What percentage of landlords only own 1 or 2 properties?

Question

My memory has failed me, so I'm looking to the collective memory of BP.

I think I heard on one of the podcasts that most landlords in the United States only own 1 or 2 properties. In my mind it came out of @Brandon Turner's mouth. The point was most landlords don't run their real estate investing like a business and often burn out. I would love to use the statistic in my business plan that I am using to pitch investors and banks. Unfortunately, I've been searching the internet for statistics and haven't come up with anything.

Does anyone else remember this? Do you have a source to back it up? Or did I make it up?

Mike

Mike R. · Answer

@Michael Wentzel

Michael,

I think the examples you quoted are common issues and they basically come down to time & know-how.  Those are the exact reasons we approached RE investing the way we did.  We wanted to limit the amount of time spent on this part-time job so we did the following:

• Initially all units are updated as they vacate.  this includes new appliances, flooring, kitchen, etc.  yes, we spent a fair bit of $ up front to make this possible.  However, the reward has been very limited calls at the midnight hour to fix things.  in fact, I get maybe one or two calls a YEAR with the first building  we purchased (purchased in '08)and they are generally minor issues that i can solve.    
• we screen tenants very carefully.  we have inherited problem tenants (late payers, damaging units, not good neighbors, etc).  we get rid of them ASAP.  basically we simply do not renew their lease and use it as a reason to remodel the unit and re-rent at a higher monthly rent.  its a win-win
• we manage fairly but tough.  tenants do not get a pass on late rent...no if, ands or buts.  you're late, you get a notice and late fee.  our leases have a "water fall" provision that states that payments received are credited in the following order: 1) late fees/penalties 2) utilities 3) rent.  that way, if they send in this months rent but not the late fee for the previous month, we can actually bill them another late fee.  for example, assume late fee is $10, full month rent is $100.  last month they were late but haven't paid the late fee but they do send us a $100 for the next months rent.  we subtract $10 late fee from the $100 rent payment which leaves $90 for the rent.  that is a partial payment and therefore we did not receive the rent so they are late AGAIN.  we don't do this to make money on late fees (i hope i never have to charge a late fee), we do this so we can start the eviction process asap.  you can't evict for non-payment of late fees, but you can evict for non-payment of rent.   Amazing how fast a tenant will get paid up (including late fees) if they face eviction. 
• we use electronic locks on units being remodeled.  that way, we can program codes that we give to each contractor and they can enter the unit whenever they want....we don't have to let them in (i.e. huge waste of time) and we don't have to worry about leaving a key.

the know-how needed to maintain your buildings is a bit more of a problem if you are not handy.  I am relatively handy but know my limits.  I usually do all the demo work and there is no reason 90% of us can't do the same.  stuff i can't do, i will hire someone to do the work, BUT i watch what they do (or watch a youtube video) so i learn how to do it.  That way, i can do the work myself the next time.  Yes, there are things i simply will never do, but i will do all the small things.  that saves $.  The point is be a flexible landlord, if you can do the work yourself then do it.  if you can't, you can't and don't sweat it.  if you can do the work but don't have the time/energy, so be it.  Just write the check to the person doing the work and enjoy your ice tea on the deck.

property management companies have their place and i suspect we will use them in the future (when retired from full time job) so we can travel.  However, in the mean time, i can't bring myself to pay someone 6-10% of GROSS just to credit my account with the rent checks (we actually only use electronic rent payment), do the simple job of screening prospects (use a credit/back ground checking service) or scheduling contractors (its a simple phone call).  If there is a problem within an occupied unit, we have the contractor call the tenant to schedule the appointment.  That way we don't spend our time meeting the contractor at the unit, we select the contractor so we know they will do the job right the first time, and the tenant feels good about having the contractor work around their schedule.  again a win-win for everyone.

Michael Wentzel · Answer

@Luka Milicevic

If we could get @Brandon Turner to give us the quote and the source I would have a great line for my business plan. If it is true that 50% of landlords only have one property, that would say to me there is a lot of room in the market to purchase these properties and put them into a system.

Mike

Luka Milicevic · Answer

@Michael Wentzel I definitely remember hearing this on the podcast. From what I remember it was along the lines of 50% of landlords have only 1 property. That tells me about half of landlords are mom/pop landlords.

Real estate rentals to me are considered passive income investments. I'm not punching a clock to earn my rent like I would at a 9-5, however that does NOT mean they require no work. I think a lot of people coming in think they are going to get on the MLS buy a property, put a tenant in and then sit back and collect rent checks. That is not the case.

Real estate can be as much or as little work as you want it to be. The less work you want to do will save you time but cost you money. Managing yourself vs a property manager, repairing things vs hiring it out. It all depends where you are in your career and what you want to do. I truly believe there is no right or wrong answer to real estate. There is nothing wrong with wanting to do your own repairs/upgrades, just like there is nothing wrong with hiring out the work if you don't want to do it.

Maybe @Brandon Turner can help us out with that stat?

Ben Wendt · Answer

@Mike R. This is good advice for landlords and I like the systems you have in place. It takes a potentially stressful problem and creates a system of maintenance so that large problems (problem tenants, trouble with appliances, etc.) never materialize. I think that's the real secret to landlording, and Real Estate generally. The time that you front-load into ensuring the deal/property is the highest quality possible is returned an hundred-fold in smooth management and minimal repairs. Good stuff to read.

Mike R. · Answer

We have 12 doors and manage  all of them ourselves (I find and fix them the wife screens/rents them).  The managing isn't too bad but that is because we typically "gut" each unit.  This ensures everything is new (very few maintainence issues).  We are tough screeners so we ensure we only have responsible tenants, we respond to maintainence issues within 24 hrs, etc.  all of these steps ensure we can manage the properties ourselves.

James DeRoest · Answer

I'd say that was true.

You can do it with less, but if you're trying to take any sort of income, no matter how small, then 3 gets you to a point of continually collecting rents. It's too easy with 2 properties to have both empty at the same time or to be taking an expense on 2 on the same month, with 3, not quite so likely, and so forth.

The more you have, the more the income evens out. (Obviously).

Jeff Gates · Answer

The average of 22 million landlords in the USA is 2.8 properties each.

Michael Wentzel · Answer

@Dave Visaya

I'm not crazy. That's a good start. Hopefully we can track down the quote and/ or statistic behind it.

I've been looking into a new market and even in the first couple of weeks I've come across a bunch of investors burning themselves out trying to manage their own properties. I would hate Real Estate Investing too if I was getting calls on nights and weekends and dealing with disgruntled tenants every week. Even in the local REIA I came across a couple investors with years of experience still bogged down with fixing up and flipping units.

I originally used a property manger because I was overseas. Now I always use property managers so I can scale the business and let them deal with 95% of the issue. Plus, if you find a good one, they are good at what they do. They know rental rates, they know how to advertise and they know how to screen and manage tenants. Best 10% of gross income I have ever spent.

Stressed out landlords are more likely to sell at a discount. So I guess that is good for me.

Anyhow, I need that quote/ statistic.

Mike

Dave Visaya · Answer

Hey @Michael Wentzel yeah I heard this in one episode too and these are the guys who are willing to sell their property rather than managing them.

What percentage of landlords only own 1 or 2 properties?

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