Start a property management company which guarantees rent?

Member since 2020 · 6 posts · 1 vote

Hey folks,

I'm a landlord with four properties, and have had bad experiences with property managers. I'm thinking of starting a property management company with "skin in the game". My idea is to sign multi-year leases with landlords on a master lease, paying them guaranteed rent each month. I would handle tenant selection and rent the property out to tenants. I'd cover any major damages to the property beyond usual wear and tear. I would also handle all the traditional aspects of property management and maintenance. The expectation on level of repairs' would be to keep it in the same condition at the time of signing lease.

I know there are a few companies exploring this, but I wanted to get feedback from other landlords. Looking for feedback/thoughts!

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

@Gabriel Harper I think it's a losing proposition unless you charge a significantly higher fee or pay the owner a significantly reduced monthly income.

Just off the top of my head, I suspect you would need around 25% of rent income to make it work. Yes, the Landlord is getting a guaranteed income, but it's also a guaranteed loss of 25% every month!

Let's say the market rent is $1,000 a a month. You pay the owner a guaranteed $800 a month and keep $200.

If the home sits vacant for one month, you've lost five months of income. Get a tenant in and start catching up, and then the refrigerator goes out. That's another $600 or three months of income. Tenant moves out and causes $1,500 in damages but you only had a $1,000 deposit, so that's another $500 in lost income.

You could do better through scale because most units get rented faster than a month, most homes don't need a new fridge, and most renters don't leave owing more than their deposit. The question is, are you able to make the numbers work and still make the guaranteed income high enough to attract investors? And what are you gaining from all this? Do you think it's going to build a business that creates greater success than can already be achieved with a traditional property management company? As a property manager that networks with thousands of others around the country, I don't think it's a viable business model because the cost to build/maintain it outweighs the benefit gained, for you and the Landlord.

By the way, the program @Brian LeBow uses is an insurance program, paid for by the Landlord. It's relatively inexpensive, primarily because the only Landlords that will ever buy it are the ones with higher-end properties that are unlikely to experience evictions, unpaid rent, or trashed homes. It's much different than what you're talking about.

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Gabriel Harper
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Member since 2020 · 6 posts · 1 vote
6y
@James Hamling

Can you help elaborate on the additional information you're looking for when vetting tenants? Is it fine-detailed reviews from prior landlords? If you could wave a magic wand, what would your ideal "tenant report" contain?

Why are reviews impossible now? Is it prior landlords' being concerned about violating FHA, or prior landlords' being concerned about liability (potentially being sued by the future landlord or the tenant under reference)? Or something else? Any information you can provide would be hugely appreciated!

I've also sent you a message to see if we can hop on a call.

I would guess that a small number of tenants often end up causing a large fraction of total costs/issues (please weigh in here!). One advantage of being a property manager at scale is you get to collect proprietary fine-grained data on all these tenants.

@Johnny Wolff

I've gone ahead and booked a time for us to jump on a call!

Also, wow, the BiggerPockets community is awesome - lots of great discussion going on here!
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Lynnette E.
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
6y
Only way this seems financially sound would be if its rent by the room or short term rentals. As a landlord I am not interested in my property being used in those ways.
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