Property Management Company?

Question

Hey Guys,

So as an absentee investor, is the best course of action to select a property management company to do the management of the house? Do they take care of the maintenance and tenant relations?

I understand there are lazy management companies so I was wondering if there alternative methods.

Thanks

Mike McKinzie · Answer

Just to clarify, I managed my first rental myself, I was 20 years old.  I also ran a small management company, managing 100 units, solo, without a computer.  Therefore, I know what to look for in a management company.

As I have posted, while managing, I have dealt with murder, rape, suicide, units burning, the DEA, a 2 year old drowning in a rental pool, pot growers, flees to my knees, roaches raining down on me when I pulled wallpaper down, etc.....  For me personally, I have had my fill of "Property Management."

For all the DIY's out there, I totally respect and honor your decision to take care of your own rentals.  You are absolutely saving money, no doubt there.  Most of you probably even enjoy managing rentals.

It is just not for me.  I even hire someone to change a washer in my personal residence.  I have a house cleaner and a gardener.  Taking care of houses is just not something I enjoy.

Bill Gulley · Answer

Mike makes a good point about being the boss and using a large company, I'd bet too that he keeps his pm happy by buying through them as well.

The down side could be that if you have only one or two properties you may not get much attention, larger clients will naturally come first for a PM.

Which makes a good argument to use a small PM who values your relationship and that you can control. Getting out of a PM contract can be expensive too, I don't know of one in my area that does not require an annual management agreement with a penalty unless they are negligent basically.

And I agree that you need to be close, just a preference no more than a hour away, takes 30 minutes to get across town at times. I'm also in the DIY camp.

Mike McKinzie · Answer

The first thing to know about having a PM is that you must be willing to FIRE them at any time.  Remember, you are the BOSS of your real estate investments.  That means you are the BOSS of your Property Managers.  If they are overcharging you for repairs, call them on it, and fire them if they don't correct it.

It can be rather difficult to "change a washer" from a lounge chair on the deck of a Cruise Ship in the Mediterranean.  It's tough to clear a freezer from 13,000 feet up in the Rocky Mountains chasing Elk.

Some investors like to buy themselves a second job as a handyman, and that is fine, nothing wrong with that.  Other investors want to buy themselves 200 days a year on a Cruise Ship, and nothing wrong with that either.  Still other investors want to buy themselves time to Big Game Fish off of Cabo, and nothing wrong with that either.

But for me, the biggest advantage to having a Property Manager are the deals they bring to me.  Large management companies, those that manage over 1,000 SFR units, always have investors who need to bail for one reason or another.  I am buying one right now where the investor lost his job and needs the cash, so I am buying 10% under market, with a tenant already in it and an easy 10% Cap Rate on an 8 year old house.  The seller saves a 6% - 7% commission and I get a great deal and the management company keeps the unit in their management fold.  Everyone wins!  This PM manages over 5,000 SFR units, so I get deals from them all the time.

With the internet, you can read reviews on just about all Property Management Companies, so do your research and hire a good one.

Ryan M. · Answer

I would never buy more than 20 minutes away but I enjoy when others do because its low hanging fruit when they want out.

Just today, a call came about a fridge that wasn't cooling. I swung by there and found the freezer packed which didn't allow any air circulation, after removing the freezer bottom the vents were frozen to the fridge. Easy fix that probably would have turned into a new fridge with a management company. That's just a example today, I will probably have another before the weekend is over.

Chris Clothier · Answer

Jack  Lee - I'm not sure of too many other ways to go about purchasing investment property as an absentee landlord without using a PM, BUT I know there are investors on here who are successful investing out of area and still managing the properties themselves.

I disagree with Dale Osborn and I am sure he is extremely successful as an investor staying close and managing himself, but good discipline and proper due diligence, there are many investors who do very well using PM's to manage their business.

I cannot emphasize enough how you cannot simply be passive about your investments because you contract with a PM or invest out of area.  Investing in passive real estate to avoid the day to day work does not mean that you do not diligently track your investments and the companies you hire.

There is plenty of advice here on BP about how to hire a good PM company and if you can't find the advice you're looking for, feel free to ask and I'm sure many of us will be happy to share.  Bottom line, believe nothing you are told simply on faith.  Always check and verify before you hire a company and then check and verify again.  You can invest as an absentee owner and do very well if you protect your best interest first.

Jack Lee · Answer

I see. The internet definitely makes finding a PM company better. If I only have 1 rental, a small PM company will be better as long as I confirm it with the client that the maintenance is done right? Collecting rents could be done automatically online so I'm not too worried about that.

Ryan M. · Answer

If its a good deal the management company will pick it up themselves, they know exactly how good it is, they have all the numbers. So at that point its still 2nd pickings if your the next call.

If its a big multi they will either pass or go down their list, so someone that has less than 50 units or so will never get a call.

Ryan M. · Answer

My maintenance team is one phone call away. I can keep someone full time much cheaper than a pm. So as long as I have cell service the number ports to me first. When I'm on vacation, like last weekend, I will take the call dispatch from there. When I want to shut my phone off I port the number to maintenance. I like to know where my money is being spent and make the call how to proceed, not big on giving people blank checks and read about it the next month. This is all multifamily and mobile home parks, we don't touch sf.

For what the job pays and being able to control costs I am completey fine with it.

Ryan M. · Answer

Call came in this morning about a water heater making strange noises. I swung by there and it was a faucet that had a small leak causing the strange noise. Swapped out the washers with ones I keep on my truck and continued on my day.

This stuff eats any cashflow up if using a pm and its business as usual for us.

Jack Lee · Answer

Chris Clothier

Thank you for your response and I agree with you that the limited timespan is risky. The timing of graduate school just happens to fall then for my partner and me.

WIth regards to appreciation, I do believe that I have a certain ability to accomplish it. We are investing in duplexes and quadplexes. It is my understanding that we can simply improve operations and receive a high value based on Cap rate with a limited reliance on whether the area is appreciating.

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