Managing first rental property from out of state.

[Rahul Gupta]

We are planning to have a SFR as a rental property in St Paul, but we live out of state. What will be the best course of action to manage the property? Would a property management company be the best or should we try to do it ourselves?

We do have a home warranty. Any suggestions will be helpful and appreciated. 

Thank you 

[Wayne Marques]

Are you realistically able to manage it properly?  Out of state doesn't speak to the distance you are from the property.  Since it is out of state, would you have contacts than can address tenant issues if you aren't available, or are you too far to handle it properly / quickly?

[Jim K.]

Remote-managing a property will always look like a great idea until it does not. It may work out for you for twenty years -- it really does for some folks. You may crash and burn in a month. But I would look at having that property managed professionally from the start and not tempt the Devil.

To date, I have bought only one remote-managed property from an out-of-state owner. He owned his C-class duplex for eight years, a very good run, until one of his tenants stopped paying the rent and sewage, and then convinced the other one to do likewise. He was $5500 in the hole with the first tenant and $1500 in the hole with the other one. The big surprise for him was the lienable sewage payment. He tried to pass this expense on me on the downlow, and when my closing company caught it, he flew into a rage, but in the end, he had to pay up money he really didn't have.

He bought the property for $74K in September 2012 and sold for $110K in December 2020. Each apartment currently rents for $1100. Turned out to be a great investment for me, but he lived six states away and I live one street away.

I am currently looking at a C-class apartment building here in Pittsburgh where the owner seems to have moved to Florida part-time and is trying to remote-manage his property through tenantcloud.com. This place is obviously being run into the ground. I hope to snap it up cheap.

[Gilbert S.]

Definitely hire a property management company, unless it's an A class and you have lots of experience as a landlord. Get referrals and do research. Call as many companies as you can. Jim is right. It works great until it doesn't. But in my experience, the reason it can go south is the management company is bad or the company is great and they sell out to a bigger company. What class is the property?

[Drew Sygit]

@Rahul Gupta

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

[Bill B.]

I have one rental in MN (on lake MTKA)..

I used to live in the area so I knew a little bit about it (wondering why you chose Saint Paul if it’s same thing)

I started with Renters warehouse because they offered just getting the tenant or getting and managing them. At first I let them manage the tennat as it was only $89/mo on $3,000/mo rent. But eventually the tennat proved to be too good and I no longer needed the $90/mo charge. I think the greatest value they bring is finding and screening the tennats. Then if the rents is at least a couple thousand you might get by without them, but it’s a cheap test. 

Ps. I did get a call 20 months ago about a broken furnace around midnight on a Saturday night while it was minus 10 or 20 outside  so be ready for those kind of problems and have answers ready. (A home warranty won’t be the solution.)

[Wale Lawal]

@Rahul Gupta

Even though owning a rental in a different market can be challenging, here are things an investor can do to help make managing rental properties out of state easier.

1. Monitor the local real estate market
2. Create a go-to list of trusted service people
3. Purchase a home warranty
4. Automate rent collection and maintenance requests
5. Perform routine inspections
6. Network with the neighbors
7. Stay organized
8. Schedule time to visit the property
9. Hire a local property manager

Managing a rental property out of state can be challenging, but it’s also doable when an investor takes the time to plan ahead.

Creating a network of dependable service providers and purchasing a home warranty are two ways to handle repairs, while conducting periodic property inspections can help catch minor problems before they become big. Offering a tenant a way to make rent payments and repair requests online also makes managing an out of state rental easier.

Another option for managing rental properties out of state is hiring a professional property management company. A good property manager will take care of the day-to-day issues, allowing an investor to focus on scaling and growing a rental property portfolio.

Good Luck!

[James Wise]

You need boots on the ground. Definitely not a good idea to go at it alone out of state.

[Jay Lohn]

If you have done it before you can handle it yourself (still need to assemble a team), but if you haven't before I would suggest getting a manager familiar with the area.  I manage my own properties in Minnesota while spending the majority of time on the east coast.

Can I ask why you are investing in St. Paul?  They just passed one of the strictest rent control policies in the whole country.

[Aj Parikh]

I would suggest having a Property management if you have a W2 job and you are doing this as a side hustle. Would you be able to manage contractors, leasing, turnover, tenant eviction, sending notices and all these tasks being remote? 

I believe that if you are into Real Estate Investing as a side hustle, your main time should be dedicated in finding and putting together deals and not managing the property. You can outsource that for a 10% and try and use that time for your next deal. 

[Amber Gonion]

@Rahul Gupta of course as a management company I would be biased. I can not imagine showing, confirming tenants have left, providing keys, evaluating deposit returns, and so many other things. Hiring a management company is essential unless you have family or friends in town that can do sone of these things for you.

[Justin Gabriel]

It is possible to manage your first rental property from out of state. We have been self-managing our out of state properties for 2+ years. We've dealt with noise complaints, remodels, HOA issues, etc. remotely.

We interviewed a number of property managers in the area and found they didn't seem to care about our investments as much as we did. YMMV. And as new small independent landlords, our margins were already thin so we decided to develop our own systems for finding tenants, pricing units appropriately, handling maintenance requests, collecting rent, and tracking finances. Having a handyman for on-site requests and verification was a key piece to the puzzle.

We're looking at our rentals as a business that we want to grow, so we were ok with spending time developing these systems. Plus we really care about the tenant experience so we wanted to get a feel for handling their requests. YMMV based on the class of area/property, as well as if you're looking for a truly hands-off experience.

As other have called out, there are pros and cons to self-managing and hiring a PM. Be honest with your goals, time commitments, risk tolerance, etc. It is possible to self-manage out of state property.

[Patrick Drury]

@Rahul Gupta
Hire a property manager. A lot of investors try and do it to save 8-10% and it's just not worth it. 

[John Williams]

Consider the ancillary benefits that you will receive from hiring a great property manager: they know the market, they have relationships with the right vendors, they are your boots on the ground. I always recommend that out of state investors connect with a great property manager!

[Michael Cox]

Hey Rahul,

My husband and I recently closed on our first OOS SFR. We faced this dilemma as well. Unsure of how to monitor the property being so far away but also not wanting the added monthly cost of a PM. We closed on this property in May of this year and have thus far been successful is self-managing. I think the advice I would have is this, utilize your resources. Does your Real estate agent own rental property in the area you are buying? (If they don't, next time try and find an agent that does. This was one of our prerequisites for our OOS agent.) How do they manage their property? If they don't, do they know any agents in the area that you bought in who also own rentals in that area? Our agent had a maintenance guy who is essentially a PM without the contract or monthly cost. He does it all, repairs (if a job is too big, he has contacts of local repair shops that he knows and trusts) he will show the property to potential tenants and assist in screening them. He has been a huge component in our ability to self manage. I will also say this, some cities require rentals to have a "Reaponsible Local Agent" or something of the sort when applying for a rental license. Typically this would be the owner of the home or a PM. The catch is this person has to be living or located within X miles of the property. Something to keep in mind if you go the self managing route. Good luck with your first rental!

[Wendy Man]

@Justin Gabriel van you share the contact for your handyman?

[Melanie Thomas]

@Rahul Gupta you will always want boots on the ground. I would certainly hire a professional PM company. Your local PM company will be keeping up with local laws and ordinance changes. There are many potential pitfalls in being a landlord that could result in expensive legal issues. Hand it over to a professional and let them do it for you. 

Good luck and happy moving! :)