All Forum Posts by: Kenny Dahill

@Ernesto Gaxha, what you are describing is similar to Master Subleasing, I might have that name incorrect.  Essentially the landlords rent to you and you rent it out, but you act as a quasi PM.  Not all states allow it.

The idea is their master lease is guaranteed.  You pay them $1,000 regardless if vacant or behind rent, that's your risk.  You don't make management fees, you get the spread. It's also taxed differently I believe.

I have also heard people paying an owner 80-90% of their annual rent income but upfront.  Two in the bush...

@Christine Kankowski nailed it.

What is more likely to have a drastic change: quality in management or quality of location?

Your investment will be there much much much longer than the management company.  If you find a good market that will sustain through any economic condition, there will be plenty of tenants and qualified management firms to chose from.

Hi @Shamus Wheeler, the best advice to be honest with yourself.  That goes for everything in real estate!

Can you self-manage 5 hours away?  Sure.  People do and do successfully.  But here's where being honest with yourself comes in...

What type of tenants will you realistically be dealing with?

Will you have enough interest to honest an open house?  You handle all the listing and pay an agent, or even a friend, to open the doors.  Or are you willing to make that trip every time!

Are there access to quality maintenance service providers in the town?

The hardest part about being local is meeting the tenants, doing an open house, move-in/out quality check and, if they're difficult, showing up to collect rent.

You can definitely do this.  Be honest in your assessments, should you do this.  If you feel comfortable to all those questions, go for it.

Hi @William Murden, Nathan always provided great tips!

Understand that as much as you want to know about the property manager and their fees, they will want to know about you!  The good ones are selective about whom they take on.  Make sure you tell them your expectations as well.  It needs to be a fit for both parties.

The start of any good business partnership is being upfront, which starts immediately.  The more you know about each other now will likely decrease tensions in the future and cost both of you less money.

Hi @Lauren M Lavin, property managers often have their own criteria for owners and properties they work with. To find the best fit, can you share more about the property and services you are seeking? SFR/MF, Class A/B/C/D, any special tenant accommodations?

@Megan Barron, as AJ eluded to it has to do with tenant placement.  

Worst case scenario it's 8.33% plus another 8.33% for tenant placement.  Although you need to clarify if they charge a monthly fee when they place a tenant and get that bonus, that's the difference of 8.33% annually or 7.6% (11/12 months).  I would think if they get that months rent then they shouldn't double dip with the 8.3% of rent on top of it.  It should be capped at $1,200 for that month of tenant placement.

Aj is spot on about the offer too. The owner doesn't care about your proforma. If you want to earn 10% ROI then work backwards to figure out what purchase price will result in your desired ROI.

@Megan Barron, your monthly fee of 16.6% should of ANNUALLY and not monthly.  Your math seems right though.

Real estate is a local game, meaning all your variables are unique to that area.  I think your numbers are very conservative on vacancy and maintenance but I don't know the area comps.  A good PM shouldn't take an entire month to find a tenant.

Why are the owners selling after one year?  Give them options and let them tell you which they like best.  Make a lower offer but find a way to result in more money long term (owner carries debt) is one I have used in the past.

But always remember this: deal of a lifetime comes once per week!  If this one doesn't work, don't force it.  A good deal tomorrow is better than a bad deal today.

Hi @Megan Barron, your statement is valid.  The most important thing to understand about pro-forma's and underwriting is that, as long as everything is covered, it makes sense to you.  If you want to make one larger PM fee of 15-18%, break it out 7-10% and 8%, or even combine it with vacancy, all of those work out to be the same.  You just need to recall where you placed the money.

For example, I always have a line for PM fees (8-10%) and then budget for a higher vacancy (10-12%). Vacancy is the same as tenant placement bonuses to me; loss revenue.  A full month is 8.3%, so in theory I'm budgeting for 2-3 weeks of actual vacancy and then 4 weeks of rent paid to the PM.

In case you're new to real estate proforma's. Always add repairs/maintenance and then CapEx! While you might not need a new water heater in 2019, you will in 2024 and if you don't forecast those expenses you'll have some rough years. Especially if the deal is thin to start off.

Hi @Ruth Lyons, I'll send you a message with additional recommendations and information.

Hi @Cheryl Tan, I'll send you a message as well about Austin PM's.  Has he used a PM before or was he self-managing?