Should I outsource property management in a multifamily building I occupy?

Question

Hello BP,

I'm looking at finally taking the plunge and buying my first property.  It's a quad with tenants in place and it should provide cash flow even if I am occupying one unit free of charge.  My question is this:  Should I manage the property myself setting aside the extra money I receive from management to jump start my investing career?  Or, alternatively, should I hire a professional management company for peace of mind and a more harmonious living arrangement?

I've managed my father's portfolio for over a year now and I'm confident in my ability to advertise the property and screen tenants.  I also don't mind rolling up my sleeves to do basic repairs, repaint units between tenants, etc.  However, I am concerned that this property is in a niche that I am unfamiliar with.  All the properties I have managed thus far are relatively upscale single family homes attracting a tenant that makes a bit more money than I do, sometimes a lot more money.  This will not be the case with this quad.  In addition I am required to travel for work on occasion and it would be nice to have someone who I could count on to step in if something did happen.  There is also a peace of mind factor, I want the place I live to be as relaxing as possible, not someplace where my immediate neighbors feel they need to dodge or confront me because they are late on rent.

I welcome any and all input, thanks for reading!

Jeff B. · Answer

I know you asked a rhetorical question that you already answered, but this is my advice for other viewers.

This is a time vs. money question.  You need to forecast how much your time will be needed and what it is worth.  This could also be looked at as you can get experience and knowledge from working with a professional property manager.  In my experience developing efficient systems, processes, contacts, knowledge, and experience to consider yourself a professional Real Estate Investor are time and labor intensive.

Personally I would make sure to use a Plan of Action list of the expectations of the Property Management company.  If you Google "property management plan of action" the 1st selection should be Kamehameha, (I have no affiliation)has a great check list.  Additionally I don't like to rely on pre-made leases solely and always have addendum pages for important issues that are not listed in the lease already.  An Example addendum I use for Florida a Tenant friendly state "Security Deposits and Advance Rent, Security Deposit is Not for Last Month's rent, My ability to inspect the property, Smoke Detector battery maintenance, Mold (Tenant will use heat and A\C to prevent Mold).  Expectation of Tenant to purchase renter's insurance to protect belongings, Assignment and Sub leasing, Who pays for repair of reoccurring issue if caused by tenant negligence.

If you value your time at $30 an hour but can pay someone locally $15 an hour to do the work for you while you focus on increasing revenue and profits and growing your business this makes sense to me. I have no experience with using Virtual Assistants but have friends who have had great success with them performing certain tasks at very cost effective rates.

Bill Gulley · Answer

Wow, lots of comments and I didn't read any of them.

Not only would I have a manager, I'd keep it dang quiet that I owned the place!

You should be working 'undercover" with the manager! Since you are there, your manager should have less to do, if you're good at influencing others and property inspection matters, you should be paying a bit less too.

Otherwise, you will not be living harmoniously, I'm pretty sure of that. :)

Jeff B. · Answer

May just be me put seems the subject has changed from the original question

"I'm looking at finally taking the plunge and buying my first property. My question is this:  Should  I manage the property myself setting aside the extra money I receive  from management to jump start my investing career?"There are definitely two ways to look at this issue.  One is what is your Plan of Action and Goals for the next 5 years? Both work and personal.  Being conservative will you have the time to commit to obtaining these goals while working, managing the family property, managing this property, studying and increasing your RE investor knowledge and having some personal life?If the 5 year plan is to manage the family property, your quad or multifamily, work, study, have personal life (wife, kids) and after 3 years of your investments cash flow, leveraging the property to increase your portfolio with another property you maybe under estimating the time and commitment this will involve.  (Speaking from experience) If the 5 year plan is to manage the family property, your multifamily and you do Not planon purchasing properties in the next 5 years then consider being your own property manager.  I'm more concerned about running my RE investment business and determining how I will increase revenue and grow earnings over the next 5 years.  I'm personally always looking to grow either my contacts, knowledge, and portfolio.  I consider myself a Professional RE Investor, I know more about my areas then most of my competition from (demographics, property value trends, how my property compares with comps, talking with city regarding areas that are being revitalized or any grants available to renovate properties the city consider a blight.)  This allows me insight into when is a good time to buy or sell a property.If operating expenses stay steady or increase but property values and rent rates decline so do your profits.  They make it look easy on TV but there is a Lot to know about Real Estate.

