Out-of-State Property Management: Placing Tenant Without PM?

Question

Hi all - I am about to close on my first out-of-state single family home and am going to self-manage the property. I am planning to use Cozy to collect payments, and am comfortable with the idea of advertising and screening potential tenants. However, I’m not sure how to accomplish certain tasks while out of state, such as performing a walkthrough with the tenants, handing over the keys, etc (or, maybe these aren’t needed…comments welcome!).

I have read about the “lease only” service that some property management companies offer, which seems to be a good option for initially placing the tenant. Once the tenant is settled in, I would be able to switch to self-management. However, it would be ideal to avoid this cost (typically equal to a month of rent) if there are only a couple tasks that seem challenging to do remotely.

Has anyone had experience placing tenants while out of state without using a property management company? Wondering if there are other options that I have not yet looked into for a couple quick 'boots on the ground' tasks.

Nathan Gesner · Answer

I think it's a mistake. Even if the property manager handles marketing, screening, and placing a tenant, you'll find yourself in a bind if anything goes wrong. Who will drive by and check the lawn or identify the six dogs in the back yard? Who will conduct inspections 1-2 times a year? If your tenant shuts off communication and stops paying rent, who's going to post a notice on their door or look to see if the rental is even occupied?

There's so much more to successfully managing a property than just collecting rent and answering the phone for an occasional question or maintenance request. Being a Landlord is easy . . . until it's not.

Greg Beris · Answer

Hi Sydney, as a local and out-of-state rental investor and property manager, I'd like to weigh in. I think you could go about hiring a real estate agent to find you a qualified tenant and pay the agent the first month's rent as a fee. We qualify tenants using Resident Research and we screen for the following:

- 600 + credit score

- No sexual, drug or violent related crimes

- No previous evictions

- 2.5 to 3x income to rent ratio, verify with paystubs

- Like to see a minimum 1 year job history, verify with paystubs

- Call previous landlord (if applicable) for reference

I'd do some online research for local companies who do the following: HVAC, plumbing, electrical and general handyman. Have two of each genre picked out and saved for when the time comes.

Be sure to hire someone to clean the gutters twice a year (do I sound like anyone's dad yet?) . Have them send you before and after pictures. Using Venmo, Cash App, Zelle, etc. has made it super convenient to pay and get paid after odd jobs.

Ask the tenant (or better yet the home inspector you used when you bought the home) about the condition of the furnace. You'll want to know what size filter your furnace needs. Order a pack of 12 from an online retailer and send them to your tenant. Follow-up with your tenant every 2-4 months and make sure they are changing the filter. They are much more likely to change the filters if you provide them. The cost is minimal for the peace of mind knowing they are being replaced and you're not relying on the tenant to purchase them. Do however keep the tenant on the hook in the lease for maintaining clean filters in the furnace.

Also, I do not play calendar or schedule match-maker between contractors and my tenant. Once the problem has been acknowledge and I decide to hire out a job, I call the tenant and provide them the contractor's phone number and I tell them to call the contractor and schedule the repair (or vise versa).

As long as you have good communication with your tenant, the process should be relatively easy. Like another poster said, "it's easy until it's not." Just try to keep it easy for as long as possible. If you get by for a few years without a PM, great.

I could go on, however, I think these tidbits should be helpful.

Scott Passman · Answer

@Sydney Munson I also have an out of state property and can definitely relate to what @Jimmy Chao mentioned in regards to maintenance. I have a PM company that manages it for me, however, I am prepared to take over self-management at some point in the next year or two because I ended up developing a relationship with a handyman out there who also assists with managing properties in the way you mentioned (ie: will show the house, set them up with keys, take a look at any issues etc) and only charge an a la carte hourly fee for any of their time rather than a %.

One thing to consider if utilizing a PM company to place a tenant for you is that if they will not be managing the tenant there is a lot less incentive for them to thoroughly screen and be very selective in who they place. Since they don't have to work with the tenant afterwards there is a less incentive to try to stay away from a potentially problematic person.....they get paid either way so the faster they place a tenant the better. Just something to consider.

