Management Co, Downpayment, Landlord-Tenant Laws

[Matt Doerr]

A few questions for you seasoned investors:

1) Would it be wise to use a management company starting out if estimated cash flow covers it? Or do management companies generally not "take" on 1-5 properties? 

2) What are your thoughts on utilizing 10% down if the bank will allow it instead of 20% down - opportunities vs risks besides the obvious less cash out of pocket?

3) What's the best practice for the tenant application process and staying within the lines of HUD/ landlord- tenant laws?

[Dave Spooner]

@Matt Doerr Great questions! I'll do my best to at least share my perspective:

1. You can absolutely find a management company that is willing to take on 1-5 units (or more). Whether that's wise... it's hard to say. I manage my properties myself. I use software to automate most of my processes and it saves me the 7-12% in management fees I'd otherwise be paying. 1-5 units is a pretty small portfolio so it should definitely be possible to self-manage.

2. Some folks press for more equity. They have seen the wreckage of 2008 and the danger of over-levereged investors in general. That being said, every dollar you spend on a particular property is a dollar you can't spend on your next. I'd personally rather get two properties with 10% down on each than 20% down on one, but before I do that, I need to make sure the numbers are rock solid and I'm confident I will be able to rent it. Otherwise, you do run significant risk (self-managing is a great way to save some money to do that, fyi).

3. I strongly recommend you define a tenant scoring system and stick to it. Identify thresholds the applicants must meet. If you're arbitrary in your decision making (or if you base your decision on a protected class), you open yourself up to lawsuits. Get a screening system, create a scoring system, and you'll be all set.