Jumping into real estate

[Randy Glenn]

Hello,

Been lurking around for a couple days, trying to not ask duplicate questions. But honestly I have so many...

A couple partners and I are all going in together. We've narrowed down our markets to KC, Detroit, and certain parts of TX. We have a decent down payment (60-80K). We are all working professionals so we are going to hire a property management companies mainly focusing on turn key properties at first. We are still in the very first stages of our decisions so we are several months away from acting on things. I think we are looking at properties that are around the 200K range or less. My question is this. Is this how some of you all started? I know there will be pitfalls along the way, lessons learned, but I'm trying to mitigate some of that as we go along. Is there anything else we should be looking at? I feel like this is one of those you don't know what you don't know things, so any extra information is wonderful.

Thanks for your input

[Nathan Gesner]

You'll want a strong partnership agreement. How are profits split? Who pays to replace the furnace or roof? If you hire a property manager, who's the single point of contact? How do you decide when it's time to sell? What if one partner wants out but the other two want to stay in?

I recommend you read "Long-Distance Real Estate Investing" by David Greene. You can save yourself a lot of work by reading that and ensuring all of you are on the same page.

And here's my advice for finding a property manager:

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!