Where would you start?

Question

Hello BP Community!

I want to get serious about real estate investing. For me, it's just theory, ideas and learning at this point.

A bit of background, I am married, with two kids and a dog. The house we are in now is owned free and clear, over the past three years we have been renovating the home as we purchase it from an estate - long story short, it was a hoarder house. We have completed a remodel from the bottom up - literally, we added a master in the basement along with a living room and extra bedroom. The upstairs has two bedrooms, bathroom, kitchen and dining room - all brand new. Exterior is Hardie siding that we need to seal and paint - will add a patio and deck this spring. Small shed added in the back yard for extra storage.

In less than two weeks I am relocating to Kalispell, MT for work. I earn over $100k annually and will be renting when I get there.

Debts - just under over $30k on the Lowe's card - used for renovations and a $22k car loan. $25k in the bank.

What is your approach if you are in my shoes? I am nervous about the quality of tenant I will get if I put the property up as a rental. Airbnb has crossed my mind - just not 100% sure if the ROI is there. Sell? Refinance?

Thanks in advance!

-Cody

Cody Snow · Answer

@Nathan Gesner

Thanks for taking the time to share your insights.

-Cody

Cody Snow · Answer

@Drew Sygit

Thanks for the insight!

-Cody

Cody Snow · Answer

@Josh Wilson

I guess when I say serious, I mean actually doing something with my resources and knowledge. I know I can get out there and do it's just a matter of starting and taking action at this point.

I appreciate your feedback.

-Cody

Drew Sygit · Answer

@Cody Snow hire a professional!

Even if someone give you a referral, don’t make the mistake of assuming that PMC will meet your expectations, just because they met the expectations of the referral source.

We also can’t believe how many owners hire the first PMC they speak with!

Then they complain their expectations aren’t being met!

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – and they often select the first PMC they call!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

We have a 14-page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord. Beyond the Monthly Management, Placement & Maintenance fees, all other fees in our contract are IF EVENT -> THEN fees.

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:

https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

Please send us any feedback via email, as we do not use the DM feature here.

Also, if you like our response, please don’t be shy about giving us a vote😊

Nathan Gesner · Answer

I would not self-manage a property in another state unless you are 100% committed to learning the laws and figuring this out. It sounds like your hands will be full with a new job and family, so Property Management is highly advised. I would rather lose $100 a month paying for PM than to lose $10,000 by placing a bad tenant and not knowing how to deal with them.

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!

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