How Much Trust/Control to Management Company

Question

Hi.

I am thinking to start investing in Buy/Hold rental properties with a mind to generate modest cash flow. In addition to being new to RE, I live and work in Asia so I will have to rely heavily on a property manager. I am happy to pay a little extra to the best PM I can find if it means more security for my investment and more peace of mind for me.

Now that I am looking for a PM, I see that many also offer bird-dogging, maintenance, inspection, accounting, and other services. A few even advertise that they have properties with renters in place so it would be truly turnkey. This is appealing to me. Especially the bird-dogging since I can only do so much property scouting from overseas and I am certain that I am missing deals.

I am a little nervous about turning everything over to one company though. On the one hand, I suppose this is the RE equivalent of vertical integration, so it should be efficient. Plus it creates a certain incentive for the PM - if they do good work, I can continue pumping capital in and helping to grow their operation, but if not then I could walk. On the other hand I worry that this reduces oversight and that the various elements of the company could cover for problems in other areas.

Does anyone have experience with this? Do you find that it is better to have separate partners for each part of your investment? Information about how these different strategies affect month to month expenses and quality of service?

Thanks!

Engelo Rumora · Answer

Trust is built over time and not one phone call, email or meeting.Spend enough time conducting due diligence on the people you are looking at working with. This could take more than 12 months.Its better take extra long that jump in too soon and get screwed over.It took me over 18 months before I established the right people on the ground in the US and bought my first property and later on making the move here.A good way of eliminating the shady operators is to say that you have no intentions of doing any business for at least 6 months.You will find that many won't seem as interested in assisting and answering questions any more.This is good as they were only after a quick profit before they could move onto their next victim.Thanks and have a great day.

Walt Payne · Answer

I would simply say that you need to do due diligence when dealing with any unknown person or company. There are a lot of sharks in the world.

Daniel Mulberry · Answer

@Walt Payne - Thank you for the advice. I am looking in an area that I know reasonably well. It is suburban Detroit and my wife grew up there. Most of her family and a number of friends are still in the area so we can definitely get on the ground help when needed. Plus our primary residence is about 30 minutes away, currently occupied by a friend who pays cost. One of our guiding principles is that we won't buy a house somewhere that we wouldn't actually live, so the war zones are out (and there are plenty in the greater Detroit area). We are not looking for miracle returns. I want to establish an income stream to provide a supplement in case my next posting isn't as lucrative as this one. If things go well, I could see this as a source of retirement income. But in general I am taking a moderately conservative approach and happy to pay a little extra to ensure quality service. Maybe there aren't patterns ,but would you say that the companies that combine all of these services tend to be solid? Dangerous? Or is it case by case? @Lauren Lee - Thanks for the note. Best of luck to you and have fun in the Emirates!

Walt Payne · Answer

Are you investing in an area you know so you would recognize a bad neighborhood? Where you have friends and/or family to look out for your interests? There are way too many scam or ripoff full service companies who service foreign investors, buying junk properties in war zones and milking it for all they can get while nothing they do is quite illegal. And then there are a minority of them providing honest deals with shared profit. I highly suggest you find a company that is known here. In fact a few respected members here offer such services. It is not going to get you the returns you would get by doing it on your own, but it would get you a good start.

Lauren Lee · Answer

Daniel, Although I do not have an answer for you, I am very interested in seeing what kind of responses you get. My husband and I are working towards buying our first property in the states but currently live in UAE, due to this we will have to rely heavily on PM as well. The best of luck to you. I will send any info I find regardinf this your way.