Troy Sheets · Answer

Sounds like this one may not work out, either way, I can't say PM'ing your own MFH is a bad thing. I do with my quad I live in and enjoy it. I try not to do my own repairs, I have a background in construction and facilities and still do that type of work every day. Not something I feel like doing on the weekends and evenings unless I have to. Unless it's something that can't wait, I use a trusted contractor that has access to my unit to get the keys to the other units when I need a repair.

To your point about living with your tenants, you pick people you'd want to live with/be around. You don't have to be best friends, just not repulsed by them. If they're not paying, evict. It's still business. We moved into our quad 1/1 this year and had the first tenant evicted by beginning of 3/1. He stopped paying, gave him one chance, he didn't comply so out the door he went. Told him I've got a mortgage to pay and without his rent I can't pay the mortgage so I need someone in there that can pay. Gotta say, when the other tenants find out you just evicted someone, it tightens up their game a bit too!

We turned over the other two units this summer when leases were up. Now I've got young professionals in all 3 units that autopay by the first of the month. They've been over for dinner, drinks on the roof deck, dropped off baked goods to each other, etc. As long as they're paying, we can be friends. When the paying stops, nothing personal, you've got to go.

I've done a lot of work to my units this year to ensure they run smoothly and, since everything is now in good repair, there are much less surprises and calls. If you've got good tenants and your units are up to snuff, what're you worried about? You may have to train them with boundaries and such if you've got a pushy one. Also, the goodwill we've built helps with them understanding repairs take a day or so if the handyman/contractor is busy and it's not urgent. Your dishwasher doesn't work? Use the sink for 2 days till the handyman can get here. I'm not interrupting my dinner/sleep/weekend to fix something you can live without till Monday.

The other thing is, I think it'd be hard to hide from them the fact that you own the place. When I've rented in the past, I always looked up the unit I was in to see who owned, how much they paid, if the taxes were paid, how much they were, etc. Unless you own in an LLC, they'll figure it out and if they do, who cares?

Elizabeth Colegrove · Answer

@David Cook

We self manage and have done very well even with a transient career. We buy class A property single family homes. So take that with a grain of salt. On the other hand the control and the savings are significant and make it totally worth it for me.

Tou V. · Answer

if you can hide the fact that you're the owner, sure hiring might be good.  If they find out you're the owner, they'll still go straight to you.  If I felt comfortable enough living there.   I'd just PM it myself and save some money.

David Cook · Answer

Thanks for the insight Bill Gulleyy circumstances are slightly different than when I originally started this thread.  I'll be living in a nearby townhouse community where my father owns some properties.  The quad is on my way to work though so I should be able to keep a close eye on it.  I'm hoping to self manage although I should still comfortably cash flow if I choose to outsource.

David Cook · Answer

Just got word this morning that my offer on an identical quad on the same street was accepted.  It's in slightly better shape than the one I previously attempted to buy and I got it for $16,500 less than the first seller's lowest offer.  Just wanted to share my small success and thank everyone again for the advice and motivation, I hope I get to repay the favor someday.

David Cook · Answer

Thank you Elizabeth  Colegrove

I really appreciate the insights.  As you said Troy this one may not work out but at least I will have a better game plan in place as a result of this discussion.  I will update this forum on if the deal ends up going through.

David Cook · Answer

@Tou V. and @Jeff B.

I greatly appreciate the thoughtful insights.  I am leaning toward doing my own PM at the moment.  My initial offer with the seller was countered at a price I consider too high (he came down 1% off asking price).  I suspect the seller is either over leveraged or just testing the water since his price is about 10-15% over comps.  It may be that I have to look elsewhere for my first investment but the advice you have given me will aid me in the future.  Thank you both very much.

Should I outsource property management in a multifamily building I occupy?

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