I’m new to this forum and to real estate investing in general. I’ve just completed my first deal which happens to be out of state. I currently live in California and bought a single family residence in New Mexico. The deal was awesome and I’ll have some positive cash flow with a near new house (hopefully not too many maintenance issues!). I really don’t want to use a property management company. I have no problem with taking care of any issues that may arise, although it could get expensive. I was wondering if you guys have experienced managing your rentals out of state and if you have any advice as to renting, maintenance, etc. please let me know. Thanks for your help!
Check out the landlording forum and read some old posts; I think you find a majority of experienced landlord will disagree with not using a mgmt. comapny. You will have no controll or idea what is going on at your property.
I agree with Keith that a management company is a must for long term rentals. However, management companies also eat up a large portion of your profit. While these companies charge perhaps 10% of the gross rent, this typically translates to 30%-100% of your positive cash flow. Also, remember that in addition to the management fee, management compainies usually also charge a fee for arranging maintenance, filling the rentals, etc. In fact, hiring an management company can virually ensure that your rental business will fail unless you have a substantial cash flow.
With rentals, cash flow is not the only thing - cash flow is EVERYTHING!!!
You may want to look into a triple net lease with your tenants. I use it within a land trust, but it’s not mandatory that you do it that way. Property management companies take too much of the pie, in my opinion.
So what does an investor do in an overvalued market (like CA) where cash flow is impossible? If going out of state is the only way, and hiring a PM will cost you a lot, I guess it better be a significant discount you are getting on a property. Any other suggestions?
I’m in the SF bay/Silicon Valley area. I know what you mean about cash flow not being possible. I struggle with this too. There’s just a lot of unknowns and risk to investing out of state. I’d have to start with something small to test it and build up from there. Obviously, you have to have a ton of trust in whoever you work with to get yourself properties.
I too am in the Bay Area (Walnut Creek). Yes, there’s a lot of unknowns investing out of state. You just have to do your research and trust people more. If you’re the type that just can’t trust anyone, then you are stuck doing flips and short sales here. I’m planning to invest in San Antonio, TX. Right now is the time. There you can buy 2 or 3 SFHs for the price of one here. You just have to be selective in the property you buy there in order to cash flow. I will have to hire a PM. In addition, fly down there once a year to check out my investments. I know some poeple already doing this and they are doing fine.
Having to eat a month’s worth of missing rent or worst yet having to evict a bad tenant is for more expensive than mgmt fee. Also, I have PM in place in several locations. In some cases as low as 6-8% gross rent COLLECTED, don’t pay any additonal fees to arrange for mainetence and in one case no placement fee either. Obviously, its a lot of based on what the local market condition dictate.
The going rate for decent management here is 7% of gross, so that’s what I use in my cashflow analysis, even though I manage myself. I’m a firm believer that if you do or if you don’t get someone else, it needs to be a part of the analysis. This is for two reasons:
(1) Why would you manage it yourself for free?
(2) At some point in your REI career will either be unable to or not want to manage yourself.
If you’re an absentee owner, someone has to look out after your property, your tenants, your rent collections, your vacancies, etc., etc.
So what does an investor do in an overvalued market (like CA) where cash flow is impossible? If going out of state is the only way, and hiring a PM will cost you a lot, I guess it better be a significant discount you are getting on a property.
With rentals, it doesn’t matter where you live or how difficult it is to get proper cash flow. The reality is that you either have sufficient cash flow to run your business or you go out of business. The tricky thing about cash flow is that when you only have a few properties, cash flow isn’t as important. Things happen much slower and you can probably make up the deficits out of your pocket. Many landlords do this and think that they are being successful. Unless you have VERY deep pockets, this will not work when you have a lot of rentals. All of the various problems occur on a regular basis and it will become rapidly evident that the cash flow is too thin.
For example, suppose you only have one rental. How long could you go before you have a tenant trash your place? Obviously, it could take years before this happens to you. If you have 100 rentals, how long do you think you could go before one tenant trashes a rental? Not long - in fact, you’d be very lucky to go a year without this happening.
My suggestion is that a person NOT invest in rentals if they can’t get the proper cash flow. In state - out of state, property manager or no property manager - it doesn’t matter - either the cash flow is there or it isn’t!
Well, I live in Canada but used to live in San Antonio, Tx. I kept my former home as turn inot a property investment and I recently bought another one in the same city.
I was also scare about long distance rental but basically I have been fairly happy so far. I am very picky on selecting tenants and I tend to do them as rent to own.
I also take a home warranty to cover any emergency repair that would need to be done.
I keep my finger cross and hopefully it will stay like that !