All Forum Posts by: Account Closed

I feel your pain. Having a good property manager is absolutely the MOST important thing is managing rentals, especially out of state. If you dont have that, you will not make money. I would hold off on more purchases until you can stabilize these four and have them perform for at least 6 months. Sounds like you are also doing some measure of rehab. In that case having a reliable contractor is equally important. It seems you have put the cart in front of the horse and jumped into buying multiple rentals without a reliable team in place. Learn the lesson, build the team and move on.

Actually the "rule" which is really a rule of thumb is a quick way to screen expenses. But it only makes sense for a certain range of rent. The range it seems to work well in is $700-$900 per month. The reasons are many. One is that annual maintenance per house is usually about $500-$800 per year, which is about 10% of rent in this range. Insurance is also about another 10%. Property management is another 10% and Vacancy another 10%. Long term major repair reserves should be at least 10% so there you have 50%.

Now if your rent is actually $2000/month, insurance, routine maintenance etc will not be 10% but probably less. And you may pay your PM less than 10% as well. So the ratio would be different.

I am not into commercial MFRs so I have no experience. But I think that small complexes like this are not a good idea for several reasons. One, its too small to have onsite property management. Apartments have high turnover, tenant conflicts etc etc that need attention. You would have to pay a PM 10% of rents at least and still may not get all the attention the place needs. Secondly, the fixed and utility costs are amortized over a fewer number of tenants. Thirdly, each vacancy is 11% of rents and that can hurt pretty bad if you have a couple of emptys and you are negative cash flowing big. Fourth, properties like these are not very liquid. You need commercial loans and market is very dependent on bank financing. You can see that this one has sat around for awhile and won't move without owner financing.

So, unless the numbers are a home run to start with and/or you can significantly improve NOI, its not likely to be very profitable.

Yeah, at least in parts of Indy inventory seems to be higher. Last year was very hard to find decent deal.

I would do it for free and clear homes. I would buy a liability though. Umbrella does not work if there is no primary insurance. Most umbrella policies require primary liability coverage of at least $300K before they kick in. I totally agree that year after year insurance is a waste of money.

Read "The e-myth". In a nutshell the message is that you should work "on" your business not "in" your business. Spend your time setting up systems so that your business will run on its own. Now for the home inspection thats harder but for the rentals its definitely possible.

Those are both good points. Regarding point 1, I am seeing that already in some parts of Indianapolis. Lots of newly rehabbed homes that have been sold to investors are on the market, keeping rents from rising and increasing vacancy time. OTOH, rental neighborhoods have large pools of renters as well. Higher end owner occupied homes would be out of budget for many renters and those who could afford the rent could probably afford to buy as well.

#2 is valid as well. In many markets the prices surged last year when hedge fund activity was at its peak. BUt it has slowed down now and there is more inventory available. The reverse (hedge funds selling in large numbers) has not happened yet but its quite possible to see the converse in that case as well. However, the fund activity seems to happen in spurts and you could avoid buying/selling in those periods.

Any viable property manager should have over 100 doors to make it worthwhile. If you are > 10% of his business you have leverage. But heres the thing: the more properties you have, the harder for you to actually switch. And a bad property manager can totally kill your ROI. So if you like your PM, don't threaten to move for a few bucks extra. You may lose more than that with a bad one any day.

I agree with @Sharad M. Its easy to get emotionally triggered by event. Maintenance calls, vacancies yada yada. But when I started thinking of it as a business and managing it as such, its all just about the numbers.

Why is it that every testimonial that supports these "gurus" is always some vague "I loved the program" but nobody steps up and says exactly what in the program was useful to them and how much money they made as a result of it? Never mind, thats a rhetorical question.