Almost A Year in... Need feedback

[Justin Matesic]

So the end of the summer will make it a year since I've bought my first property. I'm feeling pretty anxious about it lately, mostly because of a potential issue with my PM.

I specifically looked for small MFR, that already had tenants in place. I figured this would be the easiest way to start out. I'd be able to hit the ground running and build up some initial cushion money for maint/cap ex. All of the numbers looked good when I bought the place. I took out a 15 year home equity loan, set up an LLC, bought the property with cash and threw it to the LLC.

So after I closed, I immediately had some issues with PMs. I had contacted several beforehand and then they backed out, and had to get several referrals before I found one to actually take it (due to location). 

Also one of the tenants didn't pay, and wasn't having any contact with the PM. They ended up bailing basically the next month after I took over (both sides were won m2m). 

The PM seems busy, but often takes a few days to get back to me. 

So here's where I am today. My 2nd unit still has not been rented (vacant 7 months). Basically I'm breaking even. Taxes and insurance are paid for the year, and I still have over a year's worth of loan payments in the draw account.

Recently I had a discussion with the PM that he thought it would be a great section 8 property, and wouldn't need much done (potentially windows). I'd asked him about landscaping but he didn't mention that. He also said about the rented unit needing a new stove, and the tenants were complaining of bugs. I okayed him to take care of both. I also noticed through buildem that the water hasn't been paid since April (bills go to the PM), and I asked him about why that was. He said he was going to look into it. 

I recently got a notice that my yard was out of ordinance, and would be fined next week if it's not cut. 

So basically after this past month I kind of feel like I'm in over my head, because of a somewhat overextended PM? I'm not sure if it's just anxiety or of I should try and bail on the property. If he would get a tenant in that other side there wouldn't be an issue, but I was  making far less than I was expecting. The other tenants lease is up in september and I'm kind of feeling some pressure now. If both sides go section 8 it would definitely be extremely profitable. At the same time I feel light I might just need to get rid of that property and get one closer to the city where I have a few more PM options.

Thoughts?

[Jim K.]

@Justin Matesic

Here's my two cents. Any place that a PM would refuse to service and another PM would consider "a great Section 8 property" is C or D-class housing. You are better off not investing in C or D-class SFR or small multifamily (2-4 units) from a distance. I consider my entire portfolio to be in this kind of housing, much closer to D than C, although I occasionally tell myself the same soothing lies every D-class rental investor does. All of my portfolio is local.

So if you are local to this place, fire your PM and take over management yourself. I devote five hours a month or less to a unit's property management. Get the units in order, do inspections every three months under the guise of changing the furnace filters, replacing the batteries in the carbon monoxide and fire alarms. Learn how to do basic home maintenance and pest control.

This thing with the yard, no, no, no. Nobody seems to understand this who is not actively managing properties. You write that you got an anonymous notice that your yard needs to be taken care of. You probably got it from the municipality the property is in. WHY did you get it? Because someone noticed that your yard is an eyesore. That someone works for code enforcement. That someone is probably the same person that claps eyes on your lawn every week. CODE ENFORCEMENT NOTICES ARE NEVER REALLY ANONYMOUS. You need to get into compliance quickly, and make a strong effort to make the appearance that you are doing everything you can get to get into compliance. You need to track down the person that sent the notice, apologize for the current condition of the lawn, promise that person it's never going to happen again, AND MAKE GOOD ON YOUR PROMISE. For a local investor in the lower property class, code enforcement can be either your stoutest friend or the enemy with the best shot of breaking you. Get on the right side of code enforcement, make it personal with the code enforcement officials, make it count.

If you have dreams of passive investment in C/D-class properties, you are only really going to get to them through mastering how to manage them personally and then figuring out how to delegate responsibilities effectively to the right people, probably only people you train yourself.

If you're not local, Justin, this ain't the way. Sell.