What's Your Stance On Property Managers?

Hello all,

So, what’s the consensus on hiring Property Managers?

I’m asking because I just set-up an appointment with a Realtor to look at a single-family home in a town that is an hour away. I’ve been looking there because homes are priced at least 25% lower than the town I live in. Rents are less too, but not by much, depending upon the areas I compare.

While I was talking to the Real Estate Agent, she made her pitch for managing the property: 10% of the monthly rent. Probably like most, they handle showing the property, selecting the tennant, collecting rent, arranging for maintenance repairs, and even handle the magistrate court process should an eviction be required.

I can see pros and cons. What are your thoughts?

In general managment fees are 6% to 10% of the rent. Since single family positive cash flow is generally $100 per month on $1000 rent, you end up giving them half if not all the profits. What I do is when I buy my houses, I fix them up to perfect condition. That way there is no maintenance. I get my own tenants and so a managment company would only be collecting the rent. I just do it myself. The job is not that hard.

Single family Homes are difficult to cash flow, so I would manage it yourself for at least a few months and then if you want to put a management company in place then do it.

I agree with the others. I manage my own properties. I buy houses that are relatively new (<5yrs) but not brand new, so all the “kinks” have usually been worked out. If there is something really bad when I buy it, I fix it like new. Therefore, there should be little to no maintenance issues - for the first few years anyway. To date, I haven’t gotten a single call regarding maintenance issues. In the same time, I’ve probably saved myself $1,000’s in PM costs.

So you don’t follow the rule which says that “total monthly expenses shouldn’t exceed 50% of gross rents” ??

Beemnseven no I don’t. If I would find one of course I would take it. Remember real estate is local and what deals are available here may not be available there. Also different people have different investment philosophies. For instance I buy middle class houses. These houses are newer houses 1980 and younger. When I buy them I put into the mortgage the funds to fix them up also. That way I fix them up to brand new condition. That means I have no maintenance. New things don’t break and when they do they are under warranty (unless the tenant breaks it and his deposit fixes it). I also refinance after 2 to 4 years depending of the property and use those funds for capital improvements if needed (roofs, A/C, driveways etc) I sell them after 5 years and 1031 them into other properties.

I’m 100% in agreement. It’s tough finding good managers too. Many spend your money more freely than they’d spend their own. Others are easy on tenants. It’s not to say that all of them are this way, but it’s been my experience. They manage to be able to sell the property later, which sometimes can mean that they are less focused on finding great tenants.

I’m thinking I like the idea of starting my own management company once I have a few rentals. Then all management money goes back into my own pocket and I can have that company also manage buildings owned by others. I know a few people here do that and its working out for them I think. The difficulty though will be getting someone to run it that truly thinks like me and can make decisions the way I want them made without babysitting.

Starting a management company is the way to go if you’ve got a decent portfolio. I have a small company that I kind of “threw” together to manage my properties. It’s a bare-bones company without even a logo, business cards, or established office. Although we don’t yet management outside properties, that should be a relatively seamless transition in the future. However, I have not been given a concrete answer on needing a broker to run the company in order to lease properties we don’t own.

Property management is a pretty straight forward business. You establish your rules upfront and follow them! Rich, I’m sure anyone you get to run your property management company will be on the same page as you, strolling into work around 11am or so after sleeping in :wink: .

LOL. Nah, I leave for work at 8am on weekdays and get home about 11:15pm. Yeah, this working for other people s**t has got to stop. Learning all I can now and getting ready to do some REI to pay my bills.

When you call the shots, maybe you’ll decide work doesn’t start until 11. You hang around here enough to know all you need to get started. Dive in head first! If you find yourself in any kill zones, someone on here can show you the quickest way out. Think of it as a safety net.

I would manage my own but I am not investing in the area I live so I add that as an expense when considering purchasing a property.

“Dive in head first!” - I like it! Could I just type that up as my business plan? :slight_smile:

Thanks to all for your input. Seems to me that doing your own managing (at least at first and for a while) is a good way to learn too. Besides, I’m a penny-pincher. 10% seems like a lot.

