Can you own a rental without actually being a lanlord?

Question

I know, sounds silly! I want to purchase a rental property (4 units) without actually tending to the day-to-day responsibilities. I don't know much about property maintenance (cutting grass, gutters, appliance issues and etc...). I don't currently own a home so this would be an entirely new experience for me (I want the first property I purchase to be an investment property).

Another investor told me to use a management company to manage the property. What are you thoughts on this? Do I need to have handy-man skills in order to own a rental property?

Any thoughts, insight, and advice would be helpful! :-)

Brent Coombs · Answer

@Ashley Burks, whenever you analyze the numbers for a potential investment purchase, include as part of your expenses: ~10% of rent goes to your carefully sourced / trusted Property Manager. The other pro forma guesstimates for expenses are: 8% for vacancy allowance; 15% to cover capital expenses / maintenance; and don't forget Taxes and Insurance. The expenses total (not including mortgage Principal and Interest) is often summarized as the "50% Rule" of thumb. ie. Make sure your Principal and Interest payments are below (the other) 50% of your calculated monthly rent return! You want/need this to be true even when borrowing around 70% of your investment's value!

Well, that's it in a nutshell. So, you need no handyman skills, but, fine analytical skills! Good luck out there...

Thomas S. · Answer

You do not have to be a landlord but to avoid being taken advantage of by a PM you must know the business in order to manage your manager. Many arm chair investors lose it all when they hire a PM, know nothing about property management themselves, and let the PM run the operation unchecked.

If you do not know how to manage your property through managing your PM don't expect to make any money or stay in business very long.  You would be better off partnering with a experienced landlord/investor.

Finding the right PM will be a frustrating process that will likely be expensive.

Ali Boone · Answer

I use a property manager for all my properties except 1, and I love it. So you don't have to do maintenance or repairs or even deal with the tenants. It's not 100% hands (or brains)-off though, you need to keep your head in the game about the manager. They don't always function entirely right so you have to be ready to step in should anything start going wonky. So your job really becomes to 'manage the manager' rather than to manage the property.

Marisa R. · Answer

When you have a large portfolio of properties the last thing I want to do is be a landlord.

I pretty much want a passive investment where I have a property manager managing my properties.

However, from experience I have found the only way it works for me is managing the manager.

In saying this you can take a horse to water but you cant make it drink. So its very much dependent on whether the property manager wants to work with you, so you need to be upfront about this.

Over the years I have developed a system where I have property managers in place, but I also have key maintenance people I have sourced that are reliable and cost effective. My Property managers know they can only use my maintenance people and they understand this and its clearly marked on their systems.

The reason I  use my maintenance crew is because from experience property managers does give a rats about my money, they think I am an open check book and they are happy to spend my money, with little regard to actual costs.

I pay all my maintenance people direct via check. No money/expenses come out of my rents, other than the property management fee of 7%-10%

Generally a nice surprise at the end of each month.

This is how I work it and happy with this, only took me 6 years to work this system out... perhaps I am  a little slow at learning, but very happy with this now.

Karen O. · Answer

You should get plenty of feedback.  But the answer iis that you don't need to be handy to own investment property.

And since you don't want to actively manage, you will need to hire a property manager.

You should always run your numbers with property manager expense added.

And check this site for checklists on what questions to ask a property manager (PM) or the BP store for Brandon's books on rental property investing and managing rental properties.  They are great resources.

Good luck.

Karen Rittenhouse · Answer

@Ashley Burks Property management. Allow at least 10% for a property manager as many have additional charges for additional services.

Interview property managers and speak with people using them to find pros and cons of each. Most want a 1 year contract and, if you're not happy with them, you can change at the end of the year.

As an investor, you make no money managing properties - you make money speaking with buyers and sellers. So let someone else manage and do not focus on your own maintenance. There are plenty of people willing and able to handle the small stuff.

Good luck!!!!

Can you own a rental without actually being a lanlord?

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