otherwise pay for. Fence repair, yard repair and mowing when its empty, siding and all exterior coverage, and it includes your insurance. The fact that the HOA governs what tenants can and can't do keeps the property looking uniform and consistent, quite different than a SFH. And one bad tenant can destroy a yard/curb appeal. Not to mention the amount of damage a dog does to the inside of the house. When people are in a townhome, they feel like its theirs. But I have to tell you, the townhome renter is much more caring and responsible than the folks that rent a SFH by far.

Andy

Yes I agree if the HOA is well managed then the fees should go to maintaining the property and keeping it nice which also helps with keeping property values up.

One benefit for me is it allowed me to buy a newer property in a great area with top schools, where a SFR in the same area was beyond my budget. The tenants I have are great, they are on their second year and pay their rent early every month, take very good care of the place and don't cause any problems. I can't complain!

Wow, a lot of great info for individuals interested in self management of their HOA townhomes. I’m of the mind that self management is the way to go, if you’re up for it! There is definitely money to be saved going this route. However, if your tenants start violating HOA rules and you (the owner) gets fined..there goes your savings! You could pass on the fines to the tenant..that can go a number of ways. Regardless of who is living in the property, the owner is ultimately responsible for the behavior of their tenants. I’ve worked with owners who self manage their properties in HOAs and have seen this happen many times. It’s worth really digging into the rules and ensuring your tenants understand them so that you aren’t paying for their behavior and that you are able to keep your cash flow intact!