How to be a landlord

[Duke Vang]

What does it takes to be a landlord? I want to own a duplex to begin with but I heard you have to hire landlord management? I'm not sure what that is. What do I have to go through to rent out the other half to someone?

[Stewart Guthrie]

Hello Duke,

I am a property manager in the Sacramento region, and the advice you've received up to now has been terrific, (@Steve Vaughan nailed our business environment). 

Since you're hanging out on Bigger Pockets, my guess is that you see RE investment as a big part of your future, so you should probably purchase the Nolo CA book anyway, (whether you choose to engage property management or not), it will make you a better, more informed investor/landlord.  Now, on to your question.

You can engage property management in a couple of ways: 

You can pay for "Lease-Up" service where the PM does the showings, tenant screening and and signs the lease as your agent, (usually a generic CAR or RHA lease), and then hands the deposit and lease over to you to manage moving forward.  The PM is out of the picture until you need them to re-lease the property; you collect the rent and handle any tenant or maintenance issues. 

For lease-up service in the Sacramento market, PM's usually charge, (around), the equivalent of one month's rent when the lease is signed.  They will generally document the condition of the property with an intake inspection/photos/video and do the move-in walk through with the tenant.  When the property is rented, they collect the deposit and one month's rent, they keep the rent and turn the security deposit over to you, (PLEASE don't spend it, put it in an separate account so it is safe and readily available, treat your rental business like a business). From there on, the tenant hands his or her rent directly to you.

Full Service Management is where all the tenant interaction is supposed to go through the property manager and your tenant doesn't know who you are or that you exist.  In our market, the lease-up fee would be discounted, (about 50% of the first month's rent), and you would pay between 8 and 10% of collected rent, (per month), for rent collection, accounting, maintenance dispatch, contract enforcement, move-in and move-out inspections and move-out reconciliation, (basic management services, in other words). 

Much of the benefit of paying for full management is the professional separation that comes with having an agent between you and the tenant.  That is not likely to happen with your situation, and it is likely that you will be subject to all sorts of casual requests for service or leniency based on your personal relationship.  Obviously, you would have these requests if you manage your own property too, but at least you wouldn't be paying management fees for the privilege.

This isn't to say that having full service management is impossible in your proposed scenario; I have seen your exact situation work well well in a number of cases, but it takes a ton of self-discipline to look your neighbor in the eye and tell them to call the property manager for all their questions, concerns and requests and, (in my experience), usually there was some other circumstance as well:  Owner or tenant traveled a lot, owner or tenant are naturally very private and sought no relationship with their neighbor, the property was configured in such a way that the owner and tenant rarely saw each other, etc.

So, like almost everything in life, a decision like this is going to take some self evaluation.  Are you emotionally equipped to have an adversarial, (in the legal sense), relationship with your next door neighbor? What is your tolerance for risk, (learning about/implementing fair housing laws in your rental etc)? Are you comfortable with the likelihood of interruptions in your personal space and time for business issues? 

You CAN overcome your discomfort, (if any), with all of these issues, but is it worth it for you to do so?  Would you time be better spent at your profession or in finding your next RE deal?

I hope this helps, good luck.