How can You Generate Passive Rental Income without a PMC?
Are you the type who wants to make property managing your full-time job? Or do you want to treat your properties as a hand-off investment that generates enough passive income for you to live off of, replacing the need for a full-time job entirely?
If you're the latter, you'll need help managing your properties, either by hiring a property management company (PMC) or having a whole team working under you (which is basically like forming your own PMC).
For this reason, many investors in search of passive income gravitate to turnkey properties, which turnkey providers offer for sale fully-renovated, with existing tenants and professional property management in place. However, even with a turnkey property, rental investments are never 100% hands-off: you’ll still need to screen the provider and the details of the deal, stay informed of your property’s condition, remain up-to-date with any tenant issues, and track financials. If you don’t, your investment could suffer without you even noticing.
Generating Passive Rental Income Without a PMC?
So what would a truly passive income rental look like for a self-managing landlord? You would need a team of contractors, realtors, legal experts, and probably a personal assistant to handle all your landlord duties.
WIthout a team like this, your portfolio would have to consist of:
- Quality tenants who always pay their rent in full and on time, have barely any maintenance requests, and take excellent care of your property - otherwise, who will chase up their rent payments and handle their requests?
- Long-term tenants who leave you with little or no vacancies and turnovers to deal with - otherwise, you’ll have to get involved in screening processes
- A solid property that requires as little maintenance as possible - otherwise, you have to manage a team of contractors
- A city where there are no requirements for rental inspections - otherwise, you’ll need people to handle this for you, too
- A fully-automated system for collecting and documenting financials, tenant communications, legal agreements, dates for inspections and repairs, and property condition photos/videos (and someone to make sense of it all for you)
Sound too good to be true?
Unfortunately, it’s near impossible to have a portfolio this perfect.
In reality, if you try to be completely hands-off as a landlord without hiring a PMC, what would your rental business look like?
The Passive Landlord Reality:
- If you have a personal assistant to act on your behalf (which no landlord really has), you have to trust that person to be a jack of all trades when it comes to managing every aspect of your portfolio - and be prepared to pay a salary for this.
- If you rely on automated screening tools and don’t have a keen human eye to look over your tenant applications, how will you be able to verify whether or not applicants are telling the truth? If you’re not involved in running the business at all, you won’t know who your tenants are, and may not be able to access something as simple as their phone number, if you ever do need to contact them.
- If you go for a “hands-off” turnkey rental, and aren’t thorough with screening, you can end up with a shady turnkey provider who sources low-quality tenants and manages your property poorly. If you buy a turnkey rental sight-unseen, you can even end up with a unit that’s nowhere near the true turnkey standard, and comes with lots of expensive, hidden maintenance issues.
- You’ll have no idea what’s going on with any of your properties, so if there are gaps in documentation when a dispute arises over missed payments, you won’t know what actually happened (or be able to prove it in court).
- You’ll inevitably still end up fielding phone calls from your team or having to deal with tenant issues yourself when no one else is available.
Basically, if you can manage your rentals completely passively, the likelihood is that you’re not managing them properly at all.
Investing in rental properties can be a great strategy for making money both through cash flow and appreciation. However, it’s impossible to earn this as a completely passive income without working with a professional to manage your properties. So if a hands-off investment is what you’re after, make sure you hire an excellent PMC to handle your rentals, and do an extremely thorough job of screening them. You can check out this article for tips on how to find a property management company that you can trust to proactively manage your investments.
Even with a PMC, you still need to know what’s happening with your properties, so it isn’t 100% passive - but at least you can go on a vacation without your rental business suffering. It’s passive in the same way that Social Security Income & Pensions are passive, or a blind trust. IRA's and other retirement vehicles still require monitoring of the underlying investments generating the income for them to be managed successfully, and property investments are no different.
If you’re looking for a 100% passive rental investment, the only real option is to go for an REIT or a syndicate, where you function as a silent investor, rather than as a real property owner. This is the only case where you won’t need a PMC, although there will still be a manager who handles your investments.
Do you think it’s possible to earn 100% passive income from your rental properties without a property manager? Let us know why or why not!
Image Courtesy of Karolina Gabrowska