Hello!
I am hoping someone can give me guidance on this question:
If the 10% payment to the property manager is more than your monthly positive cash flow would you buy the property anyway and handle the possible headache your self?
Thank you.
Please PM me
There’s a lot more to consider than simply a management fee.
I don’t know if this will be very inspiring, but it is rare for a single family investment to be able to cover 3rd-party management. That would explain why most single family landlords self-manage their properties.
Meantime, you should expect that 50% of your ‘market rent’ (not necessarily the current rent) will first go toward overhead, including maintenance and management, and the other half will cover debt service. And if you have anything left over, that’s your cash-flow.
For example, if the market rent is $1500/mo, you can assume that you have up to $750/mo available for debt service and another $750 available for all other costs.
If you apply this formula to your next investment, you will be better equipped to either negotiate a better price, and/or customize your financing terms, so that both debt service, management and maintenance costs can be covered at the outset.
This formula doesn’t apply to ghetto areas where the overhead can climb to 75% of the market rents. Not only is maintenance higher, but so are vacancy/credit losses, and 3rd party management.
It’s all what you are willing to afford, and for how long.
If hiring a property manager costs you more than your cash flow, you can take a step to manage your property on your own. Here are few steps to manage your property-