Steve Morris · Answer

I'd think if it's my first OOS buy, I'd really hire a local prop mgr for the first year and watch and learn and ask questions.

As noted, handling stuff like maint and tenant issues and not being in town doesn't help. Also, each locality seems to have their own unique rules you need to know. Problem is tenants can screw up left/right, but landlords can't make one mistake if you go to court.

Drew Sygit · Answer

@Sydney Munson If you buy a Class A property, you should get a Class A tenant, which means you can almost put the property on autopilot. Placements and maintenance will be the only real challenges.

Placements: you can hire a PMC to do placement only or try a real estate agent. Highly recommend you go over screenings and reserve final say. This will address a PMC cutting corners or an agent that has no clue how to screen.

Maintenance: the toughy! Stay away from Craigslist, maybe try to use Angie's List. Also see if there are any local Facebook pages or groups for investors you can join and get referrals from.

As you move lower in the property classes, your tenant problems increase. An experienced investor could probably self-manage an OOS Class B property, but we wouldn't recommend OOS managing of Class C or D properties.

Sydney Munson · Answer

Thank you all for the very insightful replies.

@Jimmy Chao - it was really interesting to read your comment because I can relate a lot to your thought process. While I definitely want to treat this as a business/investment property, I did think it would be a really good learning experience to manage my first property myself - now I may have to reconsider. Really fair point about potentially being taken advantage of price-wise if a contractor learns I am out of state.

@Scott Passman - great point about PMs having less incentive to thoroughly screen the tenant if they know they will hand over management duties shortly after. Other than having a higher cash flow, self-managing really appealed to me because you do have more control over your investment (if done right). I've read some horror stories about people needing to "manage their manager", so definitely need to make some calls to find the best PM.

@Ola Dantis thank you! I will be looking into this idea further.

Ola Dantis · Answer

You can ask a realtor in the area just to show the property but none of the other tasks such as leasing or negotiations and/or screening tenants. In return, you ask the agent to charge you a discounted rate such as 1/2 of the first-month rent instead of the full first-month rent.

Literally, all the agent is doing is showing the unit and answering basic questions. Some might argue why would an agent do this, maybe the agent is a rookie and needs the extra income.

To further reduce the workload on the agent, you should get the agent to show the property on the same day between 15 mins apart from the other showings so that tenants can see that others are interested as this gets tenants signing up quickly and the agent has fewer showings. WIN-WIN.

Tracy Streich · Answer

Another example trying to cut corners when you just don't need to do it. I have no problem saying manage your own rentals....if you are in the same area. Out of state the risk is too high for the little money you would spend on a PM.

Adam Azam · Answer

I've have some colleagues who bought property from out of state (and even out of country) and only see the place after closing. However, what you seem to be looking at is a package solution: You buy something already in a property management company's portfolio. The question you need answered is if it's a great deal, why is the current owner getting rid of it?

You've already seen that the guys with out of the box "solutions" have limited inventory. That's like going to a buffet and only having a piece of white bread. There are agents that will help you select a properties from their entire local MLS inventory and do everything possible to help you buy sight unseen, including referring you to reputable management companies. You do have to pick the metro first.

Good luck.

Jimmy Chao · Answer

I recently purchased my first out of state rental property, and although it's not a nightmare, dealing with out of state maintenance issues and tenant problems is very stressful and difficult.

One of the most frustrating aspects is hiring and scheduling maintenance vendors at times convenient for your tenants. If these vendors realize that you're out of state (which they often do), they have a tendency to take advantage of your lack of knowledge and distance to overcharge you. It's tough to know whether $1000 is a reasonable quote for a plumbing/electrical/HVAC job if you've never seen the problem or even been to the house.

If I had the chance to do it over again, I would have made sure to include property management in my budget and business plan. Unfortunately, the margin on the property I bought is so thin that property management fees would wipe out my cash flow.

I consider this a learning experience (which I value), but I wouldn't make the same mistake again - definitely would encourage you to consider a property manager.

With a property manager, what you have is an investment. Without a property manager, what you have is a day job / side hustle that doesn't pay very well.

Out-of-State Property Management: Placing Tenant Without PM?

Out-of-State Property Management: Placing Tenant Without PM?

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