How to invest remotely with minimal cost?

Question

After owning 2 rental properties with a bit of house hacking in LA, I feel that I should diversify my portfolio now that it costs more to invest in LA with less cashflow. I'm hoping to get an investment property in Indianapolis.  However, remote managing seems quite daunting.  I have heard a lot of bad stories about how Property Managers eat investors' cashflow with some dirty tricks like fake or exaggerated maintenance fee on top of 10% monthly fee plus first month's entire rent to move in a tenant. As a landlord for 5 years, I find that managing 4 units myself here in LA is so easy even with my full time job. I am fairly familiar with small claim system as both a tenant and a landlord. I hence don't understand why it costs so much to hire a property manager.  Honestly, to me, the only difficult part of remote managing is to move in and out tenants with possible evictions. When it comes to maintenance or repairs, property manages are just like me need to find contractors to fix it.  That said, I am looking for a partner from Indianapolis, IN 46204 to co invest a rental property in Indianapolis with me, so that my partner can mange the property for us on the parts that I cannot do myself like showing etc while I can manage the rest such as drafting rental agreements, rent collection, "pay or vacate" legal actions etc.  Of course, I will get a smaller portion of the rent while my partner will get bigger portion. Isn't that such a good idea to bypass those greedy property managers?  On the other hand, my partner can be greedy as well in regards to maintenance fee.  I would also love to hear from realtors from Indianapolis for any potentials that I haven't foreseen. Any thoughts?  Thank you!

Andrew Flora · Answer

Depending on what you mean by co-invest, this is something I already do in Indiana.  I’m “the guy” for this type of deal structure.  I’m interested in hearing more about what you are looking for.

Lily Mist · Answer

I see your point.  But what about those maintenance fee which can be a hidden hell even if it is split 50/50, as it cannot be transparently measured?

Daniel Kong · Answer

I guess, the question from the person who is co-investing with you, would be "Why don't I just buy my own property and own 100% since I'm managing it and doing the work on it anyway?"

I would think you would need to give them an incentive to partner with you. Maybe you pay 60% of the purchase price, and they pay 40% and, then you split the equity/profits 50/50?

Just looking at it from the perspective of the person down in Indy managing it.

Lily Mist · Answer

Thanks for your response, Aaron.  How do you like your property managers?  I can only manage my rentals 100% locally but not remotely.  If I can find a good contractor, I probably only need property managers at most 30% of the time such as showing or evictions.  I am only doing year to year rental instead of month to month which can give me more rental stability with less hassles like what I'm doing here in LA.  If you have good experience with your property managers, I would like to learn more.  The reason I am asking about Indiana is that I am flying there soon for a business trip. Further, I've heard that it is an "up and coming" city.  I hence want to test water to see what it has to offer.  Thanks!

Lily Mist · Answer

I am a newbie here.  I don't know what is the best approach and how investment partnership should typically work.  I'm glad to hear that you have already done this in Indiana.  I'm open to all alternatives as long as both parties are happy to work together to achieve their goals with the right balance.  I would love to hear more about what you have been doing there.  Maybe, that is also something I would like to do.  Thanks!

Lily Mist · Answer

The "co-invest" I mean is to share the purchase price so that my partner would treat my property like his or her own so that s/he would put effort into it to make it more profitable unlike those property management whose only interest is to eat as much of investors' cashflow as possible.  If I pay for the rental and my partner manages it for me, wouldn't that partner act just like those greedy property managers?  Maybe, it would be even worse? A property manager at least can handle things professionally with experience built over years. The only drawback is too costly. If something isn't done right, at least I can submit a complaint via Better Business Bureau or write a bad review somewhere to make them more careful about it. But with a partner, I have no idea how to deal with it when something bad happens.

Aaron DiCaprio · Answer

It really depends on your comfort level and what's going on in your life.  My wife and I had 2 remote rental properties (Denver and Alexandria, VA) and went through a handful of property managers before finding the right one.  It's great if you can do it yourself but we have 3 young boys and time is always at a premium.

Hire a great PM, have a consultation with a RE/eviction attorney so you know who you can engage it dire times and also get rent default insurance that can reimburse your lost rent and legal expenses should there be a default.  All of the foregoing should help mitigate your risk.

A "co-investing" partner could work.  Just do your due diligence.

Best of luck,

Aaron

Daniel Kong · Answer

What type of deal structure are you proposing when you say "co-invest"? Sharing the purchase price? You pay for the rental and your partner manage it for you?

Lily Mist · Answer

@Scott DeMichele

Thank you for your response! I have no problems in finding a right tenant. The only bad tenant I had over the last 5 years was already out of my properties even without me starting eviction process.  Nothing was lost, as anything that was damaged was well compensated at the small claim court. Thanks to that tenant, I know exactly what needs to be done with small claims from the beginning to end without even hiring an attorney.

To be honest, I enjoy being a landlord and have very good relationship with my tenants. If anyone wanted to move out, it was either because they were going through a divorce or purchasing their own homes.  Some of them are still my friends even when they are no longer my tenants.  Some others even replaced my old wooden fence with vinyl fence.  Of course, I bought the materials.

However, remote investing would not give me all these benefits such as selecting my preferred tenants or going to the court when needed or finding the right contractor that does decent jobs with reasonable charges etc.

I totally agree with you about finding the right partner.  It would be so ideal if each partner can utilize what they are good at to build a path to success together! I see that you are a rental property investor.  What cities have you invested?  Do you have any experience of investment partnership? If so, I would love to hear! :)  Thank you!

Scott DeMichele · Answer

This is a good cost/benefit question.  The way I see it your partner scenario could have an advantage over a property manager because they have more skin in the game.  They have an interest in managing maint and capex costs as well as long-term planning over short-term bandaids.  The trick would be finding the right partner, because disputes could be disastrous.Finding the right tenant is key as the wrong ones can set you back a year or more.  The risks here have the most weight in determining success or failure.

How to invest remotely with minimal cost?

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