The Real World of Real Estate

General Real Estate Investing
1

In the guru fantasy land of real estate investing, everything is wonderful. Investors sit on their yachts, sipping tall drinks and counting their money (that pours in without work).

In the real world of real estate, I started my day with a letter from a scumbag contingency lawyer who represents a tenant that is trying to extort money from us. Then, I received a call from one of my better tenants who had been the victim of a home invasion the night before. Finally, I was standing in front of one of my apartment buildings when an all black van pulled up. The swat team jumped out, dressed entirely in black and carrying assault rifles. They went straight to the front door of the duplex across the street; hit the door with a battering ram; threw in a concussion grenade; and started yelling “Police, Get Down, Get Down”!

I haven’t heard a single “guru” talk about days like this!

Mike

2

Oh man!

Mike, I’m just dying to have those kinds of days. I wish I could work hard enough to earn those perks. Oh, well, back to the day job. :banghead

DB

3

Dude, you are becoming another John T Reed.

4

the longer I’m in this business, the more I hate open my mailbox or answer cell phone from certain numbers. last year I had the pleasure of replacing of heat pump and a main swer line in one week (total cost $4900). Last week was new record as 4 unit building has a massive mold in the wall extending into 2 at leats units (estimate is $10k or more to tear out the side of the building). The stories could continue, but after 9 years…nothing surprises me.

some properties are low maintenance and some properties are a pain in the (pick your body part).

As final note, one of new favoriates (that no guru will tell you about), is the tenant who wanted reduced rent for his tires getting dirty after I had contrcators digging up the yard to put in new drainage pipes…Hmmm, pooling water behind your unit or dirty tires for a couple of days; take your pick.

5

I have not had the pleasure to see SWAT (yet) but I have paid $800 to put down a nice parquet wood floor that popped up and found out there was too much moisture in the foundation in one spot. It costs $2000 to have it taken up and another $600 to put in carpet. That means that a $600 flooring job ended up costing $3400.

6

[quote author=propertymanager link=topic=27648.msg128811#msg128811
I haven’t heard a single “guru” talk about days like this!

Mike
[/quote]
wow, thats some day! :shocked

Chapter 14: When your tenats selling crack out of your rental…

7

I think its because you self manage all your properties as well as have so many tenants.

8

That’s what I like about propertymanager, no B.S. just real world real estate. I personally don’t know Mike but from reading a ton of his posts he seems to me like the type of guy who doesn’t take a lot of sh*t from people. Remember that! If you decide to get into that end of the business you better have thick skin. I’ve seen the touchy feely types try this business and get their ass handed to them economically and physically. It ain’t easy, if it was EVERYONE would do it.

I think there are easier ways to invest, BUT… I’m not in Mike’s market, what he’s doing is working and he will eventually retire with a pile of property, money or both.

I used to have multi families and got sick of the aggreivation, built some self storage warehouses and life got much easier. YOU NO PAY? I SELL ALL YOUR STUFF!!!
Still some B.S. though, nit wits leave tires, haz-mat crap, mattresses ect.
But no broken heaters, no plumbing problems, pretty simple.

9

In the real world of real estate, each real estate investor approaches real estate with a different mentality.

If a real estate investor wants to do everything from changing the light bulb to writing the letters for marketing, that is their reality.

If another real estate investor wants to pay someone else to change the light bulb, fix the toilet leak, collect the rent money, so that they can focus on actually making money, than that is their reality as well.

We create our own world of real estate.

10
If another real estate investor wants to pay someone else to change the light bulb, fix the toilet leak, collect the rent money, so that they can focus on actually making money, than that is their reality as well.

Tien,

I have never understood how paying someone else allows the investor “to focus on actually making money”. Doing all the management and maintenance, I still only typically work 3-4 hours per day and about 4 days a week. What should I be doing to focus on making money?

If I paid someone else to do the management and maintenance, that would take at least half of the money each month out of my pocket. If I lost that, then I really would have to focus on making money!!!

Mike

11

What should I be doing to focus on making money?

If I paid someone else to do the management and maintenance,. , then I really would focus on making money!!!
[/quote]
There’s your answer, Darin

12

So, let me get this straight. I should give up half my income and then spend the time freed up to find a way to make that money back? RIDICULOUS!

Mike

13

My point is, doing everything yourself puts a limit on how many properties you will be able to acquire as well as your sanity.

