So, I mostly just wanted to share an alternative view on the whole property management vs. deal with headaches yourself debate.
I have 6 units in three states: 2 apartments and a store in Brooklyn, a condo in Florida, and two units in PA.
I live 2 hours from all of them except the Florida condo.
I use a PM for the two PA units and manage the rest myself. (The RE agent in FL does some light PM work for "free").
The Brooklyn one is my first, my "baby," so I wanted to do it myself for the experience and because I've heard horror stories about PMs, plus NYC PMs for small owners tended to be pretty pricey with not great reviews. However, I am very busy and have zero desire to do much PM work. I never want to hear from tenants. I read about owners who "check in" with their tenants every 30 or 60 days and think "I see how that is 100% great advice, but I have ZERO desire to do that." My goal is to field 3 emails per unit per year, and one of those should be telling me they want to re-sign at the new rental rate every year.
So far I have been VERY successful in achieving that (more so than I think anyone can fairly deserve to expect).
Here's the catch (no free lunch). I thought to myself, "I could pay a PM 12% to give lackluster service to me and tenants, OR I could set the rents 10-12% below market rate and be very up-front about who I wanted to rent to." You: self-sufficient tenant, can handle minor tasks yourself, can be home to meet contractors, can find and schedule your own contractors, are happy to pay those contractors out of next month's rent, must be willing to do electronic rent payments. Me: laid back, non-intrusive, will not be a cause of delay for repairs because I'm not involved beyond sending you a confirmation email within 24 hours when you let me know you have an issue that you are seeking professional help resolving.
Maybe I'm just the luckiest guy on earth, but I've had several tenant groups/families so far and everyone has: (1) been either perfect or close to it, (2) rarely needed a plumber/electrician/other paid contractor and never appeared to be trying to "take advantage" of the situation, (3) seemed super happy with the arrangement.
One reason I thought this might work is my own personality as a renter. Just like I don't like calling tenants, I also don't like calling landlords. I prefer to fix minor things myself. Even paying for inexpensive parts if needed just to avoid strangers in "my" house/apartment. I figured, hey, maybe there are others like that out there who would love to have a solid 10% discount on their rent to just live the way they want to, to the mutual benefit of us both. So far so good... (famous last words?)
When tenants pay $2000/mo for a $2000/mo apartment they expect service. When they pay $1800 for that same apartment they're happier, friendlier, less demanding (my experience). So do you want a demanding tenant serviced by a PM or a happy self-sufficient tenant serviced by themselves? Same price to you either way.
[Obvioulsy, not for everyone, not for every situation... even I have started using a PM for units 5 and 6, because while I could handle a 5th and 6th great tenant, I do understand that this system has the POTENTIAL to turn into a time-suck at any moment.]
Interesting idea. I think with a few properties that might fly. But I've got 60+ houses. I can guarantee you some of these renters are going to "make up" repairs. Have their buddy that happens to own an hvac, or electrical company or something submit a receipt and then the tenant will get deducted rent.
Now obviously they can't pull that off every month but that can add up quick if they do something once every 3 or 4 months - times 60+ houses - or say 10 houses that get clever tenants.
Maybe a quick adjustment of your plan that the tenants have to call your guys would be an easy fix to that.
But at the end of the day, you're still having to do make ready and leasing of the place, so you're not really replacing the PM effort. I actually think that the make ready on turnover and showings for leasing is the bigger effort in PM.
I self manage and I bet I get repair calls, on average, of about 2 to 3 a year for each house. I don't actually answer the phone though. They leave a vmail, I text them with any questions I might have (i.e. did you check the breaker? Have you changed the filter recently, etc), and then I text the appropriate contractor based on the fix and coordinate a time.
I never go look at the problem (I can't fix it anyway) other than once in a blue moon if I'm bored or if I'm really not sure what the tenant is talking about.
But I do like your ideas here. The online payment thing is one I adopted and absolutely love. The mortgage payments going out are also set up in my bank's bill pay service so its true set it and forget it.
