Investing Remotely / Property Management

[Chris Horne]

Hi everyone,

My goal is to buy multi-family properties for long-term, passive cash flow. I’m in New York, but the local real estate market here seems impossible right now for someone like me, so I decided to invest remotely in Columbus, Ohio. I’ve often heard the following advice: if you’re just starting out and want to get into multi-family, look for a 4-plex or a small multi-family property. However, I’ve also heard that you need to have at least 40 – 50 units in order to hire a good 3rd party property management company.

How should a remote investor reconcile those two statements? Do people start small, self-manage remotely, and work their way up to 3rd party management? If so, how do you manage a small multi-family property remotely? Or is one of those statements not necessarily true: maybe it’s possible to jump straight to a large property, or maybe it’s possible to find good 3rd party management even if you only own one small multi-family property? Thanks in advance for any advice on this.

[Andrew Johnson]

@Chris Horne This is my personal perspective:  start small and hire a property manager right away.  If it goes well, is a good relationship, there's good communication, etc. then you can scale around that PM from 4 to 40 units.  If it goes badly, well, you're better off having hiccups with 4 units than you are with 40 units.  It just less painful.  Not that I'd knock the idea of starting with a 40-unit apartment building if that's your desire but I wouldn't be in a mad dash to get to 40 units in the hopes that it somehow changes the PM dynamics.  And I will say that I'd only recommend using a property management company.  Again, it's a personal opinion, but hiring "Jim from Craigslist" that says he's manage your property for $100/month probably isn't a wise decision.  There's also a chance that as you hit certain thresholds (10+ units, 20+ units, etc.) you might be able to get your fee down from 10% to 9%, etc.  It's not a massive swing but if you have 40 units at $500/month it's probably $2,400 a year saving that 1%.  That probably covers your NYC to Columbus site visit.  

One thing you really need to consider is if the area supports the kind of growth you're looking to accomplish.  Especially if a statement goal is to work through the same property manager as you scale from 4 to 40 units.  They all have a radius, a comfort zone, etc.  And having their staff show properties that are in a 10 mile radius of their office is completely different than hoping they'll be able to respond as quickly to a property 60 miles away.  Columbus isn't exactly a small city but if you liked the area and found a property 30 minutes outside of Columbus that might be a little harder to scale around.  That said, I don't know squat about Columbus :-)