All Forum Posts by: Mike Roy

@Clark Michael - I see.  There is definitely a learning curve to that business side, which is why some states require a license to manage property.  I've thought about that and would seek out education before jumping in.  I'd also make sure I'm covered by all relevant insurance.  

As far as risk and time, I tend to think that the reward is only worth it if you are able to scale fairly large.  I look at it like this: Let's say the average rent on your managed properties is $900 and you charge 8% - $72.  Big assumption here, but let's also assume in your secondary market that a property manager will mostly be handling smaller buildings averaging 10 units each and can manage up to 10 of these effectively at a salary of $40,000.  In this scenario, your annual revenue is $86,400 and your costs are a $40,000 salary plus insurance, maybe some advertising, and any rent loss you experience.  Maybe you net $40k.

$40k isn't bad, but you might need 1,000 units to net $400k.  But that would require landing 100 10-unit properties in a small market where a lot of owners are likely local and self-manage.  It also requires managing 10 property managers, or hiring someone to do it, which would reduce your net income.  Maybe you try to get away with having one manager handle 20 properties, but I think it would be hard to deliver a quality service at that point. 

I think large scale is possible in a small market, but is the work it takes to get there worth the effort you'd be diverting from investing or brokering real estate?  I would anticipate a lot of turnover as well, which means someone (probably you) would always be working to sign up new clients.  That is, of course, unless you hire sales people, further reducing your net income again.

Your numbers in your market might be different, but this is how I look at the model for the small market where I invest.  Things change dramatically if you're managing 100+-unit buildings, but I'm guessing there would be a couple of competent property managers in your market already if it this type of asset was common.

So yes, I think its a viable path to build a decent sized passive property management company in a small market that nets multiple six-figures - BUT -  is the time and effort worth the opportunity cost of other pursuits?  If it's just another piece that actually enhances those other activities, then maybe.  

@Clark Michael - I've thought about this as well.  Let me guess: you invest in a secondary market and have build a little scale?  That's my story anyway.

The obvious upside is that building a property management company can potentially enhance your deal flow and over time reduce your own management costs of your personal portfolio. 

My biggest concern is that I did not start investing to go into property management, so if I did start something, I'd want to do it in a way that creates synergy and enables me to maintain focus on why I'm in real estate in the first place.  

To me, that means not only finding good team members, but also creating systems and operating procedures that enable me to free up time for my highest dollar/hour pursuits.  

@Larry T. - My comment was in the context of buy and hold cash flowing rental property, but I think the idea of creatively adding value where others dont see the opportunity holds true universally. With respect to flips, an example of this could be converting a 2BD house with a sunroom into a 3BD - something like that.  I agree with your sentiment though: not every property has hidden potential - most dont - and there's no saving you if you overpay.

@Brie Schmidt - Gotcha.  Concrete or pavers would be low maintenance, but you can still get 20+ years out of a pressure treated deck if stained and sealed regularly.  Composite decking is an option, albeit much pricier.  Personal preference, but to me a deck feels like a much warmer backyard BBQ environment than concrete or stone.

 Don't ever let your tenants think you're rich, period.

@Dan Weber - Right on!  Big fan of house hacking a 4-plex!

@Brie Schmidt - Would a rain garden be a possible solution to beautify the backyard and help protect from flooding around your house?

@Logan Splinter - I'm sure you also hear Brandon talk a lot about building your funnel.  The more sources of leads (deal flow) you can create, the greater the chance that you'll find a great value-add opportunity.  He's also fond of saying that you should tell everyone you know that you're looking for a deal, and that often the Universe provides.

Before looking for a property though, I'd get real specific on who you are as an investor and the types of properties that interest you.  From there, I would narrow down a market with positive demand drivers and build a team.  With no experience, don't underestimate the value of building a strong team.  Everyone likes to talk about the power of financial leverage in real estate, but successful investors also realize the value of leveraging the experience of others.  Looking for a specific property is the last step.

We have 20 units, and they've all been purchased through the MLS starting in 2015. You can certainly send out mailers and knock on doors, but don't ignore the MLS because you hear everyone say deals aren't there. Remember, most people just don't see the opportunity.

@Tom Kaz - Can you breakdown your expenses?  I think $360-$400 is a typo, since taxes alone are $1,083.33.

I don't think anyone here is going to be able to contribute much of value without on-the-ground knowledge of your neighborhood and it's trajectory; the likelihood that your big expenses (like taxes) might increase rapidly in the future; what it's going to cost to repair the building;  whether there is opportunity to quickly increase rents and/or decrease expenses; and whether the train tracks are an asset (commuter station) or a liability (constant noise and vibrations).

Based on what you have shared, $450/mo cash flow on $100k invested (25% of $350k plus modest repairs) is 5.4%.  Every investor is different, but this would be below what I would consider fair compensation for the risk and headache.  But if there is significant upside that you have yet to share, that could be a different story.  

@Thayer Hood - It sounds like your girlfriend is in a tough neighborhood.  That you're from Indianapolis is both timely and ironic!  I do understand that everyone must live where they can afford, but I would always keep in mind that investors who buy in deeply depressed areas often do so because they don't have a lot of capital or experience; they mistakenly think that "cheap" is synonymous with "value;" and they grossly underestimate the actual expenses associated with the building.

Many times, these investors get so far in over their heads that they cannot afford to maintain their building, so they end up doing things like assigning appliance maintenance to the resident in a desperate attempt to regain control of cash flow.  Or, they realize that the neighborhood and tenant base is so bad that it isn't worth fixing up their property.

If my loved ones were considering moving to such a neighborhood, I'd recognize that no amount of questioning on the front end would overcome the significant risk to my safety and peaceful enjoyment of the apartment.  Instead, I'd be looking for another living arrangement in a safer, cleaner environment.

Perhaps your girlfriend and nephew can split costs as roommates in a much nicer apartment?  Good luck!