Threshold issue: property manager, profit and SFHs?

[Ian Fiske]

Hi all,

This is my first post, so apologies in advance if this is in the wrong forum.  Thanks in advance for the guidance.

I'm in my education phase of REI, having reviewed different forums off and on for the past 6 months. I've been impressed with Bigger Pockets, and reviewed "The Ultimate Beginners Guide to REI." However, I have somewhat of a threshold question...

I'm pretty comfortable in stocks, and expect a long-term return of 7-8%. In reviewing the forum, Guide, some limited RE experience and other educational sources, if I invest in RE directly it will likely be in SFH and/or condos. I've come to realize, for a variety of personal reasons (busy job, young family, some health issues, and other personal reasons) that I will very likely need a property manager. If property managers take 10% off the top (plus an extra month's rent) this means I need to clear a minimum of 18% ROI just to break even with my stock portfolio. But just by virtue of taking on more risk by investing in a single property (and as a novice!), I'd need to aim for even more to make the risk worthwhile (probably 22-25% before the manager, meaning 12-15% after a manager). This seems unlikely IMO. But you guys are the experts, not me. :)

Can you really expect to clear 12-15% after a manager by investing in SFH/condos?

Again, thank you!

[Andrew Ware]

So the reason property investing does not look appealing to many is exactly what you just said. But this is just the surface level.

You are paying the property manager out of what is basically cash flow. And yes you’d still like it to cash flow which can be tricky or impossible on a SFH (in some markets and deal dependent). But cash flow is only part of the calculation. You also benefit from leverage, loan pay down, and tax benefits. This the property management does not impact except to count as an expense for tax purposes.

When you factor all of this in you should be able to easily outpace the market. If not, you would not consider the extra effort.