Say you double your assets within the next 4-5 years, your time is being spent more and more managing properties and i’d be willing to make a bet your business will plateau.

I don’t own close to 200 units like some gurus do, but I am definately sure they don’t take the calls themselves to manage all of it.

14
My point is, doing everything yourself puts a limit on how many properties you will be able to acquire as well as your sanity.

Tien,

I agree. For me, the goal is to have the number of properties that will allow me to work about 5 hours per day, 4 days a week. That’s enough to get me out of the house and yet have plenty of time off to enjoy doing everything I want to do (and still a 3 day weekend every week). I believe I can have 100 rentals and do this.

My post was really in response to God Wnz’s post. If I didn’t do the management and maintenance, I would lose half of my spendable cash. Then, I’d have to spend my time doing something to make up the difference. That would be ridiculous!

Mike

15

I think all Tien meant is that you might be able to pay someone to do the management for less than you would make by doing other things with your time.

If it would cost you, say, $50,000 to hire a property manager, but you could then spend those 20 hours a week finding more properties and working on “big picture” items that net you another $100,000 per year, you’d come out ahead.

I know that you know this, of course, but I think there’s a lot to be said for paying somone $25 per hour to do “X” for me when I value my time at, say, $100 or $150 per hour.

Having said that, valuing your time at a high number is meaningless unless you actually have something to do with your time that earns that kind of money.

For me, I am working to make a net of $250,000 in this business. If I were to work 40 hours a week at it (which I do), then I’d have to say that my time is worth about $125 per hour. Finding people who can help me with time-sucking, administrative, or manual-labor type tasks like mailings and repairs and all the other things that any number of people are qualified to do and paying them is, for me, a better use of funds.

Things that need to get done that anyone can do should be done by others. I like to have my time free to work on the part that no one else can do for me as well as I will do for myself…finding deals, negotiating with sellers, managing contractors, and securing financing.

Again, I know you understand all this. And as always, whatever way someone runs their business, if it’s the way that makes them happy, that’s what counts (assuming they aren’t going broke in the process!).

16

Good Morning Mike,
I believe Paul Broni summed it up well. It sounds as if you have reached your happiness level with your investing. Definitely a fine line of comfort level. The goal is not to lose half your spendable income but to replace it with your already goal of finding new investments. Half empty or Half full ?
If you are not at that point yet or choose not to be, Then Good for you ! It sounds like you have found the sweet spot in your life and that IS what it’s all about. Enjoy, Darin

17

You guys have brought up a question that I often wonder; What is the maximum number of units you can realistically manage by yourself, without having a property manager? I know there are some variables related to this question, such as how many hours you want/are willing to work. Mike, you mentioned in order to maintain your desiered lifestyle of working 20hrs/week, your number is a 100 max. Would this number increase to 300 if you were willing to work 60 hrs/week? I would love to hear the experiences of some of the members who have large rental holdings.

This is just a friendly suggestion: I think it would be a helpful tool for this forum to come up with some type of rough chart that relates the number of units managed to the average number of hours of work that would be required both on a weekly and monthly basis. I know that that the number of hours worked will vary every day, week, month due to many things out of your control, I’m just looking for a rough average. I would create this chart except I don’t have the numbers(except for what mike gave) to do so or the experience to come up with the numbers. I think this would be valuable information that would enrich the forum. Also, Is there an rough average number of hours of management requiered per unit? I would be very interested in any thoughts/responses that you may have.

:beer

Sincerely,
Matt

18

Matt,

I’m doing both the management AND maintenance. The 5 hours per day, 4 days per week that I mentioned is my estimate of doing both. The vast majority of that time is the maintenance

In my opinion, charging 10% of the gross rents for management is one of the biggest scams on earth. There is very little “managing” to do. I rarely get calls from tenants other than the occassional call for maintenance. Many management companies charge extra for arranging the maintenance. I evict on average 1% of the tenants per month, so again very little management involved.

Having said that, it would be impossible to make a accurate chart of management or maintenance times. The time involved would vary greatly depending on the competence and style of the landlord. I have seen many landlords who do almost nothing. They buy the house and that’s it. The property must almost fall down before they’ll do any maintenance and calls from tenants go unanswered. These are the typical slumlords and absentee landlords that you hear about. There is virtually no management involved with these landlords. On the other end of the spectrum is the landlord who wants to be buddies with the tenants, continually tinkers with the rental, and even hangs around with them. This landlord could spend 40 hours a week with only two or three rentals.

