1st investment property? Property manager?

Question

Hi everyone,

I'm looking into my first investment property and would say that I'm definitely a bit nervous, and looking for any advice and/or tips. I'm located in Allentown, PA with plans to move back to NYC. The properties that I'm looking at are rather old, C-class, need maintenance, and with lower-income tenants. I found a property, wherewith a property management company in place at an 8% fee, I'll still see a 10-11% CAC return.

Does it still make sense to do this? People I have spoken to within the market advise the best way to do it is self manage, but given I'll be moving back to NY this will be hard to do?

Just looking for any thoughts here. I appreciate any comment made.

thank you,

Jon

David Ribardo · Answer

Hello @Jonathan Sheftel! I live here in the Lehigh Valley. Even though I'm within 20 minutes of any of my properties, I wouldn't think of trying to self manage! A full time property manager who answers the calls, fills vacancies quickly and efficiently, can quote each townships regulations from memory, and has all the best connections is a key part of any investing business. It doesn't matter how good your agent, lender, home inspector, and market are - if that property manager can't put a performing tenant in and keep them happy, you won't have any income and the whole thing falls apart.

I've seen a few individuals try and self-manage from out of state. If you have strong contractor connections and someone who can physically go to the property on a short notice, you may be able to make it work. Most often your lack of experience will get you in trouble. It only takes one bad decision to lose a full year's profits. My PM company has gotten quite good at resolving these issues. Recent examples: someone self-managing their property hired an unlicensed contractor. They didn't pull permits, hung drywall / painted, and the city made them tear it all down to inspect the electrical behind it. Or another one (which was managed by a full-service PM company) had a plumbing clog. After thousands of dollars in expenses and the tenants having no water for two days, we took over. Turns out it was a quick fix for a master plumber and we had them back in the unit a few hours later.

@Sheryl Sitman good to see you here, it's been a while! I hope all is well!

John Majoris · Answer

Hi Jonathan,

We use Tracy at Lot74 to manage our property in Bethlehem, and recommend her without reservation. I'm in Hunterdon NJ, about 40 minutes away from Bethlehem, and I was going to manage the property myself. I determined that I could not offer the same level of professional service that a property manager can, so I decided to use one.

I found Lot74 through my broker Brandon. It's a crazy time to hire contractors, and Tracy's contractor connections have been a godsend with the numerous repairs we had to make.

Moving past initial repairs, I'm all about attracting quality tenants and servicing them so well that they are reluctant to move. For me, it's well worth the 7.74%.

Good luck!

John

Account Closed · Answer

Self-managing is a lot of work, but it is the best way to maximize profits.  If you know what you are doing, go for it!  I have friends who successfully manage their properties and live out of state from the properties.  If you do not have the experience and try to manage ,independently, you could stand to lose more than the 8% management fee.  Property Managers usually have a pocket full of quality vendors who do it right the first time quickly.  A downfall with managing on your own is that it's harder to build up a list of quality vendors and vendors that will come out immediately.  Residents expect service quickly; it becomes a customer service issue which equals no renewal if service takes too long or is not completed properly.  Another bonus with Property Managers is that they often have negotiated better rates, having said that, be sure they do not upcharge on work completed.  Property Managers also have an eye for risk management; they will notice things you may miss that could cause more expensive problems with your home down the road or, even worse, a lawsuit.

On another note, if you are moving out of town and plan to use a property manager why limit yourself to Allentown?  There are some great markets to buy in for investment properties that will provide you with a better return.  If you find a good agent to help you source a property and have a quality manager lined up you never even need to go to the market.  Biggerpockets is a great place to build a team to help you.  I have seen a lot of investors buy in Atlanta that have never stepped foot in the state, they even complete major renovations via their local support team.  Something to think about.....

Sheryl Sitman · Answer

I am invested in Lehigh Valley and can not imagine how you would manage a property, let alone C class, remotely with no experience. Some of the LV municipalities actually require you to either live within a certain radius or have local PM in place. Do you know the laws and regulations? Do you have trusted maintenance people? Do you know how to handle a problem tenant or missed rental payment? Are you going to go and sit for 2 hours waiting for a plumber to come to give you an estimate? When the tenant tells you the refrigerator is not working well, that a window is leaking, that an outlet stopped working . . . what are you going to do?

Pratik Shah · Answer

I don't think it's much of an issue to buy, as long as you know what you're getting yourself into.

First off - How are you coming to the 1011% COC return? How much are you factoring in to your CAPEX considering these homes are older, you may have increased vacancy due to turnover/evictions, etc. If it's vacant, and you due your due diligence when identifying the right tenant, you can hedge yourself a little. I just want you be be confident with that COC number since there are a lot of items that need to be addressed in these older homes.

Management - not against management at all, just do your homework when selecting the right PM. I self manage 5 SFH's from out of state (NJ) and don't necessarily have any issues. I have great tenants in place, address maintenance requests promptly to 1. keep the tenants happy and 2. keep my properties up to date. It does require some work, however I'm able to manage it remotely but just calling the right people.

Sheryl Sitman · Answer

All good @David Ribardo !

Jaron Walling · Answer

@Jonathan Sheftel If you don't have experience with rental properties, C- class, and plan to move out of state DON'T buy this property. It's a set up for headaches and possibly a disaster for an investment.

Instead I'd focus on the market you're moving to and find a deal that makes the most sense. Find a property you can self manage and control all aspects of it. It's one of the best way to learn and not get burned by PM companies or terrible tenants.

1st investment property? Property manager?

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