If I were to die, these things could go on for years without any intervention from anyone other than to manage any repair calls. :-)
I do something quite similar with what you do.
One exception is that I form partnerships with other Investors and seek out one of those Partners that is willing to live in the new building for at least 2 years when we buy a new Property.
By having an owner live at the building for a short while, it helps us work out the problems that occur with a new Investment which is generally an older building built 50 to 100 years ago as most buildings in the area where we buy are around that age.
We generally don't trust prior owners to have taken care of the building so that we don't have problems and know that the 1st two years is when we wind up encountering them (such as water leaks, bad plumbing, heating issues, etc).
Our tenants genuinely appreciate the quick service we give them and it helps us because small problems don't get bigger and costlier.
We definitely advertise the apts around the Market Rates, but we then offer discounts to those who are above our qualification criteria, which is usually 700+ Credit Scores, 45 times monthly Rent for Income, no evictions, etc. The discount usually is around 3% to 5% of the advertised rents.
So someone coming in with an 800+ Credit, 50 times monthly rent roll, etc. Will be offered the discount. We probably have 90% of our apts with way over qualified tenants.
We also include the ability to break the lease with a 45 day notice providing that the move out date is not in the winter months.
We let any prospective tenants know that a "Super" lives in the building and will take care of any problems right away. In a City where things like Pests, particularly Bed Bugs, etc. are common, I believe what we offer is peace of mind to a tenant that is normally very busy in their professional lives.
I don't think this particular strategy works in all neighborhoods generally because you won't get the best tenants who are concerned about the building as we are in lower than "A" or "B" Class neighborhoods and/or where the Vacancy rates are higher than our average of 5%. In neighborhoods where Vacancy Rates are above 10%.... I cannot imagine this strategy can work.
We also reduce the vacancy rates in our building as well. In 20 years averaging 15 apts per year, so a total of 20 year x 12 month/year x 15 apts = 3,600 months of apt rentals, we have lost maybe 3 (yes.... only 3) months of rent, of which 1 month was due to a new Partner that did not stay on top of lease renewal notification periods. We generally are able to re-rent our apts where the new tenant takes over just as the old tenant leaves on that day, even when there is some work to be done.
As a result, we don't really add a vacancy expense to our calculations. It doesn't make sense for us in this kind of strategy.
In 20 years, we have not had even ONE case of bed bugs and any pest problems are nipped in the bud before it becomes building wide.
I fully believe that these strategies are cost savings. I don't believe we would be able to get the right tenants if we did not offer a discount to already desireable tenants who can find an apt easily if we don't offer the discount and the other services we provide.
In other words, we are customer centric. We fully believe that having a great experience for the tenant translate into a great experience for us. A tenant impact our lives as Owners. We fully believe a happy tenant is one that will make our jobs as Landlords desireable. If our job as a Landlord is desireable, then that translates into doing the best job we can do and it becomes a win-win situation for both the Landlord and the Tenants.
Another benefit to this Customer Centric model is that it can possibly reduce Lawsuits.
We have had several situations where a tenant had some accidents, although none had resulted in a severe injury.
HOWEVER, if the tenants hated us, I can only guess that the would have had "serious" accidents (although they are prefectly fine) of which their "Ambulance Chasing" lawyers would try to find a way to settle in their favor.
We have had NO SUCH Lawsuits in 20 years. Even in these types of situations, we can call on the other tenants in the building to vouch for our care and concern of taking care of any possible issue within a reasonable time (if not right away). We know our tenants well enough that we know if someone ever tried to claim we are negligent, any one of the tenants would step up for us.
Somehow, I don't understand why most Investors don't see it this way. I can only assume that those Landlords don't invest in properties that can have exceptional tenants like the ones we have been getting in the 20 years I have been owning Buildings in Brooklyn.
This has been our PM Model. We have had very happy results and experiences over 20 years. We have been well rewarded both in profits and in peace of mind! It's very difficult to beat!
Join the Largest Real Estate Investing Community
Basic membership is free, forever.