I’ll be renting out rehabbed homes. Nothing like a fixer-upper! Hopefully, I can get them in good enough shape that I’ll have low maintenance a while.

That’s interesting. The way some people talk around here, if you don’t follow that rule you’ll be ruined. Problem is, the rarity of deals like that would seem to insure that you’d never buy an investment property if you waited for those type of numbers. Certainly different investors will have differing philosophies, but if you know that maintenance won’t be an issue then that’s a big portion of expenses that you don’t have to worry about.

Now, as to outside management companies, suppose you have a rental in a really, really bad section of town (assuming you buy those types of properties), considering safety measures, would you still bang on doors in the ghetto-crack neighborhoods if you tenants are behind on payments? Or do you avoid these situations all together?

Thanks

I’m of the opinion that if you can’t visit it yourself in person you shouldn’t own it. There are people that can handle that stuff and people that can’t, if you can’t find something else that cashflows that you can handle.

Beem,

I agree wih Rich. Definitely do not buy in areas where you are afraid to go. It is not profitable to buy properties in really bad crack areas because the tenants are so bad; will not pay; and will destroy the property. You will NOT make money with crack addicts as tenants. Crack addicts will do ANYTHING to get crack and paying the rent is not part of that. I have some low income buildings filled mostly with single women with multiple children (Section 8 tenants), mentally handicapped patients, and people on social security disability. I occassionally have a tenant go bad and start doing crack. It is never a good situation.

To answer your question, yes I do go collect all the rents in person. Most of the landlords that I know carry a concealed handgun. Obviously, you should protect yourself.

Mike

Rich & Mike –

So you guys prefer to deal with rent collection in person? I suppose every landlord will ultimately have that encounter at some point…

If you would, can you give me a run-down of how the conversation goes if a tenant can’t pay? What do you tell them, how long do you give them to come up with the money, at what point you start the eviction process… what are your rules?

Thanks so much.

Beem,

This is very simple. All of my rentals are owned by LLCs. The LLC is the legal owner and I am simply the property manager. I tell the tenant when I show them the rental that the property is corporate owned and that I am the manager (absolutely true). The company has rules and I must follow them to the letter. The rent is due on the 1st, late at 5pm on the 4th, and we start the eviction process at 5:01 on the 4th. There is no reason to ask about paying the rent late or paying partial rent, because the company will not permit it (absolutely true). In addition, they are completely and solely responsible for getting the rent to me. I do not chase them or play hide and seek. They either pay in full and on time or they will be IMMEDIATELY EVICTED. It is just that simple and I tell them this when I show them the rental.

I carry a cell phone for my business. The tenants have this number. I spend the first 4 days of every month collecting the rent and doing walk throughs of each of my rentals. The tenant calls me when they have the rent and I go pick it up AND walk through their rental. If they haven’t called me by noon of the 4th, I call them and remind them that it is the last day to pay the rent. On the evening of the 4th, I print off “3 day notices”. Here in Ohio, we are required to give the tenant a 3 day notice to vacate the premises. During this 3 day period, I will still accept rent but only with a $50 late fee. After the 3 day notice expires (on the 4th day), I file the eviction with the court and we won’t accept rent under any circumstances.

So, what do I say to the tenant? At noon on the 4th, I call the tenant and remind them that the rent is due. If I don’t get the rent, on the morning of the 5th, I post (tape) a 3 day notice on their door and then knock on the door. If they answer, I tell them that they are being evicted and that they must pay the rent plus the late fee or leave before the 3 day notice expires on the 7th or we will file in court on the morning of the 8th. At that point, it’s over and they WILL be evicted. MOST IMPORTANTLY, I FOLLOW THROUGH AND THE TENANTS KNOW THAT! They almost never even ask to pay late or partial payment - almost never. When they do - THE ANSWER IS NO!

Mike

That’s a pretty good idea Mike. Pretend to not be the decision maker so they don’t argue and play games…

Danny,

I’m not pretending. The company has written rules that I must follow. There is no decision to be made.

In addition, I’m a horse’s axx - there’s no doubt about it. If I don’t follow the rules, I WILL FIRE MYSELF!

Mike