All Forum Posts by: Nate Garrett

Another vote for Propertyware. We converted 2 years ago and have been very satisfied customers.

@Josh Dotzler 

I think of leasing fees as a continuum. The lower the leasing fee, the less incentive to get the property leased and/or get rid of a bad tenant to replace with a good one. The higher the leasing fee, the more incentive to turn the property over, set the rent too high, and get rid of even good tenants.

I like your idea. With the higher management fees, there would be some incentive to get the property leased quickly and replace bad tenants when necessary. However, I feel that 0 leasing commission is too far on the continuum.

An optimal leasing commission structure will pay the expenses of marketing, travel, showings, screening, and lease preparation/signing with a normal profit margin for the property management company. No more, and no less. 

That way the leasing commission is not an oversized profit center for the company, but it's also not seen as a money-losing activity either. 

What's the right %? It depends.

It should be a somewhat lower % in higher priced markets, and a higher % in low-rent markets, or especially with lower-end rentals.

It also depends on how selective the company is with tenant screening. If an owner wants a PM company that is highly selective, the % will need to be higher to compensate the extra time and money required to find tenants.

@Clay Smith 

Have you checked out the policy and procedures manual at LandlordSource.com? We were very happy with their template. It's very thorough and I think many of the sample policies that they have in each area will be suitable for many property management companies. 

@Jay Leisten 

Even Warren Buffett, who is notoriously anti-debt, uses leverage to some degree in Berkshire Hathaway, which is evidenced by the company's 30% debt to equity ratio. 

You don't have to borrow 80% of the value of the property. You can borrow 50%, 30%, 20%. Whatever level of leverage you deem prudent.

What are you going to do with your cash if you don't invest in real estate? If you invest in stocks or mutual funds, you are indirectly taking on debt.

Dave Ramsey is great for people that have little self-control. His all-or-nothing approach to debt is good for book sales but can be counterproductive to financially literate individuals. 

@Kyle Eckmann 

Are you just looking to manage a few properties for friends or do you want to have this business pay the bills?

The first is relatively easy, the second not so much.

If you are looking to say goodbye to the 9 to 5, I would consider buying an existing company to hit the ground running. It takes a significant number of units under management to generate a decent primary income.

Check out NARPM and their educational offerings.

Write a policy and procedures manual for your company.

As @Curt Davis said, set limits at to what you will manage. Perhaps a portfolio minimum average rent.

Create a marketing plan.

Learn search engine optimization so your company can be found easily on Google. Pay attention to your online reputation.

That should give you a few ideas. Let us know how it goes and best of luck!

Completely agree. There is no "best" property type. I know people that do very well in various niches in real estate. That's what's great about it. Something for everyone.

With that being said, the C/D investors I know that are happy with their investments are hands-on and typically live close by. Some of them self-manage and basically have management companies of their own.

I don't know of many out of state investors that have more than a few C/D properties for very long. They usually get frustrated with the required maintenance / cap ex costs and normal C/D tenant issues and sell them.

@Rhett Tullis 

Admittedly, I'm not familiar with the neighborhood, so I'll defer to your judgement. I believe the properties he has purchased were built in the 1920's and 30's.

Looking at rental asking prices on Zillow, Tyler's estimates seem at least $50 - $100 / mo high to me.

Older C properties are very difficult for out of state owners. The folks that I see doing well with them live close by and are hands-on, even if they have a property manager. Many owners of C/D properties convince themselves that they are achieving significantly higher rates of return on their properties when in reality they are merely neglecting to account for their time. These properties require a lot of maintenance and cap ex, making them management intensive. Your property manager is going to charge you to deal with that. Or you'll deal with it. Either that or neglect the property.

If I was an out of state owner, I would choose class A, newer-construction properties, especially full brick with 30 year roofs. These properties require less maintenance and very little cap ex for 15 or 20 years from when they were built. I would also expect about a 5-6% cap rate on this property type in Oklahoma at current prices. I don't think I could do much better than that with C properties from out of state, even if I was heavily involved. There's just too many expenses that will end up eating the cash flow.

@Tyler Flagg , not trying to tip your apple cart, and Merry Christmas / Happy New Year by the way! You're starting an exciting adventure, and I'm sure you'll be successful. Good on you for being open minded and willing to accept challenges to your assumptions. Best of luck!

@Tyler Flagg 

Your estimates of market rent are on the high side. You may be able to find someone to rent the property at above market rates, but your turnover rate will be higher, leading to higher vacancy costs, turnover expenses and leasing commissions, which will more than eat up any extra monthly rent you received. If your property management company is recommending you set rent at the top of the market, they will be the party that benefits via higher management fees and leasing commissions. 

Right now you're estimating around 35% total expense ratio with property management in place and properties that must be older based on the area you described and the price per foot.

If you lower your estimate of rents to market and include a budget for cap ex, your expense ratio + cap ex will look a lot more like 50% of gross potential rents which is close to what it will end up being over the next 20 years, if you keep it that long.

@Tyler Flagg 

Congrats on the acquisition!

Were these properties already leased when you purchased them? The rents seem a bit inflated for OKC, unless they're section 8.

How are the roofs, water heaters, HVAC, plumbing, electrical, etc?

Did you pay for a home inspection on both properties or inspect them yourself?

Are you managing yourself or do you have a property manager?

How much are you estimating for repairs and capital expenditures?

Wet mop the whole slab with bleach water. May take a few rounds to get rid of the smell.

Kilz on the walls if necessary.