The same is true with the time involved with maintenance. Someone who is proficient and who works hard, can get maintenance tasks completed quickly. On the other hand, someone who is new to maintenance could spend hours on even simple tasks. Additionally, some people spend more time thinking and planning than doing.

Good Luck,

Mike

19

Mike,

Thank you for your response. Maintenance is definitely going to be where the majority of your time will be spent if you do use a property manager. I agree that professional management is not worth the 10% charge, especially for SFH’s. However, I still think their is quite a bit of management involved with rentals that an investor must do, especailly when you are starting out. Accounting, to include debt payments, and managing contractors to handle routine maintenance(lawn care, snow removal, ect) are two that come to my mind immediately. In addition, marketing to find tenants, screening and ect that are not included in the 10% charge. There is also quite a bit of management involved with your holding company, such as how to grow. I am confident that you know this from experience, but I felt that it was worth mentioning for the benefit of others.

You have also brought up two very valid additional varibles that would need to be taken into consideration when putting a chart together. I do think that a ROUGH chart representing AVERAGES is possible however, we would have to make some assumptions and disclose them. The assumptioms would be based on ethics that are in agreement with the goals of this fourm to promote and to include:

  1. the landlord acts responsibly, not a slumlord
  2. the landlord is professional, not buddy buddy
  3. a learning curve should also be taken into consideration

The learning curve should reflect an increase in profficency as the number of units and experience grows.

I think the chart should be developed with new investors in mind, which the chart would be of primary benefit to. A chart would also be useful to experienced investors to show how far they can grow before one must begin outsourcing and to be able to determine what lifestyle they want to live, i.e. work 20, 40, 60 hours a week or none at all and the costs associated with outsorcing so an investor can relate them to the value that they place on their time. I think that a chart is possible if certain assumptions are made and disclosed. The chart would only be used as a resource for AVERAGE numbers. This chart would be an extremely valuable resource to this forum, but would require a lot of input/information from experienced investors. In addition, this chart would be a large undertaking, but together this forum should be able to complete it with teamwork. I will volunteer to attempt to put this chart together if you guys will provide the information.

Also, I would like to rephrase my orginal question to be more specific.

What is the maximum number of units you can realistically manage and maintain by yourself, in a responsible and ethical manner, without having to outsource responsibilities to a property manager or maintenance professionals?

At what point(# of units) would you be forced to outsource?

When answering these questions, lets make the assumption that 60hrs/week is the most an individual can work.

Thank you for taking the time to read this and thank you in advance for all the responses lol.

Sincerely,
Matt

20

propertymanager,

I don’t deal with tenants and toilets. That’s why I hire professional property managers. Actually, I need them because I can’t be in all three states where I own rental property. It will be four states when I purchase outside Dallas/Fort Worth later this year.

I managed to average two hours per month last year on my rental property activity. I still made key management decisions, but I let the professional property managers handle the day-to-day operational tasks.

Because I delegated all the labor intensive rental management activity to professional managers, I had plenty of free time last year to have a triple bypass and to go through the radiation and chemotherapy treatments for cancer while my professionally managed rentals added $251K to my net worth last year. My wife is still a little annoyed with me because I was on the phone negotiating a purchase contract for another out-of-state rental property while I was in the hospital just one week after the surgery on my tumor.

By the way, I had a renter lined up for that property before I got home from the hospital. I turned the property and the potential tenant over to the property management company I hired (by phone) the day I completed settlement (by mail).

One month later, I bought another rental property in the same location and had a tenant buyer lined up before I went to settlement. My tenant buyer is planning to settle his purchase contract at the end of this month. I won’t make any profit on this deal (won’t lose any money either). I did this deal to help someone I know who wanted to get out of apartment renting and into home ownership but did not have the immediate resources or expertise to make it happen on his own.

If a professional property manager would eat too much of your cash flow, then maybe your rents are too low, your overhead is too high, or some combination of both. Of course, everything could be just right and you are raking in lots of cash that you just don’t want to share with a property manager.

Don’t take any of my comments as criticism. You are doing what works for you, and what you enjoy doing. I am telling you my experience to get you to thinking about how spending your time growing your business could increase your net worth faster than spending your time maintaining your properties.