All Forum Posts by: Nathan Gesner

Welcome, Patrick! I am a REALTOR/Property Manager in Cody. I've heard of people investing in mobile homes and being very successful, so don't write it off without investigating. One guy in Texas had a formula for buying mobiles for around $5000. He would put a couple thousand into renovations and then sell them as a Lease-Option. He required a $5,000 deposit and then a higher monthly payment with the "extra" applied to buying down the purchase price.

If the buyer defaulted, he would keep the $5,000 deposit and he had the monthly payment that was higher than it would rent for. Win! He would turn the property around and do it again. If the buyer went through with the purchase and made all the scheduled payments, he would net around $30,000. Win!

I also know people that are very successful with trailer parks. Your only responsibility is to maintain the common areas and keep the riff-raff out.

One of the best resources for beginners is a NOLO book called, "Every Landlord's Legal Guide." It is easy to read, comprehensive, explains everything well, includes federal and state law, and includes a lot of free forms. I bought it when I got my first rental and then I bought an updated version five years later. It's a great resource to start.

Once you have a basic foundation then you can come back to BP and refine your knowledge through self study or Q&A.

Definitely get rid of him before closing. You don't want to start ownership with a problem. 

You are worried about him trashing the unit before closing? What if he trashes the unit after closing? Make the seller get rid of him and have the unit ready for a final walk-through inspection three days prior to closing. If the departing tenant leaves it a dump, the seller has a couple days to clean it up before handing it over to you.

I would do that before I would consider escrowed funds. You should not have to deal with the seller's mess.

If they do not provide a forwarding address, you are not responsible for tracking them down! Send it Certified Mail with Return Receipt using her last known mailing address. You will have proof of when it was mailed and proof of delivery (or attempt to deliver). If it comes back to you, keep it sealed and place it in her file. This will prove you met your obligation in all respects. 

@Jacob Sampson makes an interesting statement: "Obviously 100% of PM's aren't bad but when the vast majority of investors feel a certain way there is probably a reason."

Jacob, where did you get your data? I assume it's based on your interaction with BP members. I see others making the same statements and I'm curious how you could make such statements without actual data. What percentage of BP members actually own investment property? How many of actual investors have ever used a property manager? You and David seem to have experience. Do you have actual experience with property managers that your disdain is based on? Most importantly, how many successful investors have experience with a property manager and is their view positive or negative?

In my personal experience and from what I have read online, most investors have never used a property manager. A large percentage of them lose tons of money because they don't have procedures in place, they get tired of maintaining the home, they let in bad tenants with sob stories, and they can't keep up on market rates. This is where I get the majority of my business!

There are owners that use a PM and have bad experiences, but whose fault is that? When a Landlord has a bad tenant, do you blame the tenant or the Landlord that failed to properly screen or enforce policies? I have met many owners on BP and in real life that speak badly about property managers. But when you dig into their story, it turns out they just picked someone from the phone book or the grabbed the manager with the lowest fees. Save a dime to spend a dollar. On the flip side, I know a lot of smart investors that do their research to find a solid manager. They are very happy, they are making money, and they enjoy investments because they can focus on investing and not unclogging a toilet.

I have personal experience with hundreds of owners. About 50% live outside the area and do not know how to manage from a distance, nor do they want to. Most of them make big bucks as engineers, doctors, directors of marketing, electricians, attorneys, pilots, etc. They outsource because I can manage it better and they can focus on making money and enjoying life. It's the same reason people hire brokers to handle their stocks and bonds.

My remaining owners live close enough that they could self manage. But most of them suck at dealing with people, reading the market, maintaining policies, etc. They hire me to do what they know they cannot. It enables them to stay in the game while maintaining their sanity and doing other things. As I've said many times, about 75% of the owners I work for are making more money after hiring me than they did while self-managing and that does not take into consideration what their time was worth. Here are a couple quick examples:

1. I picked up a four-plex where the owner was struggling. In two months I kicked out all four of his tenants for not paying rent (one was his own son). He had lost about $6,000 this year alone. I've placed good tenants in each unit and he's now making about $500 more a month after paying my fees.

2. An owner hired me to find her a new tenant and then she would manage it. She would normally fly down from Alaska to inspect, clean, repair, market, and get a new tenant under contract. These trips cost her thousands of dollars, but she was like you and didn't want to pay a property manager for something she could do herself. I let her bad-mouth my profession and agreed to help her. I quickly discovered she had two houses in town and both were well below market with deferred maintenance. I gave a soft pitch of my abilities and asked her to give me a chance. She earned an additional $2,800 her first year, after paying my fees and making my recommended renovations. Her second year she earned over $7,000 after paying my fees.

Should I call these owners and let them know they are being robbed blind? ;)

I agree this is a very creative idea. But I also agree with @Muna A. that it's not a good deal for the investor. The banks won't lend to you because you have no track record. A wise investor would stay away for the same reason, unless the deal were structured in their favor because your odds of defaulting are high.

I don't have hard facts in front of me but I've read in various places that nearly 90% of real estate agents quit within five years. The average income of a real estate agent in Maryland is around $40,000 which means the monthly payment of $1,800 is around 54% of your income. And that assumes you are able to earn as much as the average agent, which is highly unlikely.

Creative idea, but it's bad for you and even worse for an investor.

First, you should not accept checks for late rent. If the check bounces, you could be another 7 - 10 days behind before discovering the problem. My policy is that rent is due on the 1st. If they have not paid by close of business on the 4th, they get hit with a late fee and have to pay with a money order so I know the funds are guaranteed.

Second, the tenant is offering to pay rent but playing games. Is it more important that you "win" the argument or that you collect rent?

It's hard to say what you should do because I don't have all the background regarding what the tenant has done in the past. Based on what you've provided, I would go there to collect the rent and I would simultaneously hand the tenant a letter asking them to leave. Kindly point out that they don't appear to be happy in your rental and that it would be easier on all parties if they would give you 30 days notice and move on. If they return it in good condition, they can still get their deposit back without penalty for breaking the lease.

Don't get caught up in childish games because the tenant has the advantage by making your life difficult for a long period of time. Stay objective, offer to help them move on, and be nice. Being nice to a childish tenant hurts them more than if you played their game.

There is a simple method, as Scott pointed out. Calculate what your time is worth and figure out what it costs you to self-manage. Maintenance, tracking financials, marketing, screening, signing leases, etc. If your time is worth $50 an hour and you spend two hours a month (averaged out over a year) per unit, it might be cheaper to hire a PM at $100 per unit. Let them deal with the headaches and you can use that free time with family, earning more money, or finding new Investments.

Despite all the PM bashing you hear on BP, there are professionals out there that will manage your rental better than you and possibly increase your ROI or cash flow AFTER you pay their fees! There is also the issue of how well you can manage. Many, many owners kill themselves trying to self mnage and it costs them much more in the long run than if they had hired a PM. I can name hundreds of very wealthy investors that have never managed a single rental because they understand the value of their time and the limitations of their abilities.

Only you can determine what self-management is costing you and whether a PM is worth it.

I have approximately 80 - 100 tenants move out in a given year. I receive Landlord requests for departing tenants fewer than 20 times a year. The majority of Landlords or Property Managers do not check references, which is an absolute shame.

Keep it objective and honest. Don't blow things out of proportion just to get even with a bad tenant. At the same time, avoid exaggerating how good a tenant was or glossing over their issues. Stick to the facts.

I ask the following questions for a Landlord reference:

1. Are you a friend or relative of the tenant?

2. Was the tenant on a lease? Did they rent alone or with someone else?

3. How long did they rent from you?

4. Did they pay rent on time? If not, how many times were they late and how late were they?

5. (If the tenant still resides there) Have you inspected the home during their tenancy? If so, what condition was it in?

6. (If the tenant has moved out) Did the tenant fulfill their lease obligation and give proper notice? Were there any charges for cleaning/repairs after the tenant vacated?

7. Would you rent to them again?

You may have other questions to ask. For example, I am a little more specific for tenants with pets. If the tenant is responsible for landscaping, I always ask how they did with that. 

If a tenant does not have a Landlord reference for the past six months or more, I require a double deposit and good/excellent credit.

Banks may postpone a foreclosure with an accepted contract to sell. However, the lease option is just that: an option. You would be under no obligation to purchase and around 80% of all Lease Options never culminate in a sale. You will have to ask the current mortgage holder, but I highly doubt it.