Managing Growth?

Question

Not sure where this post should land, maybe a good idea for a new forum ... Owners of 10+ Properties, or something a little more creative than that, but you get the idea.

I would like input from those investors who have gone from owning just 1-2 properties, to the next step of say 10-20 properties.

* At what point was the administration of it just too much, where you had to hire someone to help with bookkeeping?

* For someone with a normal 40 hr job, at what point for you was it just too much to handle both?

* What strategies are you undertaking, with so many properties, to avoid a catastrophic failure of your empire?

* What key event or point in time, did you realize you had turned a corner, and you truly realized this was going to work?

Thanks, and looking forward to your responses.

BMR

Michael Rossi · Answer

I would be very cautious about giving low income tenants a 1-year or 2-year lease.  Doing so does absolutely nothing to ensure that they will stay because you have no leverage over them.  What are you going to do - sue them if they don't stay?  You can't get blood out of a turnip (and the tenant knows it).

On the other side of the equation, a 1-year or 2-year lease gives the tenant all the advantage.  If they turn out to be a nightmare tenant, it will be very hard for you to evict them for any reason other than failure to pay.   A long term lease can sentence the landlord with a long term nightmare.  I never give low-income tenants anything longer than a month-to-month lease.

Mike

Bryan Hancock · Answer

This is a great post and a subject that I struggled with the last several years.

I found that the paperwork and nuisance got to be burdensome around 7-10 properties.  At the time I was working as an electrical engineer and was a DINK.  The time spent goofing with accounting seemed like a low payoff activity to me and I wanted to stay focused on growing my portfolio and businesses instead of doing busywork that can be done by experts.

Avoid being too leveraged.  Every investor that I know that has been in the game for decades will tell you that cash and liquidity give you staying power and that those that leverage too much are the ones that go bankrupt eventually.

I question whether or not things are sustainable constantly.  If you love the business it isn't really work and you just love to do it.  Like anything else in life if you love doing it you want to be the best at it and you will succeed over time.

Kevin Schick · Answer

Mike, good points to consider.  I was thinking more along the graduate student types, who have hopefully gone through their whoo-hoo look at me i'm on my own party stage already ...

Kevin Schick · Answer

Excellent advise, and thanks for sharing ...

BMR

Frank Adams · Answer

IRRC; If I Recall Correctly

Kevin Schick · Answer

Mike, i was hoping you would respond.  Bookkeeping wise do you just track it all in Quickbooks or something like that?

I'm guessing Ohio is like Indiana with a lot of these older multi-units requiring the landlord to pay utilities.  Those tend to take more bookkeeping as they have the constant monthly expense in addition to the regular income/expenses.

BMR

Michael Rossi · Answer

I haven't gotten there yet, even with several dozen rentals.  The paperwork just isn't that bad.

I didn't have a normal job, but I did have another business.  The bottom line is that you will have to work your butt off for at least a couple years until your new rental property business can support you.  It isn't easy.

The only thing you can do is to operate your rental business in a professional manner.  There are no guarantees in life and that includes working at a job (like in downsizing).  If the major employer in town goes out of business or the economy enters a depression, your business may fail even though you're doing everything right.

I never had a doubt that it was going to work.  It's just a matter of doing things right, buying right, handling the tenants in a firm manner, and working hard.

Good Luck,

Mike

Frank Adams · Answer

I'm like Mike, I never got to the point that I needed an accountant, always had a CPA though, just not for the month to month stuff. I had a file folder (a real one) that I put all receipts in so it was easy for me when I got a computer (back in '95) to make an Excel file for each property and category.

I'm an ultra-conservative (financially) guy so I always was concerned about taking no too much, and too high a proportion of debt. I also never wanted my RE to be too big a part of my total financial picture.

When I had IIRC about 6 or 7 SFHs I started getting real aggressive on paying off the lowest balance loan, and then attacking the next lowest, by the time I hit 10 I had few enough loans that I could've qualified but by then I was buying lower dollar units where it KILLS YOU to finance them. The fees, points and interest rates are too high a proportion of the total acquisition cost.

One thing that made my life simpler was to have a SINGLE PAGE "cheat sheet" on which I had each house address, tenant's names and SSAN and phone number. I also had their lease expiration date, amount of rent and last rent increase. The key was that I had a column for each month and checked them off as the checks (or deposits to my account) showed up.

I could walk into my office with the mail and within 2 minutes know exactly where I stood for that month and who I had to call and or write.

The other thing that I did that made my life immeasurably easier was to start insisting on a MINIMUM TWO YEAR LEASE. Once you do that you get a better, more stable class of tenant. They are likely to stay 4 or more years greatly reducing your turnover and make ready costs.

I got up to 16 SFHs and did it all myself, except A/C and carpet. No regrets about taking on the extra workload. The last 6 years I owned them all free and clear, schweeeet.

all cash

Michael Rossi · Answer

BMR,

I have my properties divided into a series of companies (LLCs) according to risk.  I run all expenses through a checkbook for each company.  Then, I enter all the checkbook data into Quickbooks Pro for accounting purposes.

I don't buy buildings that don't have separated utilities (except water).  I won't pay gas or electric because they can so easily be abused by the tenant (and cost the landlord a bundle).